Key Stories from the past week: Falling inflation and equity rotation

This week saw a net reduction in the number of Tesla positions held by Saxo clients as investors chose to cash in on the shares +80% price jump since the April low. Away from Tesla we see broad inflows into Europe and America’s top share names along with inflows into major etfs. Funds attracting investment include iShares Core MCSI World, iShares S&P 500 Info Technology Sector, iShares Edge MCSI World Quality Factor, iShares Core MSCI Emerging Markets IMI and iShares MSCI India.

US Inflation falls faster than expected
US CPI June came in softer than estimated with inflation falling to +3% YoY. The numbers bolstered market expectations the Federal Reserve will start to cut the US target rate from September causing yields to fall on both sides of the Atlantic and led yield curves to bull steepen. The two-year U.S. Treasury dropped by 10.8 basis points to 4.51%, while ten-year yields dropped by 7.6bps to test support at 4.18% but failed to close below it.
- Faster disinflation paves the way for imminent rate cuts

Incoming rate cut sparks a megacap selloff
Cooling US inflation was the trigger for large-caps like S&P500 and tech-heavy NASDAQ100 to fall as the tech giants sold off heavily. Markets rotated towards laggards like small-cap Russell 2000 partly on an expectation the rest of the market will close the gap with megacap. The Alternative Energy sector gained +5.75%, Real Estate companies had their best day of the year, and Homebuilders also rose due to signs of lower interest rates. Thursday showed that modest news developments can aggravate the imbalances being created by a phenomenon known as The Dispersion Trade, a massive options-trade that has proven wildly successful in recent months.
- Everyone on Wall Street is taking these key risks

Taiwan Semiconductor makes the Trillion Dollar club
Taiwan Semiconductor Manufacturing Co. reported Q2 revenue growth estimate of 40% YoY exceeding expectations of 35.5% driven by strong demand for AI infrastructure. Taiwan Semiconductor dominates the high-end chip manufacturing market, including the 3-nanometer and 2-nanometer chips that are expected to power the next generations of smartphones. The company is a big supplