Global Market Outlook: Q2 Gains, AI Trade, and Central Bank Watch
Market Movements and Economic Highlights
July 1 (Reuters) - A look at the day ahead in European and global markets from Wayne Cole.
Quarterly Performance and Asian Market Sentiment
It's been a hesitant start to the new quarter in Asia, partly as the market digests the meaty gains made last quarter and partly as the U.S.-Iran talks are busy going nowhere.
Geopolitical Tensions: U.S.-Iran Talks
It seems President Donald Trump's son-in-law Jared Kushner and envoy Steve Witkoff arrived in Doha for top-level meetings, only to be stood up by Tehran. One very sticky, sticking point is the Strait of Hormuz and whether Iran gets to charge for passage, and it's far from clear how that can be resolved.
Asian Stock Market Performance
Asian stock markets are a bit mixed, though that follows a quarter when the Nikkei rose 37%, the Kospi 68% and the Taiex 45%. Those gains rely on a lot going right in the AI trade, but the flow of economic data is offering fundamental support.
Japan: Manufacturing and Sentiment
Sentiment among Japan's big manufacturers has hit heights not seen since 2018, while manufacturing activity boasted its best quarter since 2014 as new orders surged.
South Korea: Export Growth
Trade numbers from South Korea were truly astounding with the fastest export growth in nearly 50 years in June as shipments of semiconductors surged almost 200%. As a result, South Korea became the fourth country in the world to reach a monthly export value of $100 billion, after Germany, China and the U.S.
Wall Street and Earnings Outlook
Wall Street stock futures are mildly in the red after a solid session overnight led by the usual tech suspects. The same companies are expected to deliver an earnings bonanza this season which starts from the week of July 13.
AI and Tech Sector Earnings
Analysts at Goldman Sachs note the consensus is for earnings per share to grow 22% on a year earlier. AI infrastructure stocks are expected to contribute nearly 60% of S&P 500 EPS growth, with Micron and Nvidia together accounting for more than 40%.
Bond Yields and Rate Hike Risks
The heady earnings will be needed to offset the attractiveness of higher bond yields and the risk of a rise in the cash rate. Yields on 10-year Treasuries jumped almost 9 basis points on Tuesday, in a late selloff that had no obvious catalyst.
Payrolls, Fed Policy, and Rate Expectations
It could be investors bracing for a surprise in payrolls numbers tomorrow on the upside and further narrow the odds on a Federal Reserve hike. A move this month is still one-in-three, while the chance for September ranges from 67% to 88% depending on how you calculate Fed fund futures. Fed Chair Warsh is speaking in Sintra today and we'll see if he sticks to his "no forward guidance" mantra.
Currency Markets and Central Bank Watch
Oh, and there's been a fresh 40-year top for dollar/yen at 162.82, with no sign yet of Japanese intervention. It's notable the yen hasn't been falling on the crosses, so maybe Tokyo is prepared to wait it out. Note, there are no major chart levels now until the dollar reaches Plaza Accord levels around 240.00 yen. That's a big gap to fill.
Key Events to Watch
Key developments that could influence markets on Wednesday:
- Fed Chair Kevin Warsh, European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey and Bank of Canada Governor Tiff Macklem speak at the ECB Forum on Central Banking in Sintra, Portugal
- EU CPI for June, EU and US manufacturing PMIs for June
- US ISM manufacturing survey and auto sales for June
(Editing by Muralikumar Anantharaman)
