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- [00:01]
A
Good morning everyone, and welcome to Julius Baer's Moving Markets podcast. It's Friday 10th July, and my name is Helen Frear. As always, we will kick things off today with the latest financial market news this morning provided by my colleague Bernadette and Dirko. And then I'll be catching up with Dario Messi on bond markets and all the latest developments there. But first up with the market news, it is Bernadette. Good morning, Bernadette.
- [00:29]
B
Morning, Helen.
- [00:30]
A
Why don't we start with the latest developments in the Middle east as they seem to really dictate a lot of the market mood these days.
- [00:37]
B
Yes, Helen. After Trump said at the NATO summit in Turkey that the ceasefire with Iran was over, a US Official yesterday told the media that technical talks between the US and Iran are continuing and the US remains committed to finding a solution to the conflict. All this despite, obviously the two countries trading airstrikes in recent days. On his way back from the summit, Trump said that Iran had called to make a deal to cease the escalating hostilities in the Middle East. And so for now it seems at least that talks are continuing. Oil prices have come down, of course, with that, some sense of inflation fears.
- [01:13]
A
Okay, so how did markets close in the US Yesterday then?
- [01:17]
B
Well, I'll leave bonds to Dario. But stocks rallied. They were definitely aided by these cooling oil prices and clearly by Trump's comments about Iran wanting to make a deal. A rally. Chip makers also helped to boost the indices. Many investors now remaining hopeful that strong earnings growth will help the stock market broaden out beyond tech and continue its upward advance. So after a pullback earlier this week, I think investors just saw an opportunity to buy the dip, betting that the upcoming earnings season is going to reinforce expectations for resilient AI driven growth. The NASDAQ composite was the best performer stateside, rising 1.3% yesterday. S&P 500 up 0.8%. And the Dow Jones also closed higher by 0.3%.
- [01:57]
A
And what's been the story in Asia overnight?
- [01:59]
B
Yeah, well, the positive sentiment from the US session definitely spilled over into Asian technology shares in South Korea. Samsung Electronics gained 4.3%. Samsung SDI was up 8.3%. And SK Hynix was up 1.3% ahead of its US market debut today. South Korea's Kospi moved from bear market territory just a day ago to being back in favor, jumping 4.5%. And the small capcosdaq advanced almost 6%. Hong Kong's Hang Seng index was around 1 and a half percent. Higher, possibly heading for its best week of the year so far. And mainland China's CSI 300 gained 0.4%. Japan's SoftBank Group surged more than 11%. And chip equipment makers like Advantest, Renesas Electronics and Tokyo Electron all rose between 3 and 4%.
- [02:47]
A
Okay, and Japan very much in the headlines again, right?
- [02:51]
B
Yes, indeed. We had comments from the Japanese Finance Minister Satsuki Katayama, and they sent the yen higher. The yen gain about 0.5% to about 161.65 per dollar. Japan's longer maturity sovereign bonds also saw their prices rise after Katayama said that the government wants to encourage pension funds to increase investment in domestic financial assets. The Nikkei was up one and a half percent when I last looked. Just as a note, the government pension investment fund, the GPIF, is the world's largest pension fund and it manage $1.8 trillion equivalent in assets at the end of March. And any shift in its portfolio strategy will clearly reverberate across global financial markets. So should the GPIF put more money into yen denominated bonds and other domestic assets? Well, clearly it could be a game changer for Japanese markets.
- [03:40]
A
Okay then, let's catch up now on what happened closer to home in Europe yesterday.
- [03:45]
B
Yeah, well, European shares managed to snap a three day losing streak. So the Euro Stoxx 600 ended up just shy of 0.8% yesterday. That means year to date it's up over 8%. And that was also boosted by a rebound in tech stocks. And meanwhile Spanish stocks outperformed the region. They were up 1.1% from a three week low on Wednesday. And this was after. Yes, you've guessed it. US President Donald Trump said that Spain had been very generous after he'd threatened to halt trade with it. So it looks like that spat between Spain and the US President is being ironed out.
- [04:18]
A
All right, and just before I let you go, what should we be looking out for in the day ahead? Bernadette?
