S&P 500 — US Large Cap Index
FTSE 100 — UK Blue Chips
Euro Stoxx 50 — Eurozone Leaders
DAX 40 — German Equities
CAC 40 — French Market Index
Nikkei 225 — Japan Benchmark
Hang Seng — Hong Kong Index
Shanghai Composite — China Mainland
ASX 200 — Australian Market
TSX Composite — Canada Index
Nifty 50 — India Large Cap
STI Index — Singapore Market
KOSPI — South Korea Index
Bovespa — Brazil Equities
JSE Top 40 — South Africa Index
IPC Index — Mexico Market
It may seem like a quiet start to the day, but in reality, there is a huge amount going on underneath the surface. The oil price is hovering just below $80 per barrel, after Iran said that it had reached an agreement with Oman about the route for shipping lanes in the Strait of Hormuz, this is a prerequisite to opening the Strait freely to commercial traffic. Iran has also said that the US has agreed to return to the Memorandum of Understanding pledges, which could bring an end to the recent flare up of tensions.
Caution in the oil price today is a sign that the market needs confirmation from the White House that this is all true, and the prospects of a deal to reopen the Strait of Hormuz is not a false dawn. President Trump will also need to state his approval for the market to believe it. For now, Brent is likely to remain in a tight range below $80 per barrel. However, confirmation from the US could send Brent back towards $75.
The UK market is also in focus today. Diageo will report results later this morning, Next is higher again today, after rising 5% after its results on Wednesday. The FTSE 100 is at a one year high, as it gains from a strong environment for risk. This is a reminder that the recent global stock market rally is not only about tech.
Added to this, the FTSE 250 made an all-time intra-day high on Thursday. This comes after stronger PMI data for July suggests that the UK economy is gaining momentum as we move through Q3.
Overall, UK stocks could benefit from strong upward momentum for earnings in the UK. The market expected relatively modest growth for UK Q2 earnings of 10%. However, due to incredibly strong earnings for the oil majors including BP and Shell, the final earnings growth rate for the UK could be well above the 10% expected. We have also seen stronger growth for Next and HSBC, which may also boost earnings growth this season.
The tech stock rally was on pause on Wednesday, the Nasdaq dropped 0.8%, stemming a rare rally when the index posted gains of more than 1% for four straight days. This downturn was driven by sharp declines for SpaceX and AMD, after their earnings disappointed expectations. There were also large declines for chip stocks and for some hyperscalers, as investors lost enthusiasm for the AI investment trade.
The sell off in the US impacted Asia, South Korea’s Kospi dropped more than 4% today, and Japan’s Nikkei fell nearly 1%. So, is the tech stock rally that started last week, and marked an end to the June/ July sell off, over already?
We stand by our view that the sell off is short term, and a pause rather than an abrupt shift in direction. SpaceX is higher by more than 1% in overnight trading and could attempt a recovery later today. SpaceX is worth watching closely today as it was the worst performer on the Nasdaq 100 on Wednesday, it is also a highly volatile stock, so if it recovers it could be a sign of stronger overall sentiment for the index.
European stocks have opened higher, and futures prices are pointing to a mixed open for the US indices later today, the Dow and the S&P 500 are expected to open higher, while the Nasdaq may open down 0.2%.
The market could be directionless on Thursday as we lead up to some major event risk, including Friday’s NFP report. The market is expecting a reading of 80k for payrolls and for the unemployment rate to remain steady at 4.2%. Payrolls are always important, but they are taking on extra significance since the Fed has dropped forward guidance.
If every meeting is a ‘live’ meeting, then a stronger ready could boost the chance of a rate hike, push up Treasury yields, increase demand for the dollar and potentially weigh on equities and risk sentiment. However, the reverse is also true. A weak reading for July payrolls may suggest that rates are on hold for the long term, and we could see a sharp reduction in September rate hike expectations, which currently stand at 54%.
USD/JPY is one of the most sensitive currency pairs to the payrolls report. It has moved sideways since last week’s intervention. The payrolls will be a major test for the yen; can its recent manufactured strength withstand a stronger than expected payrolls reading? If not, then the market could have a major problem on its hands, especially if USD/JPY surges and Treasury and Japanese bond yields surge.
