Is the AI trade the only trade in town?

Global market indices
Currencies
Cryptocurrencies
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 +7.37% MTD +18.29% YTD
Dow Jones Industrial Average +0.38% MTD +3.04% YTD
NYSE -0.64% MTD +6.62% YTD
S&P 500 +3.97% MTD +15.04% YTD

The S&P 500 is +1.22% over the past week, with 6 of the 11 sectors showing positive performance MTD. The Equally Weighted version of the S&P 500 posted a weekly -0.04% decline, its performance is -0.41% MTD and +4.33% YTD.

The S&P 500 Information Technology sector is +12.49% MTD +31.53% YTD, while the Energy sector is -5.07% MTD, while still being +5.02% YTD.

The S&P 500 and the Nasdaq Composite reached new record highs for the consecutive 8th session, buoyed by investor confidence in a potential Fed rate cut this year, in addition to the enthusiasm of the AI trade.

US markets were closed on Wednesday for the Juneteenth public holiday. Despite the closure, futures markets continued to trade. S&P 500 futures contracts experienced a marginal gain of less than 0.1% in late-afternoon trading, while Nasdaq-100 futures rose by 0.2%. Conversely, Dow industrials futures contracts saw a slight decline.

This week the Information Technology sector outperformed within the S&P 500 with a +3.72% gain. Conversely, the Utilities sector underperformed, experiencing a -1.15% decline. On Tuesday, Nvidia's sustained stock price growth propelled it to surpass both Microsoft and Apple and claim the title of the largest US-listed company by market capitalisation.

Markets will be focused on US purchasing managers' surveys on Friday, which are projected to indicate a moderation in both services and manufacturing activity for June.

US stocks

Mega caps: A mixed week for the ‘Magnificent Seven’ as 4 members posted gains, led by Nvidia. Nvidia +8.29%, Tesla +4.27%, Microsoft +1.08% and Apple +0.02%, while Amazon is -2.18%, Meta Platforms -1.84%, and Alphabet -1.52%.

Energy stocks had a negative performance this week as the Energy sector itself was -5.07%, with the sector’s YTD performance standing at +5.02%. Baker Hughes+1.61%, Occidental Petroleum is +1.59%, Marathon Petroleum +1.14%, and Shell +0.13%, while Halliburton -4.69%, Apa Corp (US) -4.53%, ExxonMobil -1.40%, ConocoPhillips -1.33%, Chevron -0.58%, and Phillips 66 -0.12%.

Warren Buffett continues Occidental buying spree. Occidental Petroleum shares rose following additional purchases by Warren Buffett's Berkshire Hathaway. According to a SEC filing, Berkshire acquired approximately 2.9 million shares of the oil company between last Thursday and this past Monday, for a total of roughly $176 million. 

The buying spree has raised Berkshire's ownership stake in Occidental to just under 29%, according to Dow Jones Market Data. Buffett has commended Occidental CEO Vicki Hollub, and has stated that Berkshire does not intend to acquire a controlling interest in the company.

Materials and Mining stocks had a negative week, as the materials sector was -0.38%, with the sector’s YTD performance at +4.10%. Copper prices were -0.43% this week. Newmont Mining is +3.03%, CF Industries +0.82%, and Nucor +0.77%, while Albemarle is -11.64%, Freeport-McMoRan -3.07%, Yara International -2.81%, Sibanye Stillwater -2.65%, and Mosaic -1.52%.

European Stock Indices Price Performance

Stoxx 600 -0.78% MTD +7.34% YTD
DAX -2.32% MTD +7.86% YTD
CAC 40 -5.29% MTD +0.36% YTD
IBEX 35 -2.35% MTD +9.45% YTD
FTSE MIB -3.69% MTD +9.45% YTD
FTSE 100 -0.85% MTD +6.10% YTD

European equities underperformed this week, as the Stoxx 600 is -1.68% with all 11 sectors retreating. The Technology sector is -3.32% down this week, while the Telecom sector is -0.10%.

Paris's CAC 40 declined -0.77%, marking a cumulative -5.29% decrease since the beginning of the month as investor concerns persist regarding the outcome of the parliamentary election. Europe's broader Stoxx 600 index also experienced a -0.17% decrease, while Germany's Dax index dipped by -0.35%.

London's FTSE 100 concluded trading with a +0.17% gain, offsetting a minor sell-off triggered by headline inflation reaching the UK's 2%, despite a higher-than-expected services inflation figure. Conversely, the mid-cap FTSE 250 registered a -0.14% decrease.

