A Day Ahead View in US and Global Markets by Mike Dolan
Global investors head into the semester this week trying to convey myriad political narratives, a technology setback and a reopening of the transatlantic divide in business activity.
Add in Friday’s imminent release of the Federal Reserve’s preferred PCE inflation gauge and a continued slide in Japan’s yen and China’s yuan and it’s a brighter summer than buoyant first-half world market numbers might have said. suggest.
The shakeout in artificial intelligence leader Nvidia last week, which saw its shares fall about 10% from new records by the end of the week, likely owes much to profit-taking on its skyrocketing rise – and perhaps also something to do with Friday’s major futures contracts and options expiration.
But with the US presidential television debate this Thursday likely to kick off speculation surrounding the outcome of the November elections, the final week of the first half of the year potentially ushers in a change of tone.
Politics also dominates in Europe, with the first round of parliamentary elections in France this weekend and Britain going to the polls on July 4.
So far, at least on Monday, election anxiety has not disturbed markets much. European stocks rose, Britain’s FTSE rose and US stock futures were marginally positive before the bell. However, the VIX volatility gauge reached its highest level of the month.
This is partly due to renewed hopes of a reduction in interest rates in Europe and the United States – where the May PCE release is expected to re-emphasize that disinflation has resumed.
But the latest analysis of economic and business health readings for June again showed a sharp divergence in fortunes on both sides of the Atlantic.
Flash business surveys for the euro zone and Britain showed that overall activity slowed much more than anticipated this month – only remaining in expansionary territory in June.
But equivalent polls in the US have accelerated and show a much faster pace of growth.
ECONOMIC SURPRISE INDEX BECOMES NEGATIVE
Adding to the confusion, and perhaps greater comfort that more interest rate cuts are coming in the second half of the year, is the fact that the aggregate global economic surprise index has turned negative, for the worst reading in almost a year.
Furthermore, business hesitancy in Europe was underlined on Monday when the German Ifo institute showed that business morale had unexpectedly fallen. The Ifo business climate index fell to 88.6 in June from 89.3 in May, compared with a forecast reading of 89.7.
But the real market price action was in the Japanese yen, which slid back to near 160 to the dollar – close to the 34-year low of 160.245 set in April before the Bank of Japan stepped in to support it.
Japan’s top foreign exchange diplomat, Masato Kanda, said on Monday that authorities would take appropriate action if there was excessive currency movement and that Japan’s addition to the U.S. Treasury’s “monitoring list” would not constrain its actions.
Last week, the Treasury said no major trading partners appeared to have manipulated their currency last year, but it added Japan to a currency monitoring list alongside China, Vietnam, Taiwan, Malaysia, Singapore and Germany, which were on the previous list.
Meanwhile, a summary of views at the Bank of Japan’s monetary policy meeting in June showed that some policymakers called for a timely increase in interest rates as they saw a risk of inflation exceeding expectations.
Although Japan’s Nikkei absorbed the weak yen and rose 0.5%, signs of renewed foreign capital flight and rising global trade tensions caused China’s struggling markets to underperform again.
The mainland CSI300 fell 0.5% on Monday and the offshore yuan reached its weakest level of the year.
In company news, Apple’s App Store rules violate EU technology rules because they prevent app developers from directing consumers to alternative offerings, EU antitrust regulators said on Monday, a charge that could result in a heavy fine for the iPhone maker.
Other big movers included Eurofins Scientific, which fell as much as 19% after short seller Muddy Waters said he took a short position in the French testing company.
British Prudential rose 6.3% after the insurance group launched a share buyback program worth $2 billion.
Key developments expected to provide further guidance to US markets later on Monday:
* Dallas Fed manufacturing survey for June
* Federal Reserve Governor Christopher Waller speaks in Rome, San Francisco President Mary Daly speaks; Bank of Canada Governor Tiff Macklem speaks
* US Treasury auctions 3-month and 6-month notes
* US Corporate Profits: Beyond Air, MoneyHero
(Reporting by Mike Dolan, Editing by Alex Richardson mike.dolan@thomsonreuters.com)
