Market Update – 26th June 2024.

This week, hawkish comments from the Bank of Japan’s (BoJ) policymakers have markets wondering whether their quantitative tightening plan being unveiled in July will be bigger than originally thought. As the yen weakens and threatens to raise import costs, thereby potentially driving inflation past the BoJ’s 2% target, Governor Ueda told reporters on Monday that a rate hike could not be ruled out when they meet next month. At the same time, the BoJ is considering a thorough plan to reduce its significant bond buying and reduce its $5 trillion balance sheet in a way that does not result in an unwelcome incline in yields. At the same time, Japan’s business to business inflation rose 2.5% in May in annual terms, illustrating that companies are beginning to pass on higher labour costs buoyed by consistent growth in wages.

Over in the UK, according to a survey by the Confederation of British Industry, British manufacturing orders improved marginally in June, despite a significant decrease in export orders. Although still in contraction, its monthly index of new manufacturing orders increased in June to -18 from -33 in May, while output expectations climbed to their highest point since October. It seems that manufacturers are optimistic that the economy is on the right track,  especially since the recovery is likely to expand over the summer.

In other news, US consumer confidence dropped in June to 100.4 from 101.3 in May, based on data collated by the Consumer Confidence Index. The survey, which looks at consumers’ evaluations of the US’ economic outlook, showed that American’s were warier this month as the Fed recently decided to hold rates steady, and amidst the expectation of a cut at some point this year, but no signs given of when. However, driven by the US’ still tight labour market, consumers declared intentions to go on vacation even as they said they would hold off on big appliance purchases.

Also, Nvidia’s stock dropped by 15% over a span of three days, from Thursday last week to Monday. The dip resulted in a nearly $550 billion dent in the company’s market value. Since the slowdown, questions have abounded regarding whether it is a sign of a larger market correction. Has the big tech bubble burst, or is it about to? Well, this is unlikely. For one, Nvidia makes up just one of the so-called Magnificent Seven dominating the investment universe of the US right now, and the others are still shoring up performance with aplomb. And what’s more, the stock has already shown signs of recovery, closing up more than 6% on Tuesday. Likely, the coming off of Nvidia was no doubt a profit taking exercise for some investors and presented a buying opportunity for others waiting for their moment to capitalise on the otherwise bull run of the tech chip giant.

Still to come this week we have Japan’s unemployment rate, US PCE data and Michigan Consumer Sentiment and initial jobless claims.

Nicola Tune, Portfolio Specialist

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