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The morning bid rally in Europe turns ugly
Rae Wee gives us a look at what the future holds for European and global markets. A sell-off in technology stocks spread across Asia on Monday, as investors slammed brakes on AI's red-hot rally. South Korea's KOSPI fell by more than 8% and triggered circuit breakers. The move?followed?that of the Wall Street shakeout last week, after an explosive U.S. employment report heightened expectations for Federal Reserve rate hikes - a bane to growth stocks. According to CME FedWatch, the markets now price in a greater than 70% chance of the Fed raising rates in December. This is up from just 45%?a week earlier. The nonfarm payrolls data released on Friday came only days after Broadcom reported a disappointing result last week. This sent its stock plummeting, and also dragged down the share prices of technology companies. When expectations are so high, a slight miss can be a major blow. Most analysts and investors have dismissed the latest sell-off as "a healthy correction" with concentration risks and leveraged position?amplifying market movements. However, it is still unclear how long this rout will continue. The dollar reached a new two-month high in other markets. This was due to the Fed's bets on a rate hike and the resilience of the U.S. economic system. Investors are on high alert as Tokyo is expected to continue buying yen in order to stem the currency's decline. On Monday, revised gross domestic product figures showed that Japan's economy had lost momentum from the previous quarter to the first three months of this year. This was due to a slowdown in capital expenditure. The data calendar is light for Monday, but the week ahead will be dominated by the SpaceX listing, U.S. Inflation data and a European Central Bank meeting. The war in the Middle East continues, with Israel claiming to have struck military targets on?western Iran and central Iran, despite the fact that U.S. president Donald Trump had reportedly instructed Israeli Prime Minister Benjamin Netanyahu not to launch any further attacks. Market developments on Monday that may have a significant impact Boeing will?release numbers for May deliveries and orders - Global airline CEOs gathering for an event in Rio de Janeiro France: Reopening the 3-month, 4-months, 6-months and 11-months government debt auctions - Germany: Reopening 5-month and 11 month government debt auctions
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Iran's envoy in Moscow said that the strait of Hormuz will be open, but there will be transit fees.
Iran's ambassador in Moscow was quoted on Monday as saying that the Strait of Hormuz would be open, but with new?conditions set by Iran? and?Oman?, including a?transit fee. The U.S. and Israeli war?on Iran 'has largely reduced oil flows through the strait. Before the conflict, one-fifth the world's crude oil passed through the strait. Recently, several tankers left the Gulf. However, oil and LNG flows remain severely constrained. In an interview published Monday, Ambassador Kazem Jalali said that the strait would be opened, but new conditions would be set by the Iranians and Omanis. We understand that Iran, Oman and other countries provide certain services related to the strait. He said that fees would be charged for?those services? without elaborating. Iran claims that a permanent agreement for peace should allow it the right to charge fees on ships transiting the Strait. These fees would depend on the type of vessel, the cargo, and the conditions. Donald Trump, the U.S. President, is strongly opposed to this position. The U.S. warned Oman in late May not to participate in any effort to impose a tax with Iran. Treasury Secretary Scott Bessent stated that Oman's ambassador had told him there was no plan to impose this toll. Israel announced on Monday that it had struck military targets in central and western Iran even though Trump reportedly asked Israeli Prime Minister Benjamin Netanyahu not to launch any more attacks. Japan, which imported?95%?of its oil needs from the Middle East prior to the war, has said that it didn't pay a fee when a crude oil tanker linked to Japan passed through the waterway last May.
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Saudi Arabia cuts its July OSP for Asia sharply amid low demand
Saudi Arabia cut its official'selling prices' (OSPs), for crude oil sold to 'Asia, in July, for a second consecutive month. This was expected, since spot premiums fell on a sluggish demand despite the supply disruptions caused by U.S. - Israeli war against Iran. A document reviewed on Monday by?showed that the July OSP was set at $9.50 per barrel over the average Dubai and Oman quote, which is $6 lower than the OSP in June. The July OSPs of other Saudi grades for Asia fell by $6 per barrel compared to the previous month. The price reduction was in line with what the market expected following a decline in price and tepid trade on the spot market during May. Data showed that the cash Dubai price premium to swaps was $9.59 per barrel in April, down from an average of $13.92 a month earlier. Spot Oman premiums also showed a similar trend. Refiners are cutting runs and drawing on inventories in China, which is the No. Due to the?mounting refining loss, China, the world's No. In?May, and June, they lifted less Saudi crude. Even so, OSPs for Asia in July are still much higher than they were before the Iran War. The 'conflict' has effectively halted the energy flow out of the Strait of Hormuz.
