Rates and politics cast a shadow over markets

US equities closed in the red on Friday, as the S&P 500 dipped 0.1%, the Nasdaq slid 0.2%, and the Dow Jones fell by 87 points. Strong nonfarm payrolls data heightened concerns of postponed Fed rate cuts. Despite sectoral gains, real estate, materials, and utilities lagged. However, the S&P 500 gained 1.1% for the week, the Nasdaq surged 1.6%, and the Dow added 0.5%. Meanwhile, European equities saw a slight dip on Friday, with the Stoxx 50 slipping 0.3% to 5,053. Notable losses in industrials and utilities contrasted with the resilience of tech shares, exemplified by ASML’s impressive 10% surge driven by strong TSMC orders throughout the week. 

Summary for 10.06.2024 

• Asian equity markets were mixed on Monday, with Japan’s shares rising due to better-than-expected economic data. South Korean equities fell, influenced by strong US jobs data reducing the likelihood of US rate cuts. Markets in Australia, Hong Kong, and China were closed for holidays. 

• Equity markets in Europe are expected to open lower as politics cast a shadow over markets in the region. Elsewhere, US equity index futures eased slightly as investors awaited the Federal Reserve meeting and key inflation data later in the week. 

• European Parliament elections dealt significant blows to leaders in France and Germany, prompting Emmanuel Macron to call a surprise legislative ballot for the end of June. Macron’s centrist party was projected to finish with less than half the support of Marine Le Pen’s far-right National Rally, which is set to become the leading French party. The euro dipped 0.4% against the US dollar, its lowest in a month, amid reduced expectations of ECB rate cuts. French bond futures fell, lagging behind German counterparts. 

• Japan’s GDP shrank 0.5% qoq in Q1, reversing from 0.1% growth in Q4. Private consumption fell for the fourth quarter in a row due to high living costs and a January earthquake. Capital expenditure remained weak, and net trade detracted from GDP. Government spending grew by 0.2%. 

• Data last Friday showed the US unemployment rate rising to 4% in May 2024, the highest since January 2022, surprising markets. However, nonfarm payrolls exceeded forecasts, adding 272K jobs, with notable gains in healthcare, government, and leisure sectors. Average hourly earnings also rose more than anticipated by 0.4%. 

• In the first quarter of 2024, the Eurozone economy rebounded with a 0.3% expansion, driven by strong net trade and a 1.4% rise in exports. However, gross fixed capital formation declined by 1.5%, while government expenditure stalled. Euro Area employment grew by 0.3%, aligning with earlier expectations, with Romania and Malta showing the strongest growth. 

• Elliott Investment Management has taken a nearly $2 billion stake in Southwest Airlines, signalling intentions to advocate for changes aimed at reversing the airline’s underperformance, reports say. The activist investor plans to engage with Southwest’s management to enhance shareholder returns amidst challenges like higher costs and slower revenue growth. 

• Warren Buffett’s Berkshire Hathaway acquired approximately 2.57 million shares of Occidental Petroleum between 5^th to 7^th June, totalling over $150 million. Berkshire now owns around 250.6 million shares, representing about a 28% stake in Occidental. The energy company also formed a joint venture with Berkshire’s energy unit to extract lithium in California. 

• Visa and Mastercard are facing new lawsuits in London over fees charged to retailers, following a tribunal’s ruling allowing collective cases to proceed. The lawsuits, brought by hundreds of claimants, allege overcharging. The tribunal certified the cases, subject to any representations by other interested parties. 

• DocuSign beat Wall Street estimates for Q1 with adjusted EPS of $0.82 and revenue of $709.6 million, but shares fell 4.7% on Friday. Despite the beat, guidance for Q2 and the full year was mixed, leading analysts to note potential challenges for sustained growth and the need for additional revenue streams. 

• Taiwan Semiconductor Manufacturing reported a 30% increase in May sales, reaching the equivalent of $7.1 billion, attributed to strong demand for AI and a rebound in consumer electronics sectors. TSMC’s high margins are supported by its role as a key supplier for Nvidia, Microsoft, Apple, and AMD, with CEO C.C. Wei optimistic about AI-driven recovery. 

• Keith Gill, known as “Roaring Kitty,” failed to reignite investor interest in GameStop during his first livestream in three years. Amid his disclaimer-filled discussion and warnings, GameStop’s shares continued their 40% slump after announcing a $3 billion share sale, ending at $28.22 amidst volatile trading. 

• Volkswagen is considering external investment options for its energy and charging division, with the possibility of a standalone future for the unit. Board member Thomas Schmall stated openness to different options, including a potential listing of the business, to facilitate external capital inflows. 

• Private equity firm KKR & Co, cybersecurity company CrowdStrike, and internet services provider GoDaddy will join the S&P 500 on 24^th June, replacing Robert Half, Comerica, and Illumina. CrowdStrike rose 5.3% in extended trading on Friday, while KKR and GoDaddy climbed 7.8% and 3.7%, respectively. Robert Half fell 3.0%, Comerica was down 1.1%, while Illumina remained stable. 

• Country Garden‘s hearing for a petition seeking its liquidation has been further adjourned to 29^th July by the Hong Kong High Court, without providing a reason. The developer, grappling with defaulting on $11 billion of offshore bonds, aims to present progress on debt restructuring talks to fend off liquidation. 

• Bank of America analysts caution that the recent European equity market rally may be losing steam, attributing it to rising earnings per share and falling real bond yields rather than declining risk premia. They expect growth to cool, leading to a potential 15% downside for the Stoxx 600 index and favour defensive sectors over cyclical ones. 

• Morgan Stanley analysts caution that the rapid growth of data centres, particularly in AI usage, could challenge the electric vehicle industry’s efforts to reduce CO2 emissions. They project a surge in power demand, estimating that US data centres alone could consume as much power as 150 million electric cars by 2030. 

• Investors this week will be watching the Federal Reserve’s interest rate decision and economic projections in the US. Key data on CPI and PPI inflation, along with the Michigan consumer sentiment index, will be crucial. Inflation rates in China, India, Brasil, and Russia will also be of interest. In the UK, focus is on GDP growth, unemployment, and industrial production.