U.S. President Joe Biden's poor performance in the first televised debate of the election raised questions, but in the face of the disappointment of the Democratic Party and the voices of hundreds of business leaders, Biden insisted on not withdrawing from the election. As the probability of Trump's victory grew, financial markets staged a "Trump trade": the U.S. Treasury curve steepened, the dollar index also remained strong, stabilizing above 105, "Trump stocks" (energy, steel, banks, etc.) rose, and crude oil also remained strong. Analysts believe that under the "Trump trade", the dollar is expected to remain strong, which will put downward pressure on the yen, which will be good for Japanese stocks.
Starmer, the leader of the British Labour Party, officially became the Prime Minister of the United Kingdom. This is the sixth prime minister in eight years, and the Conservative Party will lose its 14-year rule, which has pushed the UK's equity and debt exchange rates higher.
The larger-than-expected deliveries and the appearance of the second-generation humanoid robot also pushed Tesla's stock price up for 8 consecutive days, directly erasing the half-year gains.
The rise in Microsoft's stock price has propelled former CEO Ballmer to a fortune surpass that of Bill Gates. Nvidia has suffered a rare downgrade.
【News of the Week】
Biden insists on not withdrawing from the election, Democratic senators can't sit still? The "Trump deal" is back in the market
It was reported on the 5th local time that Biden answered the question raised by the host about whether he would withdraw from the election in an interview with ABC News on Friday. According to the ABC, this is Biden's first television interview since the debate. When the media outlet, George Stephanopoulos, asked, "If you were convinced that you couldn't beat Trump, would you drop out?" Biden replied, "If God had told me, I might have done it." ”
Biden is still not free from the doubts raised by his poor performance in the first televised debate of the 2024 presidential election. In this context, according to a number of media reports such as ABC, Fox News, and The Washington Post, White House press secretary Karine Jean-Pierre said at a press conference on July 3 local time that Biden "will never" consider withdrawing from the race.
Senator Mark Warner, Democrat of Virginia, is reportedly trying to rally a group of Democratic senators to demand that President Biden withdraw from the presidential race. Although three House Democrats have called on Biden to step out of the race, most senators have been relatively silent so far. Werner spokesman Rachel Cohen neither confirmed nor denied that the senator believes Biden needs to step out of the race, but instead issued a statement in which he wrote, "Like many others in Washington and across the country, Senator Werner believes that this is a critical day for the presidential race, and he has made it clear to the White House." ”
It is reported that the disappointment of major Democratic donors with Biden is deepening, and Michigan Governor Gretchen Whitmer and California Governor Gavin Newsom are now regarded as the top candidates to replace Biden. According to reports, Biden said on July 5 local time that he had spoken with at least 20 members of Congress, and they all told him to "continue to run" and that Werner was the "only" person pushing him to quit.
After the "catastrophic" debate, the White House and the Biden campaign team were busy doing crisis public relations, but they still couldn't stop the "persuasion" calls of the Democratic funders. According to reports, on July 5, local time, the "Leadership Now Program", a business organization composed of top business leaders in the United States, sent a letter to the White House, calling on Biden to stop running "for the sake of American democracy and the future". The statement has been signed by at least 168 people, including major Democratic donors. At present, the number of signatures is still increasing. In the letter, the business leaders first praised Biden for "saving American democracy in the Civil War," and then stressed, "To strengthen this political legacy, we call on you to stop running for re-election and hand over leadership to the next generation of Democratic leaders."
The debate in Washington over whether President Joe Biden will withdraw from the election has spilled over to Wall Street, and traders are moving money to prepare for the possible impact on the dollar, U.S. Treasuries and other assets on Trump's return to the White House.
Biden has been rebalancing his portfolio since the end of last week amid concerns that the 81-year-old Democrat is too old to be fit for a second term.
There is a "Trump deal" in the financial markets. After the debate, the trading action was most intense in the bond market, with the benchmark 10-year Treasury yield rising 20bps in the following sessions. Speculation that Biden might drop out has risen sharply – according to betting markets, the odds of Biden being the final race are less than 50%.
One fund manager, who asked not to be named, said he was biased towards dollars and short-term debt to hedge against what he believed would be a spike in risks caused by Biden's withdrawal. Not a single president since Lyndon Johnson in 1968 has refused to seek re-election, and the November election is now just four months away.
National Australia Bank strategist Rodrigo Catril said "everyone" was preparing a trading plan in case Biden pulled out. "Regardless, the market is betting that Trump will win," Catril said. Democrats seem to be stuck in very difficult choices, none of which are easy, and none of which are likely to yield a better outcome.