Market downturn delays Golden Goose's Milan listing. On Tuesday, Italian luxury sports brand Golden Goose announced it has delayed its planned listing on the Milan stock exchange, a move that would have been one of Europe's most prominent IPOs this year.

The company, owned by British private equity firm Permira, announced it had put the deal on hold due to a "significant deterioration in market conditions" following European parliamentary elections and the announcement of a general election in France. 

The IPO's postponement occurred just one day before its scheduled pricing, and after bankers involved in the deal indicated earlier on Tuesday that the transaction was likely to price towards the lower end of the marketed range.

Golden Goose had aimed to raise approximately €600 million at a market capitalisation of nearly €2 billion.

Other Global Stock Indices Price Performance

MSCI World Index +2.28% MTD +11.19% YTD
Hang Seng +1.27% MTD +7.40% YTD

This week, the Hang Seng Index is +2.07%, while the MSCI World Index is +0.21%.

Currencies

EUR -0.88% MTD -2.64% YTD to $1.0743.
GBP -0.16% MTD -0.09% YTD to $1.2720.

The euro was -0.63% against the USD over the past week, while the British Pound was -0.60%. The Dollar Index at 105.20 is +0.65% up this week and +0.63% MTD +3.94% YTD.

On Wednesday, the euro remained near recent lows amid concerns that a potential new government in France could weaken fiscal discipline, thereby increasing the debt risk premium across the eurozone. The euro edged up +0.1% to $1.0743 on Wednesday, having reached a 1-1/2-month low of $1.07 on Friday. The US Dollar Index remained flat at 105.20. US markets were closed for the day, likely resulting in subdued trading activity.

The British pound strengthened following data that revealed stronger-than-expected UK service inflation. Sterling rose +0.1% against the euro to 84.43 pence per euro and +0.13% against the dollar to $1.2720, buoyed by British data indicating persistent underlying price pressures.

Market expectations for a BoE rate cut in August decreased to around 25% from 50% before the data release, with anticipated monetary easing in 2024 revised down to 44 basis points from nearly half a percentage point. The BoE is expected to keep rates at 5.25% at its meeting later today.

The yen remained relatively stable at ¥157.925 per US dollar, as it continues to face pressure due to the significant interest rate differentials between Japan and the US.

Cryptocurrencies

Bitcoin -3.94% MTD +54.32% YTD to $64,952.70
Ethereum -5.48% MTD +54.83% YTD to $3,568.51

Bitcoin and Ethereum have had a mixed performance over the past 7 days, -2.8% and +2.5%, respectively according to coinmarketcap.com data. Ether has benefitted this week from speculation that the US Securities and Exchange Commission’s scrutiny may be easing. In a posting on X, Consensys, an Ethereum developer, said “the Enforcement Division of the SEC has notified us that it is closing its investigation into Ethereum 2.0.” If true, this indicates that the SEC does view Ether as a commodity and the Ether ETF applications, approved in principle in May by the SEC, are more likely to go forward.

However, Bitcoin’s hit this week may have been due to the US Federal Reserve cutting its rate cut projections this year and keeping interest rates higher for longer. US Spot Bitcoin ETFs saw net outflows of about $714.4 million in four days of trading following the Fed meeting on 12 June. Cumulative total net inflows to Spot Bitcoin ETFs reached $14.81 billion by 18 June according to data from SosoValue.

Note: As of 5:30 pm EDT 19 June 2024

Fixed Income

US 10-year yield -24.7 basis points MTD +37.4 basis points YTD to 4.255%.
German 10-year yield -26.3 basis points MTD +39.9 basis points YTD to 2.408%.
UK 10-year yield -25.2 basis points MTD +53 basis points YTD to 4.069%.

US Treasury 10-year bond yields -6.8 basis points (bps) this week, reaching 4.255%.

Market expectations for a September rate cut by the Federal Reserve have remained largely unchanged, with CME's FedWatch Tool showing a 57.9% probability of a reduction of at least 25 basis points, a minor decrease from the 61.1% recorded last week.

On Wednesday, US bond markets were closed for the Juneteenth holiday.

The benchmark German 10-year yield was -12.3 bps this week, while the UK 10-year yield was -6.2 bps this week. The spread between US 10-year Treasuries and German Bunds currently stands at 184.7 bps, +5.5 bps from last week.