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The AI rally is halted by a tumbling tech darling
As investors fled from the most popular AI-linked stocks, fears that the bull run had gone too fast and too far prompted a rise in 'oil prices. Last week's disappointing outlook from chipmaker Broadcom, and Friday's surprisingly positive U.S. employment report have triggered a market rout. Traders are pricing in a rate increase this year. The benchmark KOSPI index, which is heavily weighted with chips and has been the best performing market in the world this year, was the first to fall in Asia, falling 5%. This brings the index down 13% since its record high last week. The Nikkei 225 index fell by almost 4%, with the biggest falls coming from?market darlings in the supply chain for computer chips. Taiwan's benchmark dropped by 3.9%. Nasdaq Futures are trying to recover after a steep selloff last Friday. European futures have fallen 1%. The Nasdaq fell 4.2% on the Friday. Marc Velan is the head of investments for Lucerne Asset Management, a Singapore-based asset management firm. "Korean tech names were among the best performers in the world and heavily owned. When rate expectations changed after the jobs report they became a source of natural liquidity." On Monday, the yield on 2-year Treasury bonds was?up 1.6 basis points to 4.1782%. Bob Savage is the head of BNY's macro-markets strategy. The key question is whether this is a healthy break in the nine week equity rally, or a peak. SpaceX's and Anthropic's IPOs are part of this pause - to either make room for a new market cap, or to rethink the value. INFLATION AND THE ECB Ahead Brent crude futures rose?about 3.5% on Monday to $96.45 per barrel after Israel announced it had struck military targets in central and western Iran. The biggest news of the week is likely to be the SpaceX listing. It will price on Thursday, and then trade on Friday. Inflation will also dominate, with U.S. Consumer Price Data due on Wednesday, and central bank meetings in Canada and Europe. Last week, bitcoin experienced its biggest weekly decline since the collapse in 2022 of the crypto exchange FTX, a drop of about 16%. On Monday, it was just below $63,000. Brokers are worried that SpaceX's IPO could cause other assets to fall in value. Nick Ferres of?Vantage Point Asset Management, Singapore, said that the market has shifted away from moderate inflation, rate cuts, and towards a potential "overheating" which could lead to higher Treasury yields and a path of higher short-term interest rates, as well as tighter liquidity. OPEC+ agreed on Sunday to a fourth increase in their oil production targets in the same number of months. The dollar held firm above 160 yen in currency trading and pushed the Australian Dollar to $0.7055. The euro was hovering at $1.1531. Reporting by Tom Westbrook, Editing by Aurora Ellis and Shri Navaratnam; Thomas Derpinghaus.
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Japanese companies receive record-breaking proposals at shareholder meetings
This month, activist investors have made a record-breaking number of proposals for Japanese companies to vote on during their annual general meetings. They also include a growing call for executives to resign. The Tokyo Stock Exchange and regulators have been pushing Japanese companies for years to increase shareholder returns, invest in growth as well as win some big activist victories. According to the data compiled at Mitsubishi UFJ Trust Bank, as of June 3, 139 activist shareholder proposals were submitted for voting at AGMs. This is two more than in previous years. Most of the proposals were from foreign investors. Nineteen of these either oppose the appointment of a director nominated by the company or nominate another candidate for director. This is up from just seven proposals in 2024 and 14 last year. In any region, it's difficult for shareholder proposals to pass even though they often pressurize companies to reform. SquareWell Partners, a shareholder advisory firm, has compiled data that shows fewer than 1 in 20 proposals submitted since January 20, 2023, have been approved. It is true that activist ambitions grew after Oasis Management, a company with a long history of success, forced the ouster of Taiyo Holdings' CEO last year. Even if they were conducted in other ways, high-profile campaigns of?other activists have provided an important boost. The U.S.-based Elliott Investment Management won a landmark victory against Toyota over the terms of a purchase of a group company - an opposition campaign it waged by vocally criticizing them. KYOCERA VOTE IN THE FOCUS The activist investor's proposals are expected to garner attention. A shareholder vote on June 25 at Kyoto-based electronics manufacturer Kyocera will be one of them. Oasis has called for Goro Yamaguchi, the chairman of Kyocera, to resign. Previously, Oasis argued Kyocera needed to divest its unprofitable business and speed up restructuring. Seth Fischer said that Taiyo had the same problem (as Kyocera), where the CEO allocated capital to and announced a bad business, which was reducing the margins on the good business. Yamaguchi has been leading Kyocera, a Japanese company since 2017, and last year he received 63.8% shareholder votes. This is a very low number for a Japanese leader of business. It's also a big drop from his 79% vote in 2021. The board of Kyocera has rejected Oasis’ proposals. They have highlighted Yamaguchi's contribution to governance and management reforms. Oasis also calls on shareholders to vote against the leaders of Kadokawa, a publisher and gaming firm, Tokyo Steel, and SMS Recruitment. Kadokawa, SMS and Tokyo Steel's boards have rejected Oasis proposals. Tokyo Steel is yet to respond publicly. Fischer stated that "right now, an effective way to galvanize other investors and improve companies is to hold the management accountable for poor performances if they do not deserve to be voted back in," DOMESTIC ASSET MANAGERS ALSO HELPING Dalton Investments and other funds have also been vocal in this year's campaign. In several cases, they have proposed the appointment independent directors with capital market experience which they claim is lacking on the boards of firms such as probiotic drink manufacturer Yakult. UK-based AVI called on the president of 'tablet manufacturer Wacom' to step down citing concerns about governance and declining profits. Yakult's Board has rejected Dalton's proposal. Wacom's Board has also rejected the proposal to dismiss its president, but has suspended their relationship with a new?company that was set up by its president following AVI's campaigns. Asset managers in the United States are now more aggressive when it comes to capital allocation decisions, and profits of firms. This increases their chances of voting against leaders. The MUFJ Trust bank data revealed that they tend to vote against the management in particular when there is a low return on equity, or excessive cross-shareholdings. Ali Saribas is a partner at SquareWell Partners. He said that domestic managers are more likely to vote against the reelection of a director if something feels wrong.