Subadra Rajappa, head of U.S. rates strategy at Société Générale, said: "It's too early to fully predict the outcome of the election, but it's not too early to think about it a little. The recent move has been bearish steep, and it seems that the market believes that the odds of Trump winning are higher. ”
Labour won a landslide victory in the British election, Starmer became prime minister, and the Conservative Party's 14-year rule came to an end
On July 5, local time, Starmer, the leader of the British Labour Party, arrived at Buckingham Palace to meet with King Charles III of the United Kingdom, and officially became the Prime Minister of the United Kingdom after obtaining the approval of the king. This is the sixth prime minister in eight years, and the Conservative Party will lose its 14-year rule.
Starmer took advantage of the chaos within the Conservative Party to target the political centrists who traditionally won the British general election. He ousted Corbyn and positioned the Labour Party as a party to stabilize the economy. Rachel Reeves, a former Bank of England economist who will become the UK's first female chancellor of the exchequer, is key to Labour's corporate support.
In the face of Labour's expected victory, market performance continues to be positive, with volatility indicators in the FX and bond markets near multi-year lows.
"A page turns, and a new chapter begins," Reeves said after winning the Leeds West and Pudsey constituencies. "We will not disappoint you, and neither will I disappoint you. I'm ready to go. ”
The pound exchange rate, the UK stock market and gilts (i.e. UK government bonds) moved higher across the board on Friday. The FTSE 100, which focuses on undervalued blue-chip stocks, opened 0.38% higher, while the FTSE 250 mid-cap benchmark index rose 1.8% to its highest level since April 2022, suggesting that global money is starting to pour into the UK stock market. The decline in the yield on 10-year gilts to around 4.17% means that government bond prices have risen sharply, in line with the rest of Europe. The pound rose 0.1% to $1.2777 against the dollar after Labour's victory, holding steady against the euro at around 84.75p.
Ben Ritchie, head of developed market equities at Abdn, a leading investment institution, said: "The landslide election victory for the UK Labour Party provides the kind of policy clarity and stability that UK equities need in an increasingly volatile world. ”
"If the new UK government gets the voters right, companies with significant exposure to the UK economy should be the likely winners – especially for the FTSE 250 and FTSE small-cap constituents."
"We know Labour is going to win, so it's not going to change much and it's not going to be a game changer for the pound. We now want to know what Labour's specific plans are," said Kenneth Broux, head of corporate research for foreign exchange and interest rates at Société Générale. "Investors have been long the pound and the financial market sentiment in the UK is good and the outcome is not going to change that."
In the UK stock market, the performance of British homebuilders was the most prominent, with the benchmark index that tracks their shares rising sharply by 2.3%. Aruna Karunathilake, portfolio manager at asset manager Fidelity, said: "We believe that the formation of a Labour majority government will have a positive impact on UK housebuilders and building materials. ”。
"We expect Labor to revert to its home construction targets and perhaps also to fund investment from local planning departments...... This should ease builders' concerns about planning bottlenecks that are hindering medium-term growth. Karunatilak said.
Although the Bank of England kept interest rates unchanged at a 16-year high in June, traders insisted on raising bets on the Bank of England's August rate cut, and the expectation that the Bank of England will cut rates by up to 50 basis points by the end of the year, strongly supported the rally in the UK equity market and UK gilts ahead of the election. Looking ahead to the UK stock market, there are fund managers betting that the UK stock market will recover sharply regardless of the final outcome of the UK general election. Expectations of interest rate cuts and the strong investment appeal of many low-valued blue-chip stocks, speculative money that flows rapidly around the world – the "international hot money" – could flow into the UK stock market in large quantities from overvalued US stocks.
【Weekly data】
The actual trend of non-farm payrolls in the United States in June weakened significantly, and there is a high probability that the interest rate cut cycle will start in September?
The seasonally adjusted non-farm payrolls in the United States recorded 206,000 in June, higher than market expectations but slightly lower than the previous month's data. The unemployment rate recorded 4.1% in June, the highest since November 2021. Expected 4.00%, previous value 4.00%.
The non-farm payrolls report strengthened the case for the Fed to cut interest rates. U.S. stocks closed higher on Friday, led by technology stocks, with the Nasdaq and S&P 500 hitting new all-time highs. All three major stock indexes posted gains this week, with the Dow up 0.66% and the S&P 500 up about 2%. The Nasdaq rose 3.5%, marking its fifth consecutive week of gains.
