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- [00:02]
A
Welcome to Julius Baer's Moving Markets podcast on Tuesday 2nd June with me, Bernadette and Dareko. I'm looking forward to catching up with the latest in financial markets news with my colleague Lucia Czechulovic this morning. And then we'll be joined by our head of Next Generation research, Carsten Menker, to discuss a theme that's never far from investors minds cyber security. So stay tuned for that. Now though, let's catch up with what's been going on in the markets in the last 24 hours. Good morning, Lucia.
- [00:33]
B
Good morning, Bernadette.
- [00:35]
A
Yesterday brought a bit of a mixed bag, didn't it? We had some economic signals alongside simmering geopolitical tensions in the Middle East. We also heard conflicting reports around potential peace talks. How did all of that play into the markets?
- [00:48]
B
Well, it was quite an eventful session. Early reports suggested Iran stopped peace talks and could even block the Strait of Hormuz completely. That pushed oil prices up more more than 5%. And even though President Trump later said that talks were continuing at a rapid pace, oil didn't really give much of that move back yesterday. I see. However, the prices are trading lower this morning. Now treasury yields edged higher too yesterday, reflecting the broader uncertainty.
- [01:19]
A
Okay, why don't we move on to equities, starting with Europe. Markets there closed in the red, didn't they?
- [01:25]
B
They did. The Stoxx 600 finished around 0.7% lower with middle east tensions. Clearly we on sentiment. That said, there was one notable bright spot and that was the tech sector. Softbank's pledge to invest 45 billion euros into French AI infrastructure provided a real boost. The stocks Europe Tech index rose about 1 1/2 percent, reaching levels we haven't seen since late 2020.
- [01:53]
A
And how did things look across the pond?
- [01:55]
B
In the US that was quite a different picture actually. US equities were stronger. All three major averages notched new intraday all time high and closing records. Nvidia was a big driver, helped by the launch of a new PC chip. Aside from tech, energy was the only other sector in positive territory, which isn't surprising given the move higher in oil.
- [02:20]
A
And we also had quite a bit of macro data yesterday, didn't we? Why don't we start in Asia where manufacturing seems to be holding up well despite the geopolitical backdrop. So what's going on there?
- [02:30]
B
While there is actually a clear theme of resilience across Asia, manufacturers are actively trying to get ahead of potential disruptions, increasing production and stockpiling materials. China's manufacturing PMI came in at 51.8, comfortably in expansion territory, which shows underlying strength. And in South Korea, PMI jumped to a five year high, largely driven by strong semiconductor demand linked to AI investment.
- [03:01]
A
And turning a little bit closer to home. Switzerland released its Q1 GDP figures yesterday. What did those reveal?
- [03:08]
B
So, growth came in at 0.4% for Q1, which was slightly below expectations. What's interesting though, is that the growth was largely driven by government spending, which suggests that the private sector was already starting to lose momentum even before the full impact of the Iran situation began to feed through. Now, having said that, there are a few encouraging signs. Retail sales picked up in April, and both manufacturing and services PMIs improved quite notably in May. So there's a sense we could be seeing a bit of a spring rebound.
- [03:44]
A
Okay, that sounds somewhat encouraging. The Eurozone picture, though, was a bit more mixed, especially on the manufacturing side.
- [03:51]
B
Right, Exactly. The Eurozone manufacturing PMI slipped to 51.6, still in expansion territory, but clearly slowing compared to April. Demand is easing, particularly on the export side. At the same time, input costs are rising quite sharply. They're now at their highest levels in four years. And manufacturers are passing those costs on, with selling prices rising at the fastest pace in about three and a half years. And that's fueling concerns around inflation. On top of that, supply chains remain under pressure. Delivery times are the longest since mid-2022. But despite all this, Bernadette, companies are still cautiously optimistic, although employment in the sector has now declined for a third consecutive year.
- [04:39]
A
Meanwhile, the US Manufacturing sector appears to be gaining traction.
- [04:43]
B
Yes, and quite convincingly. The ISM manufacturing index rose to 54. That's its strongest reading in four years. The recovery is being supported by several increased investment in AI, favorable tax incentives, and a more stable trade backdrop. We're seeing new orders pick up and production stepping higher. All of which point to a solid momentum in the sector.
- [05:08]
A
Right, then why don't we look at a couple of the corporate headlines, starting with Berkshire Hathaway, that's acquiring Taylor Morrison. What does that tell us?
