Report by Renta 4
European markets opened higher (Eurostoxx 50 futures up 0.3%, S&P 500 up 0.6%, Nasdaq 100 up 1.9%), reflecting Micron Technology’s strong results yesterday after the US market close. Shares in the largest US manufacturer of memory chips rose by 18% in after-hours trading, after its quarterly figures and guidance significantly exceeded consensus estimates, indicating that the AI-driven growth cycle remains robust. Demand for conventional memory chips and high-bandwidth memory (a key component in AI systems) continues to outstrip supply. Micron stated that it is capitalising on the shortage to secure long-term contracts (many lasting up to five years) with more customers, which gives the company greater visibility over sales.
South Korea’s Kospi index has risen by more than 6 per cent, reacting positively to Micron’s figures. Its peer, SK Hynix, rose by 15 per cent after announcing that it is seeking to raise approximately $29,000 million through a US stock market listing.
The other key player is Brent crude, which fell for the fourth consecutive day to levels below $73 per barrel (pre-conflict levels), as flows through the Strait of Hormuz are gradually recovering. The notion that we are shifting towards higher supply and lower demand is driving prices down. Discretionary consumer companies, which have been hit hard so far this year, performed well yesterday, due to the implications of lower energy costs for consumers’ increased disposable income.
Today, the focus on the macro front will be on the US core private consumption deflator, the Fed’s preferred inflation indicator (for the time being, until Warsh changes it), for which a slight year-on-year rise to 3.4% is forecast (against 3.3% previously), which would justify the Federal Reserve’s ‘hawkish’ stance as it sits clearly above the 2% inflation target. It is worth noting, however, that yesterday’s yields moderated (T-bonds down 9 bp to 4.4%), supported by the fall in Brent crude.
Meanwhile, China has begun the process of issuing up to €5,000 million in sovereign bonds in what could become the largest euro-denominated issue of its kind in the country’s history. Separately, the country’s central bank is introducing an overnight tranche into its open market operations, a key step towards restructuring its mechanism for controlling short-term funding costs.
In conclusion, with Brent back at pre-conflict levels and Micron dispelling some doubts about the visibility of its results, it seems that the market faces fewer uncertainties today than it did two weeks ago.