According to Nick Timiraos, the "Fed megaphone", the US unemployment rate has risen by 0.22% since March (3.83%). In terms of the Sam rule, the 3-month average is up 0.42% from the 12-month low, which is getting closer to the 0.5% threshold. The "Sam rule" is that when the 3-month average of the unemployment rate is 0.5 percentage points above the 12-month low, the economy is in a recession.
Huatai Securities said that the June non-agricultural data is in line with the agency's previous judgment on the US economic slowdown, the decline in resistance to interest rate cuts, and the probability of interest rate cuts in September has further increased - the data has not been significantly repeated, and the start of the interest rate cut cycle in September may now be a high probability event. Compared with before the release of the data, the yields on 2-year and 10-year Treasury bonds fell by 3bp and 2bp to 4.64% and 4.30% respectively, the probability of interest rate cuts in September and before was flat at 80%, the cumulative rate cuts for the year rose by 1bp to 49bp, and the dollar index was flat at 104.9.
Derivatives market traders' bets on rate cuts have not changed. They see a 70% chance that policymakers will cut rates as early as September. For the whole of 2024, a total of 48 basis points of rate cuts are expected.
Gregory Faranello, head of U.S. interest rate trading and strategy at AmeriVet Securities, said, "This data is positive for the Fed and the Treasury market, and the Fed will be highly vigilant about the performance of the job market"
"The downward revision of the first two months combined with the rise in the unemployment rate is an important data point. Wage growth is also slowing," said Kathy Jones, chief fixed income strategist at Charles Schwab, "all of which point to a slowdown trend." ”
U.S. Treasury yields were lower after the report, with the S&P 500 opening largely flat. Investors are currently expecting the Fed to cut interest rates twice in 2024, according to futures contracts.
These data could change the Fed's view of the balance of risks as the unemployment rate rises against the backdrop of slowing inflation. The minutes of the central bank's June meeting showed that there was a split of opinion within policymakers, with growing concerns about a sharper rise in unemployment due to further weakness in the job market.
These data do not help embattled President Joe Biden. His disastrous performance in the debate with former President Donald Trump has led to a growing number of Democrats demanding to withdraw from the race.
【Weekly Market】
The Japanese stock market soared and the Topix index hit a record high
Recently, the Japanese stock market has soared across the board. On July 4, the Topix Index, which tracks the stocks of more than 2,100 companies, rose 0.92% to 2,898.47 points, breaking through the all-time peak set in December 1989 during the bubble period. On July 5, the Topix index retreated slightly after surpassing the intraday all-time high of 2906.80. The Topix index fell 0.11% to 2,895.39 points, and has risen more than 22.3% so far this year.
According to The Paper, in a research report on June 22, Huafu Securities wrote in its analysis of the reasons for the rise in the Japanese stock market, "Although Abenomics failed to achieve its inflation and economic growth targets, it played a certain role in supporting the Japanese stock market." The initial policy boost to market confidence, coupled with the stability of the global economy, especially the U.S. stock market, provided an upward impetus for the Japanese stock market, and the direct market intervention of the Japanese government and the central bank, especially the large-scale equity investment of the pension fund, provided support for the stock market, among which the information technology and industrial sectors have performed prominently in the past decade, thanks to the government's policy support and the global technology wave, as well as the export competitiveness of the depreciation of the yen and the technological innovation of enterprises. ”
"Japanese stocks started the year with a continuation of the rally in 2023, but the follow-up was weak, and the exchange rate was the key factor. The transmission logic of the yen exchange rate to the stock market has changed from depreciation to increase overseas revenue to excessive depreciation to discount yen assets, and 150 points is the key point for logic switching in the first half of the year. However, the trading volume of Japan's core assets has shrunk since June, and the market's consistent outlook for Japanese stocks for the quarter has strengthened, so after the yen fell below the 160 integer mark, Japanese stocks did not continue to fall but rebounded. Guosen Securities analyzed on June 30.
Analysts believe that under the "Trump trade", the dollar is expected to remain strong, which will put downward pressure on the yen, which will be good for Japanese stocks.
Tomo Kinoshita, a global market strategist at Invesco Asset Management Japan, was quoted by the media as saying: "The yen has depreciated against the dollar due to the rise in US bond yields, which will support the Japanese stock market." ”
Historically, there has been a similar scenario in Japanese stocks. After Donald Trump won the U.S. presidential election in 2016, Japan's Topix index rose nearly 30 percent in dollar terms in a year, outperforming the S&P 500 and the MSCI World Index, which each rose about 20 percent.
