06/10/2024

After two consecutive downward weeks, in a movement that limited the highs in May, the month of June began with renewed spirit for global equity markets, which saw a weekly rise of around 1%.

The risk appetite intensified and buyers again scooped up the most speculative assets on the market. There seems to be a great fear of missing out on the next bull run, a possibility that worries investors much more than a potential market correction.

This is indicative of investor complacency and blind confidence in the narrative of a soft economic landing, although the macroeconomic data published last week were certainly divergent and could justify any scenario.

In any case, the S&P 500 index closed the week with gains of 1.3%, again driven by tech stocks. The fever caused by artificial intelligence continued to gain strength following the favorable news published by certain tech giants. We must once again highlight the performance of Nvidia, which announced that it was advancing the launch of its new microprocessors for data centers to 2026, which investors celebrated by taking its market capitalization to over $3 trillion. The company once more gained over 10% during the week.

In Europe, stock markets rose by the same amount, around 1.3%, with a sector bias that is very similar to that seen on the other side of the Atlantic. As a result, technology also rose sharply in Europe. In Japan, equity markets closed up slightly, while emerging economies exhibited considerable divergence between various geographical areas, with sharp declines in Latin America and Eastern Europe and substantial gains in Asia.

Finally, politics also took the spotlight, although both Mexico and India recovered from their initial weakness after the election results were published, which indicate greater uncertainty about the formation of a government in India, and the fear that the broad parliamentary majorities of Morena, in Mexico, will lead to a much sharper turn to the left in that country, with less orthodox policies or costly social measures.

In the fixed-income markets, the prices of European sovereign bonds recovered slightly as the week went on, while higher quality corporate credit showed a worse relative performance. By contrast, the most speculative segment continued to exhibit great performance in an environment of more risk appetite.

In the macroeconomic field, the ECB announced its long-awaited rate cut of 25 basis points. This is the first reduction in the official rates since the rapid tightening cycle that began with the deposit rate at -0.50% in July 2022, and ended at 4% in September 2023. However, the official communication that accompanied the decision was cautious and evasive about future rate developments. The ECB avoided committing to future rate cuts and stressed that its monetary policy will ultimately be determined by the published data.

In the United States, the job market figures were the absolute star of the week, offering up mixed signals: of weakness in the survey prepared by the company ADP on private employment and in the survey of job rotation and job vacancies, which is used to measure the strength of the labor supply. Weekly jobless claims came in at 229,000, compared to the consensus estimate of 220,000 claims.

However, Friday's employment report gave very different signs, showing that the US economy generated a total of 272,000 new jobs in May, compared to the 180,000 expected by analysts. However, the unemployment rate climbed from 3.9% to 4%, above expectations. Hourly wages rose significantly, doubling April's growth.

As for this week, we will have two key events in the United States, both on Wednesday the 12th. On the one hand, inflation data for May, which is expected to slow significantly due to lower gasoline prices. A few hours later, we will learn about the Federal Reserve's monetary policy decisions, as investors eagerly await the new rate forecasts estimated by the Committee members.

Inflation below expectations would have positive effects on the prices of financial assets. It would also provide relief to the markets if the Federal Reserve continues to project at least two rate cuts in 2024.

Finally, the results of the European Parliament elections have led to an increased political risk in Europe, particularly in France, whose president has decided to move up the legislative elections.