How will policy divergence hit valuations?

How will policy divergence hit valuations?

Global market indices
Fixed Income
Commodity sector news
Key data to move markets this week
Global macro updates

Global market indices

US Stock Indices Price Performance

Nasdaq 100 +0.64% MTD +10.87% YTD
Dow Jones Industrial Average +0.31% MTD +2.97% YTD
NYSE -0.21% MTD +7.08% YTD
S&P 500 +1.45% MTD +12.25% YTD

The S&P 500 +1.65% over the past week, with 6 of the 11 sectors having exhibited positive performance MTD. The Equally Weighted version of the S&P 500 posted a weekly +1.54%, its performance is -0.20% MTD +4.54% YTD.

The S&P 500 Information Technology sector is the leading sector this month, up +4.11% MTD +21.74% YTD, while the Energy sector has exhibited the weakest performance at -3.55% MTD +6.69% YTD.

US stock markets experienced a significant upswing on Wednesday, with the S&P 500 and Nasdaq Composite reaching unprecedented heights driven by a robust performance in the Information Technology technology sector.

Nvidia achieved a historic $3 trillion market valuation on Wednesday, with its share price surging over 5%. The S&P 500 and the tech-centric Nasdaq Composite concluded the day at all-time highs, marking their 25th and 13th record closes respectively for the year 2024. The Dow Jones Industrial Average, despite not including Nvidia, also saw an upward trajectory.

The S&P 500 was +1.18% on Wednesday, while the Nasdaq was +1.96%, resulting in a YTD gain of +14.50%. The Dow Jones Industrial Average was +0.25% on Wednesday, equivalent to approximately 96 points.

Market participants are now eagerly anticipating the nonfarm payrolls report scheduled for release on Friday.

In the corporate front, Hewlett Packard Enterprise shares experienced an 11% ascent following the company's announcement of surpassing analysts' expectations and raising its full-year guidance. Cybersecurity firm CrowdStrike also witnessed a 12% surge in its share price due to a reported increase in quarterly revenue and an upward revision of its guidance.

Conversely, Brown-Forman shares declined by 5.9% after the company disclosed a larger-than-anticipated drop in quarterly sales. Dollar Tree shares also faced a 4.9% decrease following news that the retailer is contemplating the potential sale or spinoff of Family Dollar.

US stocks

Mega caps: A mixed week for the ‘Magnificent Seven’ due to high expectations of the AI rally broadening and becoming an essential element of the Magnificent Seven story. Nvidia +6.63%, Meta Platforms +4.36%, and Apple +2.93%, while Microsoft -1.20%, Tesla -0.68%, Amazon -0.41%, and Alphabet -0.28% were the members who lost ground.

Nvidia's share price surged by 5.16% on Wednesday, propelling its market capitalisation to surpass $3 trillion, as per Dow Jones Market Data. The chip manufacturer, whose stock has become synonymous with the artificial intelligence boom, achieved the distinction of being the third US company to reach this significant milestone, following in the footsteps of Apple and Microsoft. As noted by the Financial Times, on Wednesday it was valued at about 42 times its expected earnings over the next 12 months. That is up from about 23 times forward earnings at the start of the year and is well above Apple’s 29x.

Apple has also played a pivotal role in driving major indexes recently. The iPhone maker's shares experienced an eighth consecutive day of gains, +0.78%, culminating in a market valuation exceeding $3 trillion for the first time since January.

Energy stocks had a negative week this week as the Energy sector itself was -0.92%, lessening the sector’s YTD performance to +6.69%. Halliburton -6.51%, Shell -3.00%, ConocoPhillips -2.62%, Occidental Petroleum -2.09%, Chevron -1.22%, Apa Corp (US) -0.58%, Phillips 66 -0.58%, Baker Hughes -0.56%, and ExxonMobil -0.45%, while Marathon Petroleum +0.85%.