The yen is trading near a 36-year low against the dollar, and Japan's 30-year government bond yield hit a 13-year intraday high on Thursday, ending years of low interest rates once and for all. Some analysts believe that the Japanese economy has shaken off deflation and is gradually recovering.
Naka Matsuzawa, chief strategist at Nomura Securities, believes that the Japanese stock market will be one of the better options for global investors, and bank stocks should perform better as the Bank of Japan shifts its ultra-loose stance.
How long can the current "Trump trade" in financial markets last?
As the probability of Trump's victory grew, financial markets staged a "Trump trade": the U.S. Treasury curve steepened, the dollar index also remained strong, stabilizing above 105, "Trump stocks" (energy, steel, banks, etc.) rose, and crude oil also remained strong.
Industry analysts said that the current market ahead of the "Trump deal" focuses on the impact of its tax cut policy on the profitability of U.S. companies, but has not yet priced in the tariff outlook. The current economic and inflationary environment in the United States is markedly different from 2016, and there is still uncertainty about a repeat of the 2016 "reflation" trade.
According to Yicai, Sun Wu, chief financial market analyst of Mitsubishi UFJ Bank (China) Co., Ltd., believes that the expectation of Trump's election is heating up, and the demand for safe haven has strengthened to boost the dollar. Trump's policies could lead to a resurgence of inflation and a steeper bond curve. The "Trump market" has reappeared, but the long-term impact remains in doubt.
Both Morgan Stanley and Barclays are urging clients to prepare for high inflation and rising long-term bond yields during Trump's next term.
Morgan Stanley said that the increased likelihood of Trump winning the U.S. presidential election, in which case U.S. economic growth could slow and inflation could accelerate, making bets on a steepening of the U.S. Treasury yield curve becoming attractive.
"Markets must now deal with the rising likelihood of changes in immigration and tariff policy, and U.S. economic growth is already cooling, making it more likely that the market will be pricing in the impact of the Fed's rate cuts," the strategists added. "And against the backdrop of growing concerns about deficits, the increased likelihood of a Republican victory could pose upside risks to long-term Treasury yields." In addition, Barclays also advises investors to hedge against inflation in the U.S. bond market.
Data from JPMorgan Chase & Co. showed that there was a momentum in the spot market to bet on a steepening of the Treasury yield curve. The bank's latest survey of clients showed that positions betting on the rise in Treasuries fell by 5 percentage points, with net long positions falling to their lowest level since June 10.
The premium paid to hedge the long-end of the yield curve has shifted from bullish to bearish. Since the end of May, when the yield on the 30-year Treasury note peaked above 4.65%, traders were paying the highest price to hedge against the sell-off in long-term Treasuries. The most striking aspect of the past week has been short positioning, with the 10-year Treasury yield reaching a high of 4.55% on August 23.
【Company of the Week】
Eight days in a row! Tesla erased its half-year decline
As of the close of the U.S. stock market on July 5, Tesla rose 2.09% to $251.55, approaching the closing level of $253.18 on December 28, 2023, rising for eight consecutive trading days, up more than 37.77% since the close on June 24, and up 27.12% this week, erasing the decline so far in 2024.
On the news, car deliveries in the second quarter fell by nearly 5% year-on-year, marking the second consecutive quarter of decline, but the result exceeded Wall Street's expectations. Tesla also retained its position as the world's No. 1 electric vehicle seller with deliveries in the second quarter.
"Tesla's worst is behind us, and we believe the EV demand story is starting to return to the disruptive tech giant," Wedbush Securities technology analyst Dan Ives wrote on Wednesday, raising his Tesla price target to $300 from $275 and reiterating an "outperform" rating.
On July 4, at the 2024 World Artificial Intelligence Conference (WAIC 2024), Tesla's second-generation humanoid robot Optimus was officially unveiled. According to the Shanghai Securities News, the relevant person in charge of Tesla said that the second-generation Optimus has increased its walking speed by 30% on the basis of upright walking; Its fingers have also "evolved" to the point that, in addition to their senses of perception and touch, they can "maneuver" with ease when holding eggs lightly and carrying heavy loads.
According to the Investment Promotion Service Center of Shanghai Lingang New Area, a number of state-owned enterprises, including Chengtou Xinggang Group and Lingang Investment Holding Group, have recently taken the lead in purchasing a batch of Tesla Model Y vehicles as corporate functional vehicles. This is also a positive response of the Lingang Special Area to implement equal treatment of domestic and foreign-funded enterprises in government procurement activities.