- [05:17]
B
Yeah, this is a notable development. It's the first major acquisition under Greg Abel, who is Warren Buffett's successor. And it represents confidence in the US Housing market, despite current headwinds like higher mortgage rates. It's a sizable deal valued at US$6.8 billion.
- [05:35]
A
All right, and another one anthropic. Another AI player has confidentially filed for an IPO, right?
- [05:41]
B
That's right. It sets the stage for what could be a very large listing. Early indications suggest Devaluation could potentially potentially exceed US$1 trillion. And it comes ahead of rival OpenAI's IPO and amidst all the SpaceX headlines. So it's a closely watched race to reach public markets.
- [05:59]
A
All right, why don't we turn to the overnight session, Lucia? I mean, I see Asia Pacific markets mostly lower with ongoing uncertainty around these Middle east peace talks clearly weighing on sentiment. But that said, China and South Korea did stand out as bright spots with a Hang Seng up close to 2% when I last checked. But looking ahead, what should investors focus on today?
- [06:19]
B
So we will see preliminary CPI data from the Eurozone later this morning, which will provide insights into inflationary trends. Then in the afternoon, the US Jolts job openings report will offer clues about the health of the US labor market. We will also be listening out for remarks from bank of England Governor Andrew Bailey, which could influence expectations around UK rates. Aside from that, it's a fairly quiet calendar today and for now, US futures are pointing lower.
- [06:51]
A
Super. Thank you very much for bringing us the news roundup this morning.
- [06:54]
B
Lucio, thanks for having me.
- [06:59]
A
Now it's time to talk to Carsten. Good morning to you.
- [07:01]
B
Hello.
- [07:02]
C
Good morning.
- [07:03]
A
I said at the beginning we're going to talk about cyber security today. I think it's one of the more popular themes among investors and after being drawn into this software sell off earlier in the year, it's performed very well as of late.
- [07:15]
C
Yes, indeed. So the disruption of the software sector by Genentech AI, I think is one of the most intensively discussed topics in the market since the start of the year. As a result, we've seen this quite broad based sell off in software which also pulled our next generation cybersecurity index lower. That said, the declines for cybersecurity were much more muted than for software, supporting our view that mission critical and enterprise embedded services such as cybersecurity should remain more resilient. And by now I think the market seems to agree. So as you said, cybersecurity had a remarkable rebound, rising around 65% from its low in mid April.
- [07:59]
A
Well, that is impressive. So what's behind the rebound then?
- [08:03]
C
From our point of view, it's three factors. First, providers of AI agents struck a collaborative tone with the cybersecurity industry, not a confrontational one. Anthropic. I think we have to mention them here. They released their cloud Mythos model to some cybersecurity companies, which I think is a very, very positive sign. They also announced a project called Glasswind that enables the cybersecurity industry to jointly evaluate next generation AI tools with them. Second, cybersecurity companies broadly exceeded expectations during the recent earnings season, dismissing fears of disruption. I think among the constituents of our index there was only one company which marginally missed expectations. And then third and last, some companies had been heavily shorted due to an anticipated disruption. But following the better than expected earnings season, some of these shorts had to be covered as the so called investment case did not play out. So short sellers were caught on the wrong foot, further fueling this rebound.
- [09:11]
A
And how do you see the theme going forward, Carsten? What's the long term outlook for cybersecurity in this age of AI?
- [09:18]
C
Well, most importantly, cybersecurity is mission critical, even more so in the age of AI. And while AI expands the toolkit of the attackers, it also expands the toolkit of the defenders, with attackers often one step ahead. Cybersecurity has always been a cat and mouse game. The history of the industry is also one of creative destruction. So over time established solutions have become obsolete because they could no longer cope with the evolving threat landscape. And with the advent of AI enriched cybersecurity, providers of legacy solutions risk falling further behind, while those that embrace it are much more likely to lead.
- [10:00]
A
And from an investment point of view,
- [10:02]
C
we remain constructive on the cybersecurity theme, but we're also aware that the rebound could result in short term consolidation.
- [10:09]
A
Okay, clear message there. Carsten, thanks as ever for joining us.
- [10:13]
C
Thanks a lot for having me.
- [10:17]
A
Well, that's it for today's podcast. Thank you all for listening and of course thanks to Lucia and Carsten for joining the show today. Please do tune in again tomorrow when Luzia will be back, but this time as your host and she will be talking to more of our experts to bring you up to speed on what's moving markets. So don't miss that. Meanwhile, good luck today and goodbye for now.
- [10:45]
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.