Italian bond yields, a benchmark for the eurozone periphery, were +1.8 bps this week to 3.943%. Consequently, the spread between Italian and German 10-year yields climbed +14.1 bps to 153.5 bps from 139.4 bps last week.

Eurozone government bond yields increased on Wednesday, and the risk premium on French bonds also rose slightly as political uncertainty in France continued to draw attention.

Germany's 10-year bond yield at 2.408%, +1.3 bps on the day. It is about -25 bps from a high of 2.678% reached last week as investors flocked to the safety of German government debt.

The spread between French and German 10-year yields reached 74 bps, falling below the seven-year high of 80 bps reached last week. This spread has widened from under 50 bps since French President Emmanuel Macron called a snap election this month. Concerns over a potential significant shift in France’s government have heightened investor anxiety about France's debt trajectory and fiscal stability.

France's 10-year bond yield was +4 bps to 3.157%, having previously spiked as high as 3.338% last week.

Additionally, the EU announced its intention to initiate disciplinary budget measures against France, Italy, Belgium, and several smaller EU nations due to their excessive budget deficits, mandating a reduction in their shortfalls. Market reaction was subdued, as this move was widely anticipated.

Commodities

Gold spot +0.32% MTD +12.99% YTD to $2,330.40 per ounce.
Silver spot -0.10% MTD +26.28% YTD to $30.42 per ounce.
West Texas Intermediate crude +6.09% MTD +13.60% YTD to $81.67 a barrel.
Brent crude +5.02% MTD +10.57% YTD to $85.27 a barrel.

Spot gold prices are -0.24% this week. Gold prices declined slightly on Wednesday -0.06%.

There was no WTI settlement on Wednesday due to the US holiday. Brent was -0.19% on Wednesday, as concerns over an inventory build appear to be overshadowing fears of escalating geopolitical stress. WTI is +3.96% this week, while Brent is +3.08%.

World Gold Council poll: Central banks pivot towards gold. According to an annual survey conducted by the World Gold Council, an industry promotion group, nearly 60% of central banks in developed economies expect gold's share of global reserves to rise within the next five years, up from 38% last year.

Approximately 13% of advanced economies intend to increase their gold holdings in the coming year, up from around 8% last year, marking the highest level since the survey began. This trend follows the lead of emerging market central banks, which have been the primary buyers of gold since the 2008 global financial crisis.

Central banks added over 1,000 tons of gold to their reserves in both 2022 and 2023, according to the WGC. US sanctions on Russia's dollar-denominated assets prompted a rush among non-western official financial institutions for bullion.

Summer driving season fails to ignite demand. Oil refiners are experiencing diminished profits from gasoline sales as demand during the peak summer driving season has fallen short of expectations. 

In the US, the world's largest gasoline market, refiners significantly ramped up production, anticipating demand that did not materialise. US gasoline demand in the first week of June was 9 million barrels per day (bpd), 1.7% below last year and the seasonally lowest since 2021, according to government data.

In Asia, the weak gasoline market has already led to production cuts, and refiners elsewhere are also likely to follow suit in the coming weeks. This could potentially reduce global demand for crude oil, posing a significant risk to refiners' strategy of maximising output to maintain record profits, given the decline in elevated margins.

Brent oil prices have fallen approximately 8% from a mid-April peak to around $85 per barrel, primarily due to concerns that the OPEC+ producer group will increase supply. The group recently warned that a slow start to the summer driving season and low margins are dampening sentiment.

European gasoline refining margins also declined to $10.80 per barrel on 13th June, the lowest since 25th January. The US gasoline crack spread, the difference between gasoline futures and the cost of WTI crude oil, fell below $22.50 per barrel for the first time since February.

US demand has been affected by various factors, including increased fuel efficiency in cars and the growing popularity of electric vehicles. Higher output from American refineries, coupled with weak demand, has increased US gasoline stockpiles by 5.7 million barrels since early April to 233.5 million barrels by 7th June, the highest for this period since 2021.

US refiners reduced run rates to 95% in the week ending 7th June, after reaching a one-year high of 95.4% the previous week, according to US Energy Information Administration (EIA) data. This marked the first cut since April, and analysts believe further reductions will be necessary if demand remains subdued. The EIA has revised its forecast for US gasoline consumption this year downwards to 8.89 million bpd from an earlier estimate of 8.91 million. 

