Market Report.
🤔 If you thought that after the ceasefire between Israel and Iran, calm would return to global markets, then you don’t know Donald Trump.
💵 The greenback dropped to the lowest level in three years after a report that Trump may announce Powell’s replacemen. The Wall Street Journal reported Trump may announce Powell’s replacement by September or October. Traders view this as a signal that early rate cuts are becoming more likely. Traders have boosted bets on Fed rate cuts in recent days, now pricing in 66 basis points of easing by year-end versus 51 basis points previously. Potential replacements for Powell include Fed governor Kevin Warsh and National Economic Council director Kevin Hassett, according to the report.
📈 Still, the king of the stock market, the SP500, returns to its historic highs.
🎮 Nvidia is once again Wall Street’s biggest player. Nvidia shares rose over 4% on Wednesday and closed at a record high for the first time since January. Nvidia is now the largest company in the world by market cap at $3.77 trillion, slightly beating out Microsoft, one of its main customers. Apple is third at around $3 trillion.
⚙️ While Nvidia remains the clear leader in graphics processing units (GPUs) used for building large language models and running AI workloads, the strength of this year’s rally is surprising given that the company has said it is locked out of the world’s second-biggest economy, China. In April, the Trump administration issued new rules that cut off sales of Nvidia’s H20 AI processor to China, which the company says will cost it $8 billion in sale. However, Analysts expect 53% revenue growth for the full fiscal year to almost $200 billion. Because, if we have learned anything, it is that Trump can change his mind as quickly as he changes his shirt, and what is a NO today could be a YES tomorrow if China offers something in return.
💷 The British pound is hovering at its highest level in more than three years, trading around the $1.36 mark against the U.S. dollar. So far this year, the pound has surged 8.7% against the greenback, though it is down 2.9% against the euro year-to-date. But the pound’s relative strength is more due to underlying dollar weakness than faith in sterling itself.
📊 However, it is also true that inflation expectations for the 5-10 year-ahead period rose to 4.3% in June from 4.2% in May according to a Citi/YouGov survey. Official data showed British consumer price inflation was 3.4% in May, well above the Bank of England’s 2% target. The Bank of England has forecast inflation will rise to 3.7% by September and remain around 3.5% for the rest of the year. If this is the case, there will be no BoE rate cuts in the near future.
📈 One thing is certain: according to the rules of carry trade, the pound should gain ground against the euro in the coming weeks. Given that the UK maintains interest rates above 4%, close to those of the US and well above those of Europe, at 2.15%, this will attract European deposits.
🛡️ NATO leaders backed the big increase in defense spending that U.S. President Donald Trump had demanded, and restated their commitment to defend each other from attack. Trump told a press conference that “we had a great victory here” and hoped the additional funds would be spent on U.S. military hardware. However, Trump threatened to punish Spain after Prime Minister Pedro Sanchez declared Spain could meet its NATO commitments while spending much less than the new 5% of GDP target.
🇫🇷 French President Emmanuel Macron raised the issue of the steep import tariffs threatened by Trump, saying “we can’t say we are going to spend more and then, at the heart of NATO, launch a trade war.” The new spending target of 3.5% of GDP on core defense and 1.5% on broader defense-related measures will be a tall order for many European nations with strained finances.
🇺🇦 Ukrainian President Volodymyr Zelenskyy had to settle for attending the pre-summit dinner rather than the main meeting, although he met Trump separatel.
📉 Corporate distress levels in Europe rose to a nine-month high in the three months to the end of May, according to the Weil European Distress Index (WEDI). WEDI monitors 16 indicators of corporate distress across over 3,750 listed European companies, increased from 3.8 to 4.1, suggesting a higher probability of default on corporate debt.
🛍️ Distress among retail and consumer goods businesses climbed to its highest level since September 2009, driven by factors like tight credit conditions and weakening consumer demand. Germany remained the most distressed market in Europe, with distress levels rising to their highest since May 2020, when the COVID-19 pandemic was ravaging the global economy.
💰 However, the President of the European Commission, Ursula Von der Leyen of Germany, who was investigated for corruption on two occasions, first after her tenure as Minister of Defence and again in her current European position, announced a new credit line of another 150 billion for the proxy war in Ukraine.
🌏 The good news is that everything seems calm on the Middle East front. Nevertheless, the Iranian Defence Minister, Aziz Nasirzadeh, is currently in China to attend a meeting of defence ministers from the Shanghai Cooperation Organisation (SCO) in Qingdao. Iran joined the SCO, a regional security organisation, in 2023, alongside countries such as Belarus, India, and Pakistan. This marks Nasirzadeh’s first foreign visit since the onset of the conflict between Iran and Israel. The outcomes of this visit, along with Iran’s interactions with China and other SCO members, could significantly influence the geopolitical dynamics in the region.
Market View:
📈 We have returned to record highs in the US stock markets. The S&P 500 futures are at their all-time highs, and the Nasdaq 100 futures are also trading above 6,155 points and 22,500 points, respectively.
📉 The assumption of a possible interest rate cut, given Trump’s pressure on the Fed, is boosting the stock markets and weakening the dollar, whose DXY index has already fallen below 97.50 points. This has exacerbated pairs such as EUR/USD, which reached 1.1715 this morning before retreating to the current 1.1685. The GBP/USD pair also experienced a spectacular spike, rising above 1.3720 and remaining above 1.37.
📈 In Europe, the stock markets experienced declines during yesterday’s session, but futures are starting today on a positive note. The DAX 40 futures are currently trading above 23,700 points, while the Euro Stoxx 50 futures are attempting to approach the 5,300 points lost during yesterday’s session.
🛢️ Crude oil remains stuck in the $68 per barrel range for Brent and $65 for WTI. It is almost comical to observe this after Trump published a message ordering that oil prices should not rise.
🥇 Gold futures, which fell close to the $3,300 per ounce mark on Tuesday, have rebounded to the current $3,350.
💻 Bitcoin continues to advance bullishly and has now moved out of the resistance zone of $107,000, currently trading at $107,800.
