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- [00:02]
A
Good morning everyone and welcome to Julius Baer's Moving Markets Podcast. It's Thursday 16th July and my name is Helen Frear filling us in on the latest in financial markets. I will speak first of all this morning to Mike Rauber and my second guest today will be Norbert Rooker and we'll be talking about commodities. So that is coming up shortly. But over to you first of all Mike, for the market news. Good morning.
- [00:33]
B
Good morning, Helen.
- [00:35]
A
Let's start with Europe. Markets here were fairly stable despite heightened geopolitical concerns stemming from the Middle East. The pan European Stoxx 600 ended the day largely unchanged. But we did see some strong earnings reports, right?
- [00:51]
B
Yes, indeed, Helen. There were some standout earnings reports. Swiss luxury company richemont beat expectations 20% sales growth, almost double analyst forecasts and that pushed the stock up nearly 7%. ASML, Europe's most valuable company and a critical semiconductor supplier also surprised positively. It raised its annual sales outlook for the second time this year on strong AI driven chip demand. However, after initially gaining more than 3%, the shares finished day unchanged.
- [01:26]
A
This reflects broader weakness in semiconductor stocks after a record run that they've had this year.
- [01:32]
B
What's behind this ANI is about valuations and so volatility is very high. Yesterday in the US micron technology fell 8%. Now the weakness was on the back of IBM's sharp decline earlier in the week. One concern is that heavy spending on AI infrastructure could be crowding out investment in other core IT areas, raising questions about how sustainable and broad the current AI driven spending cycle will be.
- [02:02]
A
But despite this weakness in semiconductor stocks, the broad indices gained with the NASDAQ up 0.6% and the S&P 500 rising 0.5%. Can you give us a few more details here please Mike?
- [02:16]
B
Sure. So Omega Cap Tech stocks led gains in particular Apple. The stock gained 4% after receiving approval to launch Apple Intelligence in China, a potential boost in the world's most competitive smartphone market. The China version incorporates Alibaba technology to support regulatory approval of large language model updates. Also, financials are a very bright spot in this earnings season. BlackRock led the sector higher yesterday with its shares surging nearly 7%. It reported record assets on the management of more than $15 trillion for the first time.
- [02:57]
A
Now let's move on to fixed income. What's been happening with bonds and treasury yields?
- [03:03]
B
They've been drifting lower as signs of easing. Inflation is showing up softer than expected. CPI on Tuesday and producer price data yesterday have reinforced expectations of a benign June Core PCE reading so supporting the case for the US Federal Reserve to keep rates on hold. In congressional testimony, Fed Chair Kevin Warsh noted that while the AI investment boom could temporarily lift prices, it is unlikely to drive sustained inflation.
- [03:34]
A
So a bit of reassurance on the inflation front?
- [03:38]
B
Precisely. The latest Beige book released yesterday showed only modest price pressures across most regions in the US Reinforcing this week's inflation data, while US Economic activity expanded at a slight to moderate pace in recent weeks.
- [03:55]
A
Okay, let's look at Asia now. South Korea's central bank raised interest rates for the first time in three and a half years and signalled further hikes, adding pressure on equities there. At the same time, weakness in US Semiconductor stocks has spilled over to SK Hynix and Samsung Electronics. Are these the main drivers when we look at today's declines?
- [04:19]
B
I believe so. So the shares in the two companies are down around 8 to 10%, although they're fluctuating widely. Potentially contributing to the move today also is that regulators in South Korea announced that they will look into measures to address the volatility caused by leveraged ETFs linked to these very same companies amid concerns that their moves and daily rebalancing amplify market swings.
- [04:45]
A
And also in Asia, I see Japan's Nikkei 225 is also lower with weakness around the AI investment theme. It's down nearly 3%. But in what is somewhat of a rotation from winners to losers this year, Hong Kong's Hang Seng is up 2%. And you mentioned the Apple deal before involving Alibaba, which is up nearly 5%. Let's talk now about currencies and commodities. What's the news there?
- [05:11]
B
The dollar is little changed after recent losses driven by the easing rate expectations. Amid the weaker inflation figures. Gold is down nearly half a percent to just above $4,000 per ounce, while oil is reversing an overnight jump following renewed US strikes in Iran. Brent oil is around $85 a barrel. Markets are acknowledging geopolitical risks but have yet to price in a sustained rise in oil prices, it seems, though I do look forward to Norbert on that shortly.
- [05:44]
A
And I also saw that the Bloomberg British pound index reached a one year high yesterday. What can you tell us about this? Mike?
- [05:52]
B
The latest strength follows reports that incoming UK Prime Minister Andy Berman will name Shabana Mahmoud as his Chancellor of the Exchequer. She is from the socially and more fiscally conservative blue Labour wing of the Labour Party. This is lessening somewhat the concerns about a spendthrift Burnham led Labour government.
- [06:12]
A
All right, just lastly then, what can we expect today?
- [06:16]
B
Later this morning we will get the final June Eurozone inflation reading. And in the US the University of Michigan's consumer sentiment index. On the earnings front, Taiwan Semiconductors already reported and beat expectations with its shares rising more than 1% in Taiwan. Let's see if this supports the semiconductor industry after the recent weakness that I mentioned before. And in Switzerland, ABB reported better than expected operating margins. And in the US later on we expect earnings from Netflix just to single out one company. And that's all from me.
- [06:51]
A
Very good. Thank you very much, Mike. Great to speak to you today.