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Asia markets plunge as technology rout intensifies
Asian markets fell on Monday, as investors put a halt to the AI rally. Meanwhile, the Israeli strike on Beirut sent oil prices and dollar up. The 'chip-heavy' KOSPI in South Korea took a beating. It fell more than 6.8% during volatile trading that had earlier caused a temporary halt of 20 minutes. The benchmark has fallen about 14% since last week's high. Japan's Nikkei dropped 3.4% in the early trading, but U.S. S&P and Nasdaq futures attempted a rebound following a Friday sharp selloff. Nasdaq dropped by 4.2% after Friday's hot jobs report fueled expectations of Federal Reserve rate hikes. Marc Velan is the head of investments for Lucerne Asset Management, a Singapore-based asset management firm. "Korean tech names were among the best performers in the world and heavily owned, so they became a source of liquidity when the rate expectations changed after the jobs report." The yield on two-year Treasury bonds rose by more than 11 basis point on Friday, and then?by 1.6 basis points to 4.1782% on Monday. Bob Savage is the head of BNY's?markets and macro strategy. The key question is whether this?is an opportune pause or a peak in the nine week equity rally. SpaceX and Anthropic's IPO focus is part of this pause - to either make room for a new market cap, or to rethink the value. INFLATION AND THE ECB Ahead This week, the focus will be on inflation, with U.S. consumer prices due to be released on Wednesday, and central bank meetings taking place in Canada and Europe. Bitcoin dropped by 16% last week, its biggest weekly decline since the collapse in 2022 of the crypto exchange FTX. On Monday, it was hovering just below $63,000. SpaceX's debut will be followed in the coming months by mega-IPOs from?Anthropic? and OpenAI?, which are expected to raise so much money that brokerages are worried it could pull down other assets. Nick Ferres of Vantage Point Asset Management, Singapore, said that the market has shifted away from moderate inflation, rate cuts, and towards a potential "overheating" which could lead to higher Treasury yields and a path for short-term rates, as well as tighter liquidity. The Middle East situation remains fragile. Brent crude futures rose about 2.6% to $95.45 per barrel on Monday after an Israeli attack on Beirut led Iran to fire a salvo of missiles on Israeli targets. OPEC+ decided on Sunday to increase its oil production targets for the fourth time in as many month. The dollar held firm above 160 yen in the currency market and the Australian dollar rose to $0.7055. The euro was hovering at $1.1531. Reporting by Tom Westbrook, Editing by Aurora Ellis & Shri Navaratnam
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The price of oil has risen by more than $2 since Israel's attack on Lebanon
Oil prices rose by more than $2 per barrel on Monday, after Israel launched new strikes against Lebanon on Sunday despite an agreement between the two nations. This shattered hopes of a ceasefire and the restart of crude flow through the Strait of Hormuz. As of 0013 GMT U.S. crude oil futures were up by $2.10 or 2.32% at $92.64 per barrel, while Brent crude rose by $2.33 or 2.5% to $95.42 per barrel. This erased a majority of Friday's losses, when prices fell on the hope of a deescalation of the U.S. - Iran conflict. The latest strikes seemed to be yet another obstacle to a U.S. - Iran peace?deal, and to the reopening of Strait of Hormuz a vital conduit for global 'oil and gas' flows. Iran has set a ceasefire in Lebanon as a precondition for a deal with Washington. Iran launched missiles against Israel in retaliation for the Beirut attacks on Hezbollah, its ally. U.S. president Donald Trump said that he would instruct Israeli Prime Minister Benjamin Netanyahu to refrain from retaliating against Iran. Israel invaded Lebanon in march after Hezbollah, backed by Iran, fired drones and rockets across the border. Lebanon and Israel announced on June 3, that they had reached a ceasefire after negotiations in Washington. Both countries had agreed in April to cease hostilities, but the violence continued. The wider war is on hold since the U.S., Israel and other countries stopped their attacks on Iran early in April. However, Tehran continues to block shipping through Strait of Hormuz. OPEC+ agreed to its fourth increase in output?in just four months on Sunday, amid the resulting?supply crisis. Analysts said that the decision will have little effect, as most OPEC+ countries cannot meet their production targets because of the Hormuz shutdown or infrastructure attacks in Russia. In a recent note, Jorge Leon, Rystad's head of geopolitical analyses said that the impact of such a move would be "close to zero" in the current market. (Reporting and editing by Edmund Klamann, Christopher Cushing, and Colleen Waye)