Materials and Mining stocks had a positive week, as the materials sector was +0.80%, increasing the sector’s YTD performance to +5.42%. Copper prices rebounded this week, trading above a key threshold of $10,000 per metric ton on improving demand prospects as investors gain confidence in US rate cuts this year. Aluminium, Nickel, and Zinc also advanced this week on signs that China’s manufacturing base is improving with the Caixin/S&P Global manufacturing PMI rising to 51.7 in May from 51.4 the previous month, the highest since June 2022. However, Sibanye Stillwater -9.76%, Freeport-McMoRan -4.32%, Yara International -4.28%, Albemarle -3.88%, Nucor -2.95%, Mosaic -2.15%, Newmont Mining -1.30%, and CF Industries -0.35%.

According to Refinitiv, Newmont Mining CEO Tom Parker said earlier today that he expected further consolidation driven by demand for metals such as copper needed in the energy transition and pointed to artificial intelligence as a surprisingly large new source of copper demand.

European Stock Indices Price Performance

Stoxx 600 +0.59% MTD +8.82% YTD
DAX +0.42% MTD +10.89% YTD
CAC 40 +0.17% MTD +6.14% YTD
IBEX 35 +0.27% MTD +12.38% YTD
FTSE MIB +0.04% MTD +13.69% YTD
FTSE 100 -0.34% MTD +6.64% YTD

European equities have had a mixed performance, with the Information Technology sector emerging as the clear leader. ASML Holding garnered significant attention following positive feedback from its CFO regarding discussions with TSMC during a small group call, as reported by Jefferies. This development, coupled with Foxconn's robust monthly sales figures and an optimistic outlook, further bolstered the technology sector.

Consequently, ASML Holding became Europe’s second-biggest listed company, overtaking LVMH by market value for the first time ever. Its share prices were +8.1% on Wednesday, valuing the company that produces equipment needed to make the most sophisticated semiconductors at about €377 billion ($410 billion).

In the Healthcare sector, AstraZeneca saw a slight increase in its share price after finalising the acquisition of Fusion Pharmaceuticals. However, Elekta, a Swedish medical technology company, faced a setback as its Q1 EPS of SEK 1.15 fell short of the consensus estimate of SEK 1.51.

The Retail sector was also up, with Inditex experiencing a sharp rise in its share price following better-than-expected Q1 results. The company reported a 4.7% increase in sales and a 12% y/o/y growth in store and online sales in constant currency between 1st May and 3rd June. Additionally, the company provided optimistic guidance for the fiscal year, including a stable gross margin. Similarly, Smiths Group expressed confidence in its positioning for the peak summer season, anticipating strong travel demand.

The Banking and Real Estate sectors experienced a downturn due to uncertainty around future ECB moves after today’s anticipated 25 basis point rate cut. The Basic Resources sector also faced pressure due to a weakening commodity complex.

On Wednesday, London's FTSE 100 index concluded the trading day +0.18% at 8,246.95. This increase follows UK PMI data that showed the services sector continued to support economic expansion.

European markets also experienced gains, with Germany's DAX and France's CAC 40 closing +0.93% and +0.87%, respectively.

Other Global Stock Indices Price Performance

MSCI World Index +1.08% MTD +10.74% YTD
Hang Seng +1.91% MTD +8.08% YTD

This week, the Hang Seng Index decreased by -0.28%, while the MSCI World Index increased by +1.18%.


EUR +0.32% MTD -1.47% YTD to $1.0866
GBP +0.45% MTD +0.50% YTD to $1.2758

The euro was +0.69% against the USD over the past week, while the British Pound was +0.77%.

The British pound strengthened by +0.17% on Wednesday, reaching $1.2758, having reached $1.2817 on Tuesday, marking its highest level since 14th March. The euro was +0.12%, reaching $1.0865, as traders awaited insights from the ECB's meeting later today. The euro's strengthening against the dollar comes as investors reduced their expectations of significant further rate cuts this year given the rise in May’s inflation to 2.6% from April’s 2.4%, while simultaneously slightly increasing bets on monetary easing in the US. Although policymakers have strongly signalled a rate cut today, they have refrained from specifying the timing of subsequent cuts. Markets are currently pricing in about 63 basis points of cuts this year.

Market sentiment indicates a probability of over 50% for a 25 bps reduction in the BoE's interest rates by September, with an additional 35 bps cut anticipated by the end of the year. This projection implies a single cut in the near term, with a 40% likelihood of a second adjustment in 2024.

