US equities continue to make new highs as Eurozone markets are undermined by the uncertain outcome of the upcoming French election. The MPC kept rates unchanged as investors worry whether rates will be cut at the August 1st meeting.
So, what do we know?
(A forex, index, and commodity market review)
Weekly change (amount change and percentage change on the week)
FTSE +66 +0.81%
DAX +190 +1.05%
DOW +692 +1.80%
S&P +50 +0.92%
NASDQ +107 +0.54%
NIKKEI Unchanged
Hang Seng +183 +1.03%
Eurozone markets continue to fret over the possibility of a far-right government run by Marine Le Pen, the leader of RN which polls put at 34% whilst the left alliance has improved slightly to 29% whilst Macron’s centrist alliance trails with 22%. Last Thursday’s poll by Harris puts RN on course to win 235 to 280 seats in Parliament, which is short of the 289 seats needed to govern. This provided bond markets with some relief as the greatest concern is that RN achieves an outsight majority of seats. By Friday’s close, the CAC40 was 1.8% up on the week but not enough to offset the fall of 6% the previous week.
US markets pushed higher into record territory as NVIDIA continued its remarkable run by becoming the most valuable publicly listed company in the world at $3.34 Trln, pushing Microsoft and Apple into second and third spots. The boom in AI continues to drive NVIDIA higher as the frenzy in the prospects for the company drives the stock to all time highs withy little pause since the start of the year. In fact, according to the FT, the rise in NVIDIA stock price accounts for a third of the S&P500 gains year-to-date. Despite the frenzy in NVIDIA, the FT also reports that over half the AI stocks that boomed last year, have in fact declined as many AI stocks fail to back up the hype with actual results.
The mood in the US markets in general remained positive last week with data painting a rosier picture. The recent CPI data has encouraged investors to bet that there will be two rate cuts this year despite the FOMC saying that they expect to cuts rates just once this year. The current projections imply a cut in September followed by a second cut in December. The PCE data due out this week is expected to show core prices declining to 2.6% from 2.8%.
UK CPI data out last week, hit the Bank of England’s target of 2%, which is the first time the measure has been at this level in three years. The inflation rate in the UK is now below both the eurozone and the US, despite the UK hitting peak inflation at 11.1%, far higher than both the EU and the US. Whilst the headline number was good, investors remained concerned that the stubbornly high service
sector inflation will prevent the BoE from being more dovish on rates. The MPC kept interest rates unchanged at 5.25% last week whilst expectations for the first rate cut in August fell slightly to 33% from 45% following the release of the inflation data.
EURUSD -0.12 -0.11%
GBPUSD -0.43 -0.34%
USDJPY +2.38 +1.51%
The US Dollar strengthened last week as better than expected manufacturing and service data for May pushed the probability of a second rate cut in December lower by 6%. Sterling ticked higher following the inflation data but fell against the USD following the general uptick in the US Dollar’s fortunes. The Japanese Yen fell every day last week, closing out the week just shy of the 160 level, the multi-year low reached briefly at the end of April. The prospects for a further increase in interest rates by the BoJ looks uncertain, despite Governor Ueda stating that the BoJ had not ruled out a rate hike next month.
Gold -11 -0.47%
UK OIL +2.15 +2.62%
US OIL +2.48 +3.18%
Oil markets rallied last week, touching levels last seen on 1st May this year as ongoing middle east tensions and supply constraints due to persistent threats to shipping in the Red Sea, Ukrainian strikes on Russian refineries and U.S. refinery maintenance.
Gold edged lower last week as the US Dollar ticked higher but Chinese and more general central bank buying demand continues to support the markets.
This week’s data and events to watch out for.
A quiet data for data releases with the highlight of the week being the US PCE price data due out on Friday.
Monday
US FOMC member, Christopehr Waller, delivering the opening remarks at the Intl Journal of Central Banking Research Conference in Rome. Waller is regarded as a dove on rates. USD sensitive.
Germany IFO Business Climate survey. Large survey of manufacturers, builders, wholesalers, services, and retailers. The mood in the Eurozone bloc’s largest economy has improved over the past three months. The index is expected to remain unchanged from last month’s reading. Euro sensitive.
Tuesday
US Conference Board Consumer Confidence. The first of two readings of consumer confidence this week. Expected unchanged from last month’s reading. USD and US assets sensitive.
Wednesday
No key data due out
Thursday
UK Andrew Bailey, Governor of the Bank of England, holding a press conference about the Financial Stability Report. No effect on GBP or UK assets.
US Final GDP reading for Q1. With the majority of data in, the bureau publishes its third and final report. Slight uptick expected to 1.4% but far lower than Q4 2023. Little impact expected as most analysts are now focused on what the numbers will look like for Q2.
US First Presidential Election debate. Starring President Joe Biden and past President Donald Trump. The outcome is uncertain as is the election on 5th November. With UK and French elections over the next two weeks much will be changing this year with new leaders probable in all three.
Friday
US Core PCE Price Index. Personal Consumption Expenditure price index – the preferred measure of inflation used by the FOMC. Expected Core rate expected at 2.6% down from 2.8% in April; this would tie in with the official CPI data released two weeks ago. US Dollar and US assets sensitive to this release as it will have a direct impact on the decision making process within the FOMC.
