Report by Renta 4
European markets opened lower (Eurostoxx 50 futures down 0.4%, S&P 500 down 0.3%, Nasdaq 100 down 1%), dragged down by Asian markets, notably the South Korean Kospi index, which fell by more than 7% following the publication of Samsung’s preliminary Q2 figures (full results expected on 30 July) which, despite operating profit having increased nineteen-fold, fell short of the highest consensus estimates and caused the memory giant to drop by around 10 per cent, dragging down, in the process, other companies in the sector such as South Korea’s SK Hynix (down 11 per cent) and Japan’s Kioxia (down 12 per cent). In addition to the memory sector, the Kospi has been affected by other sharp falls, such as Hanwha Ocean, which fell by nearly 25% following the loss of a US$39,000 million contract to replace Canada’s submarine fleet, or LG Energy (down 9%), which reported a significant and much larger-than-expected cut in its preliminary profit, fuelling concerns about weak demand for electric vehicle batteries.
On another note, we see that pressure on the yen remains, with speculative short positions at their highest since 2007, driven by interest rate differentials between the United States and Japan (revised expectations of higher rates by the Fed and gradual rises by the Bank of Japan), concerns over Japan’s fiscal trajectory and doubts about the lasting effectiveness of any intervention. Against this backdrop, the yield on the 30-year Japanese government bond continued to fall following an auction that saw stronger demand.
As for the crude oil market, Saudi Arabia cut the selling price of its oil to Asian buyers, setting it at a discount to the regional benchmark for the first time since 2020. This has reinforced the view that its prices were not competitive enough to attract Asian buyers, given the availability of cheaper supplies from other producers. The narrative in the oil market is shifting towards a scenario of oversupply, as Gulf producers ramp up output and shipping flows through the Strait of Hormuz return to normal.
Here, in Europe, various global brokers are advising a degree of caution ahead of the earnings season which begins in the coming weeks, given challenging valuation levels despite the European economy showing some signs of improvement. It is believed that the expansion of multiples, rather than earnings, has driven most of the rises, leaving upward revisions to earnings as the main determining factor.