Nvidia this week: Huang sold stocks, a rare rating downgrade, antitrust risks
Nvidia CEO Jensen Huang reduced his holdings of nearly $169 million worth of shares in June, setting a record for his highest profit in a single month. Huge demand for chips to power artificial intelligence has pushed the company's stock price to new highs.
It was the first time he sold 1.3 million shares this year, and this month, Nvidia's market capitalization exceeded $3 trillion for the first time. It made it the world's most valuable company and made Mr. Huang, 61, one of the few super-rich people with a fortune of more than $100 billion.
However, Nvidia has not been flat this week. There is news that the French antitrust enforcement agency is preparing to sue Nvidia for alleged anti-competitive conduct.
The French institution will be the first in the world to take such a step, people familiar with the matter said. The indictment (or statement of dissenting statement) will be made public after last year's raid on Nvidia's offices.
Pierre Ferragu, an analyst at New Street Research, believes that Nvidia's high-speed rally since the beginning of last year has come to an end, and the stock has no room for further gains at the moment. Ferragu downgraded Nvidia to neutral from buy and said the stock "fully reflects valuation" after surging 154% this year, building on a nearly 240% rise in 2023. The stock fell 1.9% on Friday, compared with a 1% rise in the Nasdaq 100. He added that the additional upside "will only materialise in the event of a bull market, i.e. a significant improvement in the outlook beyond 2025, but we are not yet confident that this will happen".
【People of the Week】
Former Microsoft CEO Ballmer's fortune surpassed Gates for the first time to become the sixth richest person in the world just because he chose to continue to hold!
On Monday local time, Steve Ballmer, the former CEO of Microsoft, surpassed Bill Gates to become the sixth richest person in the world, which is the first time that Ballmer has surpassed the co-founder of Microsoft on the global rich list. The reason why Ballmer's value has soared has a lot to do with his stake in Microsoft. For now, he is likely to still hold about 4% of Microsoft's shares. And Microsoft's market capitalization has exceeded $3.4 trillion. This is also the most important component of Ballmer's worth.
The change comes as Microsoft's stock price hit a new high, up 21% for the year. Through its partnership with OpenAI, the company has been one of the biggest beneficiaries of the AI boom that has propelled the U.S. stock market higher.
More than 90 percent of Ballmer's $157.2 billion net worth is Microsoft stock. At the same time, Gates diversified his $156.7 billion fortune: about half of his wealth was held through Cascade Investment, which was created with the proceeds from the sale of Microsoft shares and dividends. He also holds a $21 billion stake in waste management company Republic Services through Cascade.
In addition, the 68-year-old Gates has been slowly reducing his wealth through philanthropy. Together with his ex-wife, Melinda French Gates, and his friend Warren Buffett, he invested large sums of money to establish the $75 billion Gates Foundation, one of the largest philanthropic organizations in the world.
Since founding the foundation more than 20 years ago, Gates and his ex-wife have donated nearly $60 billion from their personal fortune. Frankie Gates recently stepped down as co-chair of the Gates Foundation and received $12.5 billion for his own philanthropy.
In 2010, Gates, Frankie Gates, and Warren Buffett also founded the Giving Pledge organization, which encourages the world's richest people to give away most of their wealth during their lifetimes or after their deaths. Ballmer, 68, who has not signed the Giving Pledge, has his own philanthropy, but on a nowhere near scale.
In 1975, Gates and his friend Paul Allen co-founded Microsoft and led it until 2000, when Ballmer, one of the company's earliest employees, succeeded him as CEO. Ballmer retired in 2014 and became Microsoft's largest shareholder that same year. In 2014, he bought the NBA team Los Angeles Clippers for $2 billion, an investment estimated to be worth $4.6 billion today.
【Next Week's Preview】
Next week's news preview (Beijing time):
Tuesday, July 9:
22:00 Fed Chairman Jerome Powell delivers semi-annual monetary policy testimony before the Senate Banking Committee
Wednesday, July 10:
10:00 RBNZ interest rate decision
22:00 Fed Chairman Jerome Powell delivers semi-annual monetary policy testimony before the House Financial Services Committee
22:30 U.S. EIA CRUDE OIL INVENTORIES FOR THE WEEK ENDING JULY 5
Thursday, July 11:
14:00 UK GDP (May), Germany CPI (June)
20:30 US CPI for June, US initial jobless claims for the week to July 6
Friday, July 12:
14:45 France June CPI
20:30 US PPI for June