- [04:24]
B
It's a quiet day data wise, so I suspect geopolitics will be driving markets today. But obviously I mentioned it earlier. Investors are awaiting this US listing of SK Hynix today. The South Korean chipmaker, well exploded earlier this year on massive demand for memory, is pricing its American depository receipts at $149 each. That's raising US$26.5 billion. The largest ever US first time share sale by a foreign company. The ADR sale ended up more than seven times oversubscribed. They're be to trade so called when issued today and we'll begin regular way trading on Monday. So I think everyone will be looking out to see what happens to the prices there. Meanwhile, US Markets looking set for a slightly flat to perhaps slightly lower open today. That's it from me, Helen.
- [05:10]
A
Wonderful. Thank you very much, Bernadette, for the great roundup this morning.
- [05:14]
B
Thanks for having me. Have a lovely weekend.
- [05:19]
A
And now over to you, Dario. Good morning. Welcome to the podcast.
- [05:23]
C
Hello. Good morning, Helen.
- [05:25]
A
Maybe you could start, Dario, by talking about what has changed in bond markets since we last spoke on the podcast.
- [05:31]
C
Yeah, well, I mean you heard Bernadette and she mentioned specifically also the equity market. In the bond market, it's obviously not different. The main change is that geopolitical risk has moved back to the bond market discussion. Remember over the recent weeks I was actually arguing how investors had been looking beyond oil price dynamics and were more or actually only focused on labor market data and central bank communication. But yes, I mean, the latest escalation reminded markets, bond markets, that the energy prices can still matter very, very quickly. And this is also why the initial reaction was not kind of the classic risk of rallying bonds. Instead, we saw yields moving higher, the kind of the typical channel of fears of higher energy costs, stickier inflation, and eventually this also then reinforcing this kind of hawkish bias that we have by central banks. This move was also particularly visible in European rates also now when we had some retracement, more in the US than in Europe. But I have to say at least part of the first move has eased somewhat from the immediate spike, which by itself I would say suggests that markets are already reassessing this kind of first reaction.
- [06:52]
A
And does this change our fixed income view then?
- [06:55]
C
No. In short, no, we do not think that this changes the strategic fixed income view. The reason is that I mean geopolitical escalation and de escalation for that matter have become a recurring feature in any negotiation process. We shouldn't have expected anything else to start with, or let's put it like this, it will for sure anyway be an unsmooth process. And markets often react very quickly at first, especially when oil price move. But these moves can also reverse quite quickly once negotiations, diplomatic signals or any kind of supply conditions become clear. We also think, and I think this is equally critical, that the current level of yields, so not just the recent dynamics, but the level that we have now is not only about geopolitics, but it really also reflects the dynamics that we have beforehand. So a more resilient US labor market and also the fact that central banks are still sounding quite cautious or quite hawkish in that sense. So in other words, investors have already priced in a relatively hawkish central bank backdrop. And that matters because if a lot of the hawkishness is already embedded in yields, the risk reward for adding duration is still quite compelling in my view.
- [08:17]
A
Okay, where does this all leave investors then?
- [08:21]
C
Well, different things to consider here, I think. First, the key message, as always, is not to chase the geopolitical headlines. I think this is something that typically is not really a very wise idea in terms of investment strategy for portfolios that are already appropriately positioned in duration. With this slight overweight, we would just stay the course for portfolios that are still underexposed. So the ones that didn't engage yet with the idea to adding some duration in portfolios, the recent backup in yields may offer a better entry point to add there, particularly also in the euro duration space. There we had a move above 3% in the 10 year bond, which makes basically valuations more compelling again. But the important point is that it's overall not kind of a call here to just ignore geopolitical risk. I mean, this is always here. It is more kind of a call to try to separate this temporary market noise and directly acting on it from the broader investment case. So in summary, we believe that the case for an overweight duration position still remains very much intact.
- [09:34]
A
Very good. Thank you, Dario. Great to speak to you again this morning.
- [09:38]
C
Thank you, Helen, for inviting me.
- [09:40]
A
So that is all for today. Thank you again to my guest this morning and thank you all for tuning in. Please subscribe to our show if you enjoy it and you can of course also leave us a review on whichever platform you like to listen on. So we'll be back again on Monday morning. Do join us then. Mike Rauber will be in the hosting seat on Monday and he'll be joined by more of our colleagues to talk about what is moving markets. But until then, I wish you all a great day and then a great weekend. Bye for now. The information and opinions expressed in this
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B
podcast constitute marketing material and are not
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A
the result of independent financial or investment research.
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B
Please refer to www.juliusbear.com legal podcasts for
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A
further other important legal.