- [06:54]
B
Thank you very much for having me, Helen.
- [07:00]
A
And now on to you. Norbert, Good morning. Firstly.
- [07:04]
C
Good morning, Alan.
- [07:05]
A
The focus has been very much back on the straight of Hormuz with the hostilities escalating again, oil prices climbed above $80. What is your take on the situation? Norbert?
- [07:18]
C
Well, we obviously ask ourselves if this is a road bump in this conflict or if it's really a U turn, so really a serious re escalation. The hostilities, they're quite intense. It's a tense attacks and we now have again a blockade against Iranian oil. But if you look at to assess the situation, if you look at the attacks themselves, they so far focus on military infrastructure that we also have ships continuing to transit at the Strait of Hormuz. Just midweek we had more or less 20 ships in each direction. And then there's also the surprise US Tariff demand. And if you take last year as a guide and the tariff conflict, this might in fact signal an openness to deal making from the US side. So our best guess is that things are really in flux and that we are still in this negotiation phase of this conflict.
- [08:06]
A
Okay, so do you think we should be worried, might this evolve into much longer lasting disruption?
- [08:14]
C
Well, such conflicts are not linear and I think you've seen this over the past month with this initial outbreak and then a very swift normalization and now a bit of an escalation again. So the least likely scenario is likely that things don't stay the way they are today. If you look at what happened over the past weeks, the past month there was really a flush of oil and other products that came out of the the Gulf. And this really kind of creates a buffer to absorb a disruption that we see now that might be lasting a bit longer. But most importantly, there's been lots of pragmatism especially that led to the normalization of the situation back in June. And this pragmatism the build over this month is unlikely to reverse and disappear again. And maybe that's already what we see in this pickup in transit. So we have all these rockets and missiles flying everywhere but nevertheless you see quite some activity in. So maybe this already hints at this pragmatism. And if you zoom out oil at 85 or somewhere around 85, that's quite a reasonable sanguine oil price level. It's nothing close to something that would really create challenges for inflation or challenges for growth. And I guess that's something that we learned over the past months or earlier this year that oil prices really need to jump very high into the triple digits, the high hundreds, to really have a meaningful impact and really test the resilience of global growth. So we see limited risk from the situation today. And that's why we stick also to a cautious view, acknowledging that there's uncertainty in the near term. But the situation so far does not alter change the picture of the longer term outlook for abundant supplies in the oil market.
- [10:04]
A
What also caught my attention is that natural gas prices are almost back up at the crisis highs from March. But oil, why is there such a difference here?
- [10:16]
C
Yeah, that's interesting. That's really something very few people actually talk about or seem to notice. So if you look at the natural gas price at the global gas price, it's more or less almost the same level as we had the initial outbreak of this Iran war. Well, there's some reasons in that unlike oil which has the alternative routes, there's few alternative routes for liquefied natural gas out of the Gulf. So to the things that currently go on, there's somewhat of a higher vulnerability in the natural gas market and natural gas supply chain. Then we are also in the summer season, which means there's lots of cooling demand, lots of power demand, and there's some concerns if there's some heat waves here and there that this lifts especially in Asia demand. If you look at Europe, storage levels are still below normal. So there's like an uptick on concerns that will we fill storage up in time for the winter heating season, which is just a few months basically away. And all these concerns have basically reason why we stuck to our neutral view on gas while we have a cautious view on oil. But the important thing is that most likely there's no major disruption. And the important thing, very important thing is there's really from economic perspective there's no pass through of this higher prices in Europe into the power market, into electricity prices because of the energy transition, because natural gas power Plants just are called upon less and less hours during a day because there's so much renewables in the grid that these concerns eventually will disappear. And for us, if you look at today's natural gas price, it seems to rather be richly pricing in these risks.
- [11:56]
A
All right, anything else to watch in commodities at the moment?
- [12:00]
C
Yeah, there's also quite some discussion or focus on gold. Gold prices have been under pressure, so they dropped from somewhere around 5,000 to almost US$4,000 an ounce. The driving force behind this have been concerns about increasing interest rates, especially out of North America. We have seen somewhat of that. But the interesting thing is what happens basically this week. So we had the confirmation that inflation rather is easing, that the pressure rather is easing, but nevertheless there was no relief in gold. So it seems as if the investors really are watching themselves, that everyone's watching, wondering what investors going to be doing next. Because the gold price really depends a lot currently on investor demand. We have seen a flush out of the traders. They're unlikely coming back. So those that really had the momentum trading, we see a bit of outflows of the physical backed products we would expect as this slows and eventually ticks up. But things are a bit in limbo in gold until long term. We should see that buying from the central banks continues and this provides some stability for the gold price. So we stick to our constructive view. There's. That's it from commodities.
- [13:10]
A
Very good. Thanks a lot, Norbert. Very interesting to talk to you this morning. As always.
- [13:14]
C
Thanks for having me.
- [13:19]
A
So that's it for today. Thank you again to Mike and Norbert and to you, our listeners, for tuning in. I hope you enjoyed the show. If you did, then make sure you subscribe if you haven't already. And please join us again tomorrow when I'll be back with more of my colleagues to talk about what is moving markets. Until then though, have a great day everyone and bye for now.
- [13:48]
D
The information and opinions expressed in this podcast constitute marketing material and are not the result of independent financial or investment research. Please refer to www.juliusbear.com legal podcasts for further other important legal information.