This week, the UK's economic calendar remains relatively sparse, with the notable exception being the BoE's Decision Maker Panel report on inflation expectations, set to be released on Thursday.

The Canadian dollar depreciated to nearly a two-week low against the US dollar on Wednesday fueled by investor speculation that the Bank of Canada (BoC) would implement further interest rate cuts following its decision yesterday to ease rates for the first time in over four years. The BoC reduced its key policy rate by 25 bps to 4.75%. The Canadian dollar was trading 0.26% lower at 1.3717 against the US dollar, or 72.94 US cents, after reaching its weakest intraday level since 23rd May at 1.3741.

According to swap market data, investors perceive a roughly 40% probability of another 25 bps reduction at the bank's next meeting on 24th July, with a cut fully priced in by September.

The Dollar Index this week is -0.38%, and -0.43% MTD, however it maintains a YTD gain of +2.85%.


Bitcoin +5.29% MTD +69.14% YTD to $71,032.00.
Ethereum +2.61% MTD +68.10% YTD to $3,859.60.

Bitcoin and Ethereum have been in positive territory over the past week, gaining +5.16% and +2.49%, respectively. 

Net flows to Spot Bitcoin exchange traded funds reached their highest level, over $880 million on Tuesday, the second highest daily level in their five-month history. Bitcoin surpassed the $71,000 mark on Wednesday, its highest level since March. The SEC approval of a rules change that would list Spot Ethereum ETFs has helped push up the price of Ether to levels not seen since early 2022.

Note: As of 6:30 pm EDT 5 June 2024

Fixed Income

US 10-year yield -12.2 basis points MTD +34.4 basis points YTD to 4.280%.
German 10-year yield -15.6 basis points MTD +50.6 basis points YTD to 2.515%.
UK 10-year yield -13.6 basis points MTD +64.6 basis points YTD to 4.185%.
US Treasury 10-year bond yields declined by -41.1 basis points (bps) this week, reaching 4.280%.

US Treasury yields were down on Wednesday, with the 10-year yield reaching a two-month low, following a report suggesting weaker-than-anticipated job growth in advance of Friday's highly awaited nonfarm payrolls report for May.

The week has witnessed a notable decrease in yields as softening economic data fuels expectations of two 25 bps cuts by the Fed this year. The ADP Employment Report released on Wednesday revealed a 152,000 increase in private payrolls last month, falling short of economists' forecasts of 175,000 job gains.

The 10-year US Treasury note experienced its fifth consecutive trading day of decline on Wednesday, -5 basis points to settle at 4.280%, its lowest level since March. The yield on the two-year note was -4 basis points, reaching 4.731% and touching 4.726%, the lowest since 16th May.

However, yields briefly rebounded on Wednesday following the Institute for Supply Management's report, which indicated an increase in its non-manufacturing PMI to 53.8 last month from 49.4 in April.

The bond market rally this week has been further supported by a lack of new bond supply, following last week's Treasury auctions that witnessed subdued demand.

The benchmark German 10-year yield was -17.9 bps, while the UK 10-year yield was -22.6 bps to 4.185% this week. The spread between US 10-year Treasuries and German Bunds currently stands at 176.5 bps, down from around 220 bps in mid-April and a -16 bps decrease from 192.5 bps last week.

Italian bond yields, a benchmark for the eurozone periphery, experienced a decline of -20.6 bps to 3.819%. Consequently, the spread between Italian and German 10-year yields was -2.7 bps to 130.4 bps from 133.1 bps last week.

While markets widely anticipate a June rate cut by the ECB, the subsequent trajectory remains uncertain. Money market traders are pricing around 63 bps of cuts this year, implying two quarter-point moves and around a 50% chance of a third cut.


Gold spot +1.34% MTD +14.14% YTD to $2,354.10 per ounce.
Silver spot -0.97% MTD +25.24% YTD to $30.17 per ounce.
West Texas Intermediate crude -4.83% MTD +1.91% YTD to $73.26 a barrel.
Brent crude -2.88% MTD +2.25% YTD to $78.77 a barrel.

Gold prices increased by 1.21% on Wednesday as the dollar and Treasury yields retreated on rising bets that US interest rate cuts may start as early as September, while investors await Friday’s non-farm payrolls report for further indications of future Fed policy actions.

