Equity markets continue uptrend in May
May ended with a tech rout triggered by disappointing results from software companies Salesforce and Dell. Despite this, the Nasdaq finished the month up 6% with the S&P 500 (+4%) and Dow Jones (+2%) in its slipstream. Better than expected quarterly earnings had it that the popular adage ‘Sell in May’ didn’t apply this year. Currency markets saw the Bank of Japan spending a record $62 billion to defend the yen after it fell to a 34-year low against the US dollar. Yesterday in commodity markets OPEC extended oil production cuts into 2025. This week will see markets gearing up to interest decisions by the ECB (6 June) and Fed (12 June).
ECB rate decision
In recent weeks, it has become almost a certainty that the ECB will lower its deposit rate with 25 basis points to 3.75% on Thursday. Although inflation in the eurozone edged up to 2.6% in May according to the latest figures on Friday, this is not seen to change the rate decision. Market participants will be looking for any guidance on possible further cuts in the remainder of the year. However, this is not likely to be given on 6 June. Christine Lagarde has said to pursue a data-dependent monetary policy and the ECB is to decide from meeting to meeting. The key challenge remains to balance promoting economic recovery while avoiding new inflationary turbulence. The ECB believes its inflation target of 2% will be reached mid-2025.
Fed to focus on new job market data
In the US, we will see new macroeconomic numbers on job openings on Tuesday and non-farm payrolls on Friday. The latter is the last data point before the Fed takes another interest rate decision on 12 June. Last Friday, personal consumption (the Fed’s favorite inflation measure) came in at 2.8% for April, good enough to keep at least one rate cut in 2024 on the table. A strong labor market report this week could however support a ‘higher-for-longer’ interest rate scenario. On the contrary, a weak number could provide tailwinds to this year’s equity rally.
EU elects a new European Parliament
All 27 EU member states will vote between 6 and 9 June to elect 720 new members for the European Parliament. The polls show a lead for Ursula von der Leyen’s center-right European People’s Party, followed by the left-wing Socialists & Democrats. However, the market will closely watch any gains by far-right populists, building forward on recent gains in Hungary, Slovakia, France and the Netherlands. Sudden changes in leadership may have a significant influence on policies and move markets, as recently seen in Argentina for example.
More elections: South-Africa, India and the US
2024 is a year of elections globally, with more than almost 50% of the eligible population going to vote. This weekend, South-Africans saw the ANC party win only 40% to lose its absolute majority after 30 years. Also this weekend, Indian president Modi secured a rare third consecutive term of five years in power. Most important election up next is in the US on 5 November. Not seen before, the race between Biden and Trump will already start in June with a first debate on the 27th.
Revaluation of software companies
Last week, investors got scared by Salesforce (CRM) and Dell earnings that sent the stocks down 20% and 18% respectively. For CRM, it was a combination of the company’s first revenue miss since 2006, a relatively weak outlook for the next quarter and, perhaps most important, the remark that ‘software buyers paused spending’. Software buyers seem to be overwhelmed by all “incredible” AI opportunities thrown at them by a wide range of suppliers. Being afraid to invest sub-optimally they seem to take time to evaluate needs and offers. Although few doubt that AI will bring productivity gains, the prospect of lower growth in the near future led to a break in the far-above market average valuation in the software sector.
Earnings and events
The software sector may see more volatility with cybersecurity firm CrowdStrike reporting after the bell on Tuesday. Chinese car maker NIO, once an investor favorite and Tesla competitor to-be, will open the books on Thursday before opening.
Between 4 and 7 June, Taipei will host the annual COMPUTEX technology show with many global ICT leaders present. In advance, NVIDIA CEO Jensen Huang was seen strolling a Taiwanese night market with TSMC founder Morris Chang and others – consistently wearing his famous black leader jacket, despite Taiwanese summer temperatures.