Last week, compared to other central banks, the hawkish stance of the Federal Reserve became particularly prominent. The Bank of England and the Swiss Central Bank have announced interest rate resolutions, and the Swiss Central Bank has initiated its second rate cut. The Bank of England has issued a signal that the rate cut is approaching, while several Federal Reserve officials believe that it may only be cut once this year, calling on investors to remain patient and wait for more evidence of inflation cooling before cutting rates.
In terms of the stock market, although major US stock indices have repeatedly hit historic highs, the trends of large and small cap stocks have diverged. The Russell 2000 index has fallen 17% since its peak in November 2021 and has not risen so far this year. The Dow Jones has risen 1.45%, the largest weekly increase since mid May. 60% of the increase in the S&P 500 index this year came from five companies: Nvidia, Microsoft, Meta, Google, and Amazon.
With Nvidia's stock price plummeting for two consecutive days after briefly dominating the US stock market, the S&P 500 also began a pullback from historical highs in the second half of last week. Some believe that when the rise of tech giants is temporarily halted, funds will flow into traditional value and weekly stocks to avoid risks.
In terms of commodities, the containerized index (Euroline) futures have continued to reach historic highs, with consecutive contracts increasing by over 200% this year. The shipping industry is currently facing problems such as supply-demand imbalance, port congestion, and container shortages, mainly caused by the crisis situation in the Red Sea region. In terms of crude oil, as the situation along the Lebanese Israeli border escalated, international oil prices rose to a seven week high on Thursday, but fell slightly on Friday due to negative economic news that may affect demand prospects.
As June enters its final week, macroeconomic data is relatively light, and Friday's inflation data, which is favored by the Federal Reserve, may affect market expectations for interest rate cuts. Biden and Trump's first debate on the US presidential election may affect market trends. The focus of Europe is still on political chaos, with the first round of legislative elections in France scheduled for June 30th.
US releases May PCE data
At 20:30 Beijing time on Friday, June 28th, the US Department of Commerce will release May PCE data. Considering that the year-on-year growth rate of core PCE in April fell to the lowest since April 2021, and personal consumption unexpectedly declined, the market generally expects that the May data will continue to cool inflation, paving the way for the Federal Reserve to cut interest rates.
After the unexpected decline in May CPI and PPI data in the United States, market participants will closely monitor the US PCE data, look for signs of further easing of inflation, and judge the future interest rate path of the Federal Reserve.
Prior to this, at 20:30 Beijing time on Thursday, June 27th, a series of Q1 US economic data will also be revised. Meanwhile, a group of Federal Reserve officials will continue to make intensive statements related to interest rate cuts.
It should also be noted that on Thursday, June 27th at 4:30, the Federal Reserve will release its annual bank stress test results, covering 32 banks with assets exceeding $100 billion. Investors can use this to judge and analyze the banking industry situation.
The Federal Reserve Bank of New York posted an article on the Liberty Street Economics blog stating that large US banks are facing spill over risks from non bank institutions. In the case of high interest rates, the risks faced by banks cannot be ignored.
The political situation may once again affect the market
At 9:00 am Beijing time on June 28th, Biden and Trump will hold their first presidential debate at CNN's Atlanta headquarters, with senior CNN hosts Jack Tapper and Dana Bash presiding over the debate.
European investors will pay attention to the polls of the two elections in France and the United Kingdom. The first round of voting for the French parliamentary elections will be held on June 30th, and the second round of voting will be held on July 7th. Recent polls show that the far right party, the National Alliance, has a higher approval rating than other political parties.
The French economic community believes that extreme political forces have shown strong momentum in this European Parliament election, and regardless of the outcome of future French National Assembly elections, the "Pandora's Box" has been opened.
At the same time, before the European Parliament elections, France was already facing a dual pressure of widening fiscal deficits and credit rating agencies urging it to reduce its massive debt. The spread between the yields of French and German 10-year treasury bond has widened to nearly 80 basis points. The market is concerned about whether the election results will cause a storm in the French bond market.
Is the US stock market about to peak?
Nvidia's performance gradually stalled last week, with a continuous decline of over 3% for two consecutive days, and its market value evaporated by $222 billion. The US stock market is once again facing a familiar question: will the ongoing frenzy of large tech stocks slow down?
The concentration of US stocks is at a historical high, making the trend of technology giants more important for the overall market. This year, the total return on the S&P 500 index has exceeded 14%, of which about 60% is driven by factors such as Amazon, Nvidia, Microsoft, Google, and Meta. What worries many investors is that last Thursday, the Nasdaq and S&P emerged from a bearish engulfment (the K-line entity completely enveloped the previous trading day's K-line entity), and this signal has a more pronounced impact after consecutive gains, usually indicating that the previous upward momentum is weakening.
As the undisputed protagonist in the current market, Nvidia's 2024 shareholder meeting will be held at 9:00 am local time on Wednesday, June 26th. Amidst the volatility of Nvidia's stock price, the management's statement on the company's development and chip progress is worth paying attention to.
Leading storage chip design and manufacturer Micron Technologies (MU) will release its third quarter financial report on Wednesday, June 26th, with investors increasingly optimistic about the results. It is reported that Micron Technology is accelerating the construction of advanced HBM testing production lines in the United States and considering producing HBM for the first time in Malaysia to seize more demand brought by the artificial intelligence boom.
Bank of America has raised its target stock price for Micron from $144 to $170 and confirmed its buy rating for the stock. Bank of America analysts say that Micron will be the main beneficiary of the rising market share of cloud computing high bandwidth memory (HBM).
Cantor Fitzgerald analyst C J. Muse has also raised its target price for Micron from $150 to $180 and maintains its overweight rating on the company's stock. Muse said he expects Micron's performance to steadily exceed analyst expectations, and HBM chips may bring new surprises.