Spot gold prices climbed +0.73% this week.

US oil inventories rise. In the week ending 31 May, US crude oil stockpiles unexpectedly increased by 1.2 million barrels to 455.9 million barrels, defying analysts' predictions of a 2.3 million-barrel decrease, according to the Energy Information Administration's (EIA) report released Wednesday. Despite consistent production and net imports, crude stocks grew due to an upward adjustment of 1.3 million barrels in the EIA's balancing figure. This adjustment factor reconciles discrepancies between supply and demand data.

Following the data release, crude oil futures experienced a slight uptick, with Brent rising 1.1% to $78.34 a barrel and WTI increasing 1.2% to $74.09 a barrel.

Refinery crude runs saw an increase of 61,000 barrels per day, reaching 17.1 million bpd, the highest level since December 2019. Refinery utilisation rates also climbed by 1.1% to 95.4% of total capacity, marking the strongest level in a year. Gulf Coast refinery utilisation similarly reached its highest point since June 2023.

Gasoline stocks rose by 2.1 million barrels to 230.9 million barrels, slightly exceeding forecasts of a 2 million-barrel build. However, gasoline supplied, an indicator of demand, decreased by 203,000 bpd to 8.9 million bpd. Distillate stockpiles, encompassing diesel and heating oil, increased by 3.2 million barrels to 122.5 million barrels, surpassing expectations of a 2.5 million-barrel rise. US diesel futures rose by 0.8% in response to the report, while gasoline futures saw a 0.2% increase.

The EIA further reported that crude stocks at the Cushing, Oklahoma delivery hub for the US benchmark increased by 854,000 barrels.

OPEC+ responds to bearish signals. At the St Petersburg International Economic Forum in Russia on Thursday, Saudi Energy Minister Prince Abdulaziz bin Salman reiterated Sunday's agreement to gradually reduce about 2 million barrels a day of production cuts starting in October and retains the option to pause or reverse production changes if necessary.

Note: As of 6 pm EDT 5 June 2024

Key data to move markets this week


Thursday: German Factory Orders, eurozone Retail Sales, ECB’s Rate on Deposit Facility, Monetary Policy Statement and Press Conference.
Friday: European Parliament Election, German Industrial Production and Trade Balance, eurozone’s Employment Change and GDP, and speeches by Bundebank’s Joachim Nagel, ECB’s President Christine Lagarde and ECB’s Executive Board Member Isabel Schnabel.
Monday: Sentix Investor Confidence.
Wednesday: German CPI and Harmonised Index of Consumer Prices, and speeches by Bundebank’s Joachim Nagel, and ECB’s Governing Council member François Villeroy.
Thursday: Eurogroup Meeting, Spanish Harmonised Index of Consumer Prices and CPI, and eurozone Industrial Production.


Thursday: S&P Global/CIPS Construction PMIs.
Friday: NIESR GDP Estimate.
Tuesday: Average Earnings, Claimant Count Change, Employment Change, and ILO Unemployment Rate.
Wednesday: GDP, Industrial Production, and Manufacturing Production.


Thursday: Initial and Continuing Jobless Claims, Challenger Job Cuts, Nonfarm Productivity, and Unit Labor Costs.
Friday: Average Hourly Earnings, Labor Force Participation, Nonfarm Payrolls, Unemployment Rate, and a speech by Fed Governor Lisa Cook.
Tuesday: Redbook Index, OPEC Monthly Market Report.
Wednesday: CPI, Core CPI, Fed Funds Rate Decision, Fed Monetary Policy Statement, FOMC Economic Projections, and FOMC Press Conference.
Thursday: Initial and Continuing Jobless Claims, Producer Price Index, and a speech by New York Fed Governor John Williams.


Friday: Exports, Imports and Trade Balance.
Wednesday: CPI and PPI.


Thursday: Foreign Reserves.
Sunday: GDP.

Global Macro Updates

ADP report indicates modest private payroll gains in May, revision to April data. In May, US private payrolls experienced a less-than-anticipated increase, while data for the previous month underwent a downward revision, according to a report released on Wednesday. The ADP Employment report indicated a rise of 152,000 private payrolls last month, following a downwardly revised increase of 188,000 in April. This figure fell short of economists' forecasts, who had predicted an increase of 175,000 private-sector jobs.