Margins could receive some support from a slower-than-expected ramp-up of new refineries, such as Mexico's Olmeca refinery in Dos Bocas, which aims to reduce the country's import needs. However, as of May, Dos Bocas was behind schedule and had not produced commercially viable gasoline and diesel. In Nigeria, the Dangote refinery has also delayed gasoline deliveries until July.

The market must still adjust to supply growth from new and expanded refineries, which have boosted fuel exports from the Middle East, India, and China. Indian and Chinese refiners are leveraging access to discounted Russian oil, and their increased supplies are likely to maintain downward pressure on Asian gasoline cracks throughout the summer. 

Chinese gasoline exports grew by approximately 100,000 bpd in May compared to April, reaching around 350,000 bpd by the end of last month, according to Wood Mackenzie. Indian gasoline exports averaged 360,000 bpd in May, up 50,000 bpd from the previous month.

Note: As of 5:30 pm EDT 19 June 2024

Key data to move markets this week

EUROPE

Thursday: Eurogroup meeting, German PPI, ECB Economic Bulletin, and eurozone Consumer Confidence.
Friday: EcoFin meeting, German HCOB Composite, Manufacturing and Services PMIs and Eurozone HCOB Composite, Manufacturing and Services PMIs.
Sunday: A speech by ECB executive board member Isabel Schnabel.
Monday: German IFO Business Climate, Current Assessment and Expectations Surveys, 
Tuesday: Eurogroup Meeting and Spanish GDP.
Wednesday: German Gfk Consumer Confidence. 

UK

Thursday: BoE Monetary Policy Decision, BoE Monetary Policy Report and Gfk Consumer Confidence.
Friday: Retail Sales and S&P Global/CIPS Composite, Manufacturing and Services PMIs.

US

Thursday: Initial jobless claims, housing starts, building permits, Philadelphia Fed Manufacturing Survey, and a speech by Minneapolis Fed President Neel Kashkari.
Friday: A speech by San Francisco Fed President Mary Daly, S&P Global Composite, Manufacturing and Services PMIs and Existing Home Sales.
Monday: A speech by San Francisco Fed President Mary Daly.
Tuesday: Housing Price Index and Consumer Confidence.
Wednesday: New Home Sales Change, Bank Stress Test Info.

JAPAN

Wednesday: Large Retailer Sales and Retail Trade.

Global Macro Updates

UK inflation cools, but will it be enough for a BoE rate cut? The May inflation update for the UK revealed a further easing of price pressures, although services prices remained persistent. The headline inflation rate was +2.0% y/o/y, aligning with consensus expectations and down from April’s +2.3%. This is the lowest headline rate since July 2021. Core inflation came in at +3.5%, in line with forecasts and down from April’s +3.9%. However, services inflation was +5.7%, exceeding the consensus forecast of +5.5%, but lower than April’s +5.9%.

The Office for National Statistics (ONS) noted that food prices contributed the most to the downward trend, while motor fuels and transport costs exerted the largest upward pressures. The persistence of services inflation is likely to cause the Bank of England (BoE) to adopt a cautious approach and keep rates at a 16-year high of 5.25%. The MPC is likely to harbour concerns over wage growth as private-sector wage growth is almost twice the rate the BoE judges as compatible with its 2% inflation target. The BoE forecasts inflation to reach 2.6% by the end of the year. 

Previous remarks from the BoE suggested that if services prices align with their projections, the central bank could potentially cut rates later this year. Nevertheless, markets are pricing in only a 30% chance of a rate cut in August, with a first move more likely in September.

EU fiscal discipline threatens post-election spending plans in France. On Wednesday, the European Commission declared that France and six other countries should face disciplinary action for exceeding EU budget deficit limits, with deadlines for rectifying the imbalances to be established in November.

This action is likely to constrain any additional spending plans by the French government that emerges from the upcoming election, due to take place in two rounds, on 30th June and 7th July. This constraint will particularly complicate the National Rally (NR) of Marine Le Pen's ability to fulfil promises of increased public expenditure and a lowered pension age, despite the party's current lead in opinion polls.

The other countries identified by the EU executive are Belgium, Italy, Hungary, Malta, Poland, and Slovakia. Their deficits primarily stem from the COVID pandemic and the subsequent energy price crisis triggered by Russia's 2022 invasion of Ukraine.

Italy, the EU's third-largest economy, has a debt level of approximately 138% of GDP and growth of less than 1%. "Italy’s Economy Minister, Giancarlo Giorgetti, responded to the action by stating, “We are aware that, given the context we find ourselves in, it is necessary to maintain a responsible approach in planning and managing budget policy." 

