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Market Recap (June): Election noise and easing macro

Vantage Updated Updated Tue, 2024 July 2 07:54

June was a month of two major competing themes with the softening US macro picture battling against the increasing tensions around mainly, European politics. The gamble by French President Macron to call an early election saw investors price in a risk premium into the euro, while the dollar found a safe haven bid with defensive positioning. This is likely to continue into and after the second vote on the first Sunday in July. 

US data has finally showed signs of cooling, with the Fed’s favoured inflation gauge recently easing and mirroring the softness in the CPI and PPI data. The first quarter of hot prints look to be firmly behind us, while consumer spending is also slowing with Q1 growth potentially coming in at less than half the rate seen in the second half of last year. This theme moderately boosted the chances of Fed policy easing, with the odds of a September rate cut moving from around a coin toss to above 60% through the month.

Stocks continued their move higher with tech the driver-in-chief. With half of the first year gone, it’s notable that the MSCI All-World index was up 10.3%. But there was a big imbalance in performance with the US rising nearly 15% and the rest of the world just 4%. It seems we are currently in a sweet spot with ongoing disinflation plus solid company results and AI. The megacap tech companies are taking an ever-greater share of the market with the top five accounting for a quarter of the S&P 500 and a third of this year’s gains. Their earnings also look unassailable, for now at least, with over 80% Q1 EPS growth versus 5% for the typical S&P 500 stock. 

Major events of the month, in numbers:

* Nvidia $3trillon: We can’t not include the market darling’s brief stint as the world’s most valuable company. It overtook Microsoft and Amazon in a seminal moment for the lovers of AI mania. But it didn’t last long, and the chipmaker’s price fell over several days, wiping hundreds of billions of dollars off its market value. At one point, the stock was 13% down from its peak. Jensen Huang, the company’s CEO, was seen signing autographs recently, but also found time to sell a tranche of his stock. 

* OAT/BUND Spread 82bps: Markets always fascinate this watcher as they can be driven by themes which increase in importance quickly and can then disappear in time. Traders have to be attuned to this and become “experts” instantly to understand how price action could play out. Recently, we have been watching the OAT/Bund spread. That is the gap between the benchmark French and German 10-year borrowing costs and was in focus due to the uncertainty around the French election. The spread eased back and narrowed after the first round of voting after last week hitting the highest level since the eurozone Debt Crisis in 2012 

*USD/JPY 161+: Fresh multi-decade lows for the yen kept markets on alert for signs of intervention from the Japanese authorities. Whether the moves are “excessive” which could warrant action, rather than just “rapid” was important. April saw a 10 yen move from 150 to 160 in less than a month. That saw Tokyo spend big in April and May when prices spiked to 160.20. But the June move has been more moderate. Unilateral intervention has historically struggled to markedly turn the trend. Only US monetary policy and rate cuts would change the direction of travel and also the BoJ hiking rates aggressively to narrow interest rate differentials.