This report serves as further evidence that employment remains resilient, although recent data suggests the labour market is gradually softening. The Labor Department reported on Tuesday that job openings in April reached their lowest level in over three years, with the ratio of vacancies to unemployed individuals returning to pre-pandemic levels.

Friday’s Non-farm payrolls are expected to be 170,000 private-sector jobs last month, largely unchanged from April's 167,000, while total payroll growth is projected to reach 185,000, compared to 175,000 in April. The unemployment rate is expected to remain steady at 3.9%, with annual wage increases holding firm at 3.9%.

ECB expected to ease monetary policy, fueling economic recovery despite inflation risks. The eurozone anticipates a significant economic boost on Thursday, as the European Central Bank (ECB) is projected to initiate interest rate cuts for the first time in nearly five years. The extent of this stimulus will hinge on the magnitude of future reductions in borrowing costs. However, inflation moved sideways in May to 2.6% from April’s 2.4%, suggesting that wage growth is still a problem for the ECB. This could potentially limit the number of future rate cuts.

With markets considering an initial rate cut as a foregone conclusion, investors will closely scrutinise ECB President Christine Lagarde's remarks for clues regarding the future trajectory of monetary policy. By resuming rate reductions, the central bank aims to revitalise housing markets, stimulate business investment, and encourage consumer spending.

The eurozone economy has shown tentative signs of recovery in the first quarter of this year, with gross domestic product expanding by 0.3% from the previous quarter, thereby ending a year of stagnation. This growth spurt largely stemmed from the waning impact of energy and food price shocks following Russia's invasion of Ukraine, as well as a rebound in global trade.

The anticipation of rate cuts has also contributed to lower mortgage and corporate loan costs, potentially leading to a stabilisation of housing markets, a resurgence in housebuilding, and a potential recovery in investment. In Germany, for instance, house prices experienced a 10% decline after the ECB initiated rate hikes in 2022. However, this year has witnessed a stabilisation in prices, following a decrease in 10-year mortgage rates from nearly 4% last October to below 3.2%, according to mortgage broker Dr Klein.

With this move, the ECB will join the central banks of Canada, Sweden, and Switzerland in cutting rates, significantly outpacing the Fed. However, what initially appeared to be the commencement of a substantial easing cycle now seems less certain, as recent indicators suggest that inflation in the euro area may prove more persistent than anticipated, mirroring the situation in the United States. Consequently, ECB President Christine Lagarde and her colleagues are unlikely to commit to further rate reductions at their July meeting or beyond.

A primary challenge for Lagarde is the interruption of the steady decline in inflation from its peak of over 10% in 2022. The eurozone's robust labour market is sustaining price pressures, with collective wage growth rebounding to a record pace of 4.7% in the first quarter, and unemployment in the bloc reaching a new low of 6.4% in April.

The ECB will likely need to revise its inflation forecast of 2.3% for this year and its GDP growth prediction of 0.6% upward. Coupled with indications that the Fed is unlikely to initiate rate cuts for several months, if at all this year, due to a strong US economy, investors have tempered their expectations to fewer than three quarter-point cuts by the ECB this year.

Influential members of the ECB's rate-setting governing council have already hinted at a gradual easing pace, with only two additional rate cuts likely this year. ECB Chief Economist Philip Lane stated last month that rates are expected to "move down somewhat" over the year while remaining in "restrictive territory," which most economists interpret as staying above 3%. Similarly, Dutch central bank chief Klaas Knot indicated that, based on the ECB's latest forecasts, its models suggested "the optimal policy would have been broadly in line with three to four rate cuts" by year-end.

The ECB is relying on a combination of slowing wage growth, increasing worker productivity, and shrinking company profit margins to achieve its 2% inflation target by next summer. However, if these trends fail to materialise and inflation remains uncomfortably high, policymakers may be compelled to pause after the initial rate cuts.

Given the prevailing uncertainty regarding the economic outlook, Lagarde is widely expected to refrain from providing explicit guidance on the likely policy path, allowing the central bank to maintain maximum flexibility on the extent of rate cuts for as long as possible.

While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication.

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