The EU will utilise its excessive deficit procedure for the first time since suspending its fiscal rules in 2020 due to the impacts of COVID-19 on regional economies. The framework has since been reformed to address the new economic realities of high post-pandemic debt. The Commission will initiate discussions this Friday by presenting its own fiscal consolidation proposals to governments.

France's 2023 budget gap of 5.5% of GDP is forecast to narrow only slightly to 5.3% this year, exceeding the EU's 3% of GDP deficit limit. French public debt stood at 110.6% of GDP in 2023, and the Commission projects it to rise to 112.4% this year and 113.8% in 2025, well above the EU's 60% limit. Negotiations between Paris and the Commission on the pace of deficit and debt reduction will follow the EU executive's proposal of a seven-year plan for France to reduce its debt.

Investor pressure is likely to be a decisive factor in governments adhering to consolidation paths agreed upon with the Commission, as the EU executive has signalled it will not revert to imposing penalties for missed targets.

Theoretically, if a government fails to consolidate its finances as agreed, the Commission could withhold EU post-pandemic funds and money intended to equalise living standards within the bloc, potentially amounting to billions of euros.

PBoC changes yuan midpoint. The People's Bank of China (PBoC) established the yuan midpoint at its weakest level since November 2023 earlier today, reigniting speculation that authorities are relaxing control over the currency. The offshore yuan subsequently fell to a six-month low before partially recovering its losses. PBoC Governor Pan Gongsheng remarked on Wednesday that China will resolutely prevent the yuan exchange rate from overshooting. However, the prospect of authorities permitting significant yuan depreciation is considered unlikely due to longstanding concerns regarding capital outflows.

The PBoC's decision to set the yuan midpoint at a weaker level may indicate a deliberate attempt to stimulate exports and bolster economic growth. Nevertheless, any substantial depreciation could trigger capital flight, as investors seek higher returns in other currencies. Given China's historical sensitivity to capital outflows and their potential destabilising effects on the economy, it is expected that the PBoC will maintain a relatively tight grip on the yuan's exchange rate. While allowing for some flexibility, the central bank is likely to intervene in the market to prevent excessive depreciation and maintain stability.

Relief as Brazil's central bank shows a united front on pausing the easing cycle. In a unanimous decision on Wednesday, Brazil's central bank opted to halt its rate-cutting cycle, citing elevated inflation expectations, market reactions to fiscal challenges in Brasilia, and a revised outlook for US rate cuts.

The bank's rate-setting committee, known as Copom, maintained the Selic benchmark interest rate at 10.50%. This united front marked a significant departure from the divided decision in May, when directors appointed by the current government dissented from slowing the pace of rate cuts, thereby unsettling markets with questions about the monetary policy outlook.

The decision aligned with market expectations, and the unanimous vote provided some relief regarding concerns about potential political interference in the central bank's operations.

The policy meeting was closely watched after President Luiz Inácio Lula da Silva's remarks on Tuesday, wherein he identified central bank policy as the sole "thing out of place" in Brazil, renewing his direct criticism of bank chief Roberto Campos Neto. Many interpreted these comments as pressure on board members to support a rate cut, as Lula contemplates a successor for Campos Neto, whose term expires in December.

In May, the central bank moderated the pace of monetary easing with a 25-basis-point cut, following six reductions of double that magnitude. The May Copom decision was a close split, with Lula's four appointees on the nine-member committee advocating for a larger cut.

This division caused market inflation expectations to diverge from the official 3% target, raising concerns that once Lula appoints a majority of the board next year, the central bank might adopt a more lenient stance in combating inflation.

However, at this meeting, all Copom members voted to maintain interest rates, including monetary policy director Gabriel Galipolo, considered a leading candidate to replace Campos Neto.

Brazil's currency has weakened this month, affected by the prospect of prolonged high US borrowing costs and the government's struggles to balance public accounts, with Brazil's President Lula emphasising his refusal to allow fiscal discipline to harm the poor. Copom acknowledged in its statement on Wednesday that, "The Committee monitors closely how the recent developments on the fiscal side impact monetary policy and financial assets."

The central bank revised its inflation projections upwards to 4.0% for this year and 3.4% for 2025, based on market forecasts for interest rates, from previous estimates of 3.8% and 3.3%, respectively. Policymakers also presented an alternative scenario with steady interest rates, resulting in inflation projections of 4.0% in 2024 and 3.1% next year.

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