Report by Renta 4
European markets opened lower (Eurostoxx futures down 0.8%, S&P 500 down 0.8%, Nasdaq 100 down 1.6%), with profit-taking continuing, particularly amongst chip and memory manufacturers (yesterday Nasdaq down 1.6%), and this is also being felt in Asia (Japan down 5%; South Korea closed for a public holiday), despite strong results in recent days (TSMC, Samsung) and in a market that is questioning the sustainability of valuations, with China unveiling AI models that are catching up with their American counterparts, and where volatility is intensifying due to leveraged ETFs (South Korea is considering regulatory measures to curb this volatility).
On the macro front, we highlight yesterday’s positive data from the US, where retail sales accelerated in June, whilst the Philadelphia manufacturing survey rebounded to 2022 highs in July.
Today, attention will focus on consumer confidence from the University of Michigan, which could improve in July, whilst in the Eurozone we will see the final June CPI figures confirm the preliminary data, which showed a moderation (headline rate 2.8% against 3.2% previously and core rate 2.4% against 2.6% previously).
Looking ahead, the trend in energy prices will be key to determining the macroeconomic outlook (for inflation and growth) and, consequently, the monetary policies of the major central banks; attention will therefore remain focused on the Middle East and, in particular, the Strait of Hormuz. Neither the US nor Iran wants all-out war, but both are using military escalation as a bargaining chip (the US launched its sixth consecutive day of attacks against Iran yesterday). The risk? An ever-narrowing margin for absorbing further incidents without the process breaking down completely. For its part, the IEA (International Energy Agency) warns that if the Strait is not fully reopened “within weeks, not months”, the global economy will suffer (due to the depletion of stocks). For the time being, Brent crude remains at $85/barrel (up 20% from the lows at the start of the month) and the market is pricing in interest rate rises by the Fed and the ECB for September.
In this regard, yesterday the president of the Dallas Fed, Lorie Logan (a voting member), urged the adoption of “modestly” higher interest rates, noting that current inflation remains too high to meet the Fed’s 2 per cent target, and that if it were to remain high for too long, it would require more aggressive rate rises.
She also believes that higher rates now would better balance the prospects and risks of the dual mandate, and emphasised that a single month of relief (the June CPI and PPI data) is not enough, as inflation still does not appear to be heading sustainably back towards 2 per cent. For his part, Jeff Schmid of the Kansas City Fed (non-voting) stated that inflation remains “too hot”. He also pointed out that the breadth of inflation extends beyond energy and warned that, despite the improvement in the June data, this is insufficient to signal a lasting trend.
At the corporate level, we highlight S&P’s downgrade of Oracle to BBB-, the lowest investment grade level, citing high leverage, a deterioration in cash flow exacerbated by the upward revision of 2027 capital expenditure (to $90-95 billion), excessive concentration on OpenAI (approximately half of outstanding contracts) and a loss of bargaining power.