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Asia markets plunge as technology rout intensifies
Asian markets fell on Monday, as investors slammed on the brakes to the AI rally. Meanwhile, the oil price and dollar rose due to the Israeli strikes in Beirut. A 8% decline in South Korea's chip heavy?KOSPI triggered a trading halt for 20 minutes?and has it down 17% since its record high last week. Japan's Nikkei dropped 3.5% in the early trading, while U.S. S&P500 and Nasdaq100 futures saw small gains. After a strong jobs report, which raised expectations of Federal Reserve interest rate hikes, the Nasdaq fell 4.2%, with most selling concentrated on semiconductor stocks. This put a halt to what had been an AI-led rally. The yields on two-year Treasury bonds rose by more than 11 basis points last Friday. Benchmark 10-year Treasury futures fell about five ticks in the early morning hours of Monday morning, Asia. Bob Savage is the head of BNY's macro-markets strategy. The key question is whether this is a "healthy pause" in the nine week equity rally, or a peak. IPO attention on SpaceX and 'Anthropic' is part of a pause - to either make room for a new market cap, or to rethink the value. INFLATION AND THE ECB Ahead The biggest news of the week is likely to be the SpaceX listing. It will price on Thursday, and trade on Friday. But inflation will also be a major topic, with U.S. Consumer Price Data due on Wednesday, and central bank meetings in Canada, Europe, and elsewhere. Bitcoin dropped by about?16% last week, its biggest weekly decline since the collapse in 2022 of crypto exchange FTX. On Monday, it was just above $63,000. Brokers are worried that the IPO of SpaceX could cause other assets to fall in value. The Middle East situation remains fragile. Brent crude futures were up 2.6% on Monday to $95.45 per barrel after an Israeli strike on Beirut led Iran to fire a volley of missiles on Israeli targets. OPEC+ decided on Sunday to increase its oil production targets for the fourth time in a row. The dollar held firm above 160 yen in the currency market and the Australian dollar rose to $0.7038. The euro was hovering at $1.1518. Reporting by Tom Westbrook, Editing by Aurora Ellis & Shri Navaratnam
Gold continues to fall on fears of an interest rate hike in the US
Gold prices continued to fall 'on Monday, due to fears of a rate hike in the U.S. after a strong jobs report. Meanwhile, renewed hostilities across the Middle East drove oil prices up and increased inflation concerns.
By 0302 GMT, spot gold had fallen 0.4% to $4313.11 an ounce. Prices dropped by about 3% Friday, reaching their lowest level since March 24.
U.S. Gold Futures for August Delivery?were down by 0.7% to $4,336.30.
The market's hawkishness is reflected in the Fed futures, said Kelvin Woong, senior analyst at OANDA. He added that higher Treasury yields are further pushing gold down.
The yield on benchmark 10-year U.S. Treasury notes rose, after reaching a two-week high in the previous session. This increased the opportunity cost for holding non-yielding gold.
Israel claimed that it had?hit military targets?in central and western Iran on Monday despite the fact that U.S. president Donald Trump reportedly warned Israeli Prime Minister Benjamin Netanyahu not to launch any further attacks.
Oil prices increased by more than $3 per barrel, causing inflation fears and interest rate increases to rise.
Gold is often seen as a hedge to inflation. However, rising interest rates can weigh on this non-yielding precious metal.
The U.S. Economy posted a strong third consecutive month of job gains in the month of May. This confirms that the labour market is gaining momentum after its stumble last year, and gives the central bank more room to maintain rates despite rising inflation caused by the Iran War.
According to CME Group’s FedWatch tool, the markets are pricing in an increase by the Federal Reserve before year-end. There is a 72% probability of this happening by December.
Cleveland Fed President Beth Hammack stated on Friday that the new jobs figures show that the labour market is roughly in balance and near full employment. However, the continued high inflation could require the Fed raising rates soon to control it.
Silver spot fell by 0.4%, to $67.56 an ounce. Platinum lost 0.5%, to $1,767.15, and palladium remained at $1,225.66. (Reporting by Pablo Sinha in Bengaluru; Editing by Subhranshu Sahu)
(source: Reuters)