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- [00:02]
A
Good morning everyone and welcome to Julia Spares Moving Markets podcast. It's Monday 6th July and my name is Helen Frear. First of all, I'd like to just quickly mention our latest View beyond podcast which was published over the weekend. In this episode, Bernadette Anderko talks to our head of research in Asia, Mark Matthews, about the US market as the US reached a major milestone of 250 years of independence. On Saturday, they discuss whether US markets can continue to deliver long term outperformance in the face of elevated valuations and global competition. So do have a listen to this one. It's available as usual on this channel, Moving Markets and it's called the view. Will the 4th of July party continue for US markets? But back to today and I'll be talking first of all this morning to my colleague Mike Rauber about the latest market news and what's coming up this week. And then I'll be speaking to Menzel Procinsi, the head of our technical analysis team, to get his latest thoughts from the technical side. So that's coming up in a few minutes, but let's get started with a wrap up of the market news first. Good morning, Mike.
- [01:14]
B
Good morning, Helen.
- [01:16]
A
So last week turned out to be a good one for equities. The S&P 500 was up 1.8%. That's its best weekly performance since early May. And The Euro Stoxx 600 rose 3% to a new record. So what behind these moves?
- [01:35]
B
In short, the markets became more doubtful that the ECB and US Federal Reserve will raise interest rates anytime soon. Now in the eurozone. This was due to the latest inflation reports. Surprising on the downside, while US equities were aided by comments made by Fed Chairman Kevin Warsh that inflation risks have eased and by a weaker than expected labor market report later in the week.
- [02:01]
A
And this backdrop also helped gold rise over 2% to $4,176 per ounce. Does this mean we also saw a weaker dollar?
- [02:13]
B
Indeed, the outlook for easier monetary policy weighed on the dollar, which experienced its worst weekly performance since May. Although the trade weight, the dollar index, remains above 100, a psychologically critical level this year. Meanwhile, the Japanese yen swung between gains and losses and as it hovers around a 35 year low dollar yen is at 162 this morning.
- [02:37]
A
Now, over the weekend, OPEC members decided to add 188,000 barrels a day to their output target for next month in a further rollback of curbs made several years ago. Any reaction to this in the market,
- [02:54]
B
markets largely looked past the decision with Brent crude little changed at $72 per barrel. Now, while OPEC members are showing their intention to increase output, our research expects the supply glut to become a more prominent narrative in the market, putting further downward pressure on oil prices.
- [03:14]
A
All right. Now turning to Asia, I see something of a reversal of recent trends in North Asian equity markets. Hong Kong is higher this morning while South Korea and Japan are lower. What's the story here, Mike?
- [03:28]
B
Markets in Asia remain focused on chips and technology stocks after last week's weakness in semiconductor names. Really a global theme after strong run up in the first half of the year. Now after being down 10% last week, South Korea memory chip company SK Hynix is down over 3% ahead of this week's $29 billion US stock market listing. Separately, Nvidia server assembly partner Honai Precision Industry in Taiwan reported stronger than expected sales, but its shares are only little changed.
- [04:03]
A
Could you tell us a bit more about the Hynix listing of ADR shares in the U.S. please?
- [04:09]
B
At 29 billion, the deal could become the largest ever first time IPO by a foreign company in the U.S. the company is looking to raise money to increase capacity, but it is also intended to close the company's valuation gap with US peers to by giving US investors direct access to its shares. However, it comes at a time when the bank of Korea warned just last week that leveraged single stock ETFs tied to SK Hynix but also Samsung Electronics have grown to an extent that they could increase volatility and one way trading flows in the stocks.
- [04:46]
A
And SpaceX is likely to also make headlines, at least on Wall street, right?
- [04:51]
B
Absolutely. So SpaceX investors have received limited guidance from Wall street firms since last month's record 86 billion IPO. That changes this week when the analyst quiet period expires for the 23 underwriting banks starting tomorrow. So Tuesday, a wave of research reports, price targets and growth forecasts should give investors a clearer view of the stock's prospects.
