Chief Investment Strategist
The two biggest winners over the past week have been Japanese equities up 2.8% as the JPY continues to weaken inflating export profits. However, the weaker JPY is raising the stakes that the US government could designate Japan as a currency manipulator which could pre-emptively force Bank of Japan to raise its policy rate faster than expected to close to policy rate gap to the rest of the world.
Energy stocks were another big winner the past week up 3.2% with oil and gas services providers such as Baker Hughes and Schlumberger as the key gainers but also oil and gas majors such as Petrobras, Equinor, and Exxon Mobil.
Technology stocks were the biggest loser over the past week down 2.5% driven by Nvidia, Xiaomi, Qualcomm, and Micron Technology. Several large US investment firms are talking about large institutional clients have begun selling technology stocks. The beginning of a rotation in the equity market could be under way.
Last night, Trump and Biden hit it out at the first US presidential debate. The general takeaways across US media are that Biden crashed with age becoming the key issue and talking point that will potentially overshadow any political discussion from the Democrats. According to this Wall Street Journal article, there are now serious talks inside the Democratic Party about replacing Biden, but whether it will happen or not is too early to say. But last night’s debate clearly raises the stakes ahead of the Democratic National Convention from 19 to 22 August. However, as this AP News article says, it is not easy to replace Joe Biden on the presidential ticket.
In terms of the market reaction it is so far positive as US equity futures are pointing to a higher open of around 0.4%. Given that Trump was the perceived winner last night the immediate interpretation is that the market is not worried about another period with Trump as US president.
The biggest single stock story this week was the 47% plunge in Alfen shares as the energy storage company said deals in Q2 are being postponed and that energy storage systems revenue will be down 20% in 2024. The worsening demand in the green transformation part of the economy is getting widespread with Statkraft, Norway’s largest electricity producer and Europe’s largest producer of renewable electricity, also saying yesterday that it is scaling back ambitions in solar, wind, and hydrogen. The return on investment calculations are simply not as rosy any longer due to higher commodity prices, higher interest rates, and low electricity prices.
Our overview of theme basket performance is showing that the energy storage basket, which includes Alfen, is the worst performing basket this week down 7.1% making it the worst performing basket this year down 32.8%. Renewable energy and the energy storage baskets are highly correlated which can be seen from performance.
At the other end of the spectrum the green transformation basket had a good week up 4.6% being the best performing basket. One of the news driving the performance in this basket was Rivian announcing this week that Volkswagen is investing $5bn into the business and planning a joint-venture for the next-generation electric vehicles. Rivian also announced this week that Q2 deliveries will range 13-13.3k vs est. 10.2k reflecting a priority to bring down inventory.
Macro will dominate next week’s trading action and below we highlight the key events to watch.
Previous weekly equity market updates
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