- [05:16]
A
Okay, what else are we expecting this week then? Mike?
- [05:20]
B
The NATO meeting in Turkey starts on Wednesday. Key issues at the two day meeting will be how members plan to increase military spending and strengthen their defence industries. The economic data run will be peppered with inflation updates. The minutes of the U.S. federal Reserve's rate setting meeting will be published on Wednesday and the ECB's June meeting account a day later in today's economic calendar. Germany factory orders for make are already out. They came in Much better up 1.9% on the months in the U.S. attention will be on the Conference Board's June employment index in the following last week's weaker labor market report. The ISM Services Index will also be closely watched after recent signs of weakness in manufacturing. Elsewhere, S and P Global will release construction PMI data for several major economies, including France, Germany, the UK and the US and lastly, just looking at the Futures Board, US equities are in the green technology seems to be in the lead while Europe, after last week's record, is expected to start flat. That's all from me.
- [06:28]
A
Okay, thank you very much, Mike, for the comprehensive roundup to start the week.
- [06:33]
B
Thank you very much for having me, Helen.
- [06:38]
A
And now over to you, Menzel. Good morning.
- [06:41]
C
Yes, good morning, Caitlin.
- [06:43]
A
And let's start by looking at US Equities Mensor, because many investors are wondering if we're seeing a similar peak to the one in 1999, 2000. What's your view on this?
- [06:56]
C
Yes, we have a few similarities of course, but a few differences. So the differences here of course is that the advance in information technology is not as extreme as in the year 2000. And secondly, the market breadth is quite healthy. So we see that the majority of stocks are still rising. And remember in 1999 basically the majority of stocks were declining. So one other way to look at it is maybe to index the returns of US equities to the launch of Netscape, this famous first Internet browser, and ChatGPT. And if you overlay those two charts or those two timelines, then one could think that maybe, maybe in the cycle it's, it's only 1998, so there is maybe another two years. And of course markets do not repeat one on one, but they rhyme. So the idea or the possibility here is that these, the current bull market could still go into bubble phase. So maybe it's not yet in a bubble and still could go into bubble phase. So what is the conclusion here for investors? The conclus is that rather that it's the year 2000, maybe it's 1998 and therefore I would be a bit cautious here to trim US technology stocks too early.
- [08:19]
A
Okay. Given that the equity bull market is broadening. Any changes in your sector views? Menzel?
- [08:27]
C
Yes, in the sectors basically we see here an improvement of industrials. So we see that industrial stocks are broadening and they have started to up from the overall market. So we have upgraded industrials in the US to overweight. And one other sector to highlight here is basically European financials, which look quite strong from a technical point of view as well.
- [08:52]
A
Okay. And just lastly in the currency market, the Japanese yen continues to weaken. It's trading close to 35 year lows with. What's your technical view on this?
- [09:04]
C
Yes, here we would like to highlight to investors that the Japanese yen is now trading at 35 year lows against the US dollar. And what is important is that the previous prices was basically a one way street where the Japanese yen went from 250 to 150 in a very short period of time. And that's why our focus here is that there is basically not much resistance above 162 in the US dollar Japanese yen. That's why we think the risks are quite high that the Japanese yen could could extend its weakness. And that's why we still recommend to stay, not only stay short the Japanese yen against the broad based basket of currencies including emerging market currencies, but as well, last week we recommended even to sell the Japanese yen against the US Dollar.
- [10:00]
A
All right, thank you very much. Menzel. Great to speak to you again this morning.
- [10:05]
C
Thank you for having me, Helen.
- [10:10]
A
So that is all for today. Thank you again to my guests and thank you all for tuning in. Don't forget to subscribe to the show if you haven't already. And do join us again tomorrow to hear from more of our colleagues about what is moving markets. Have a great start to the week everyone and bye for now. 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 forward/podcasts for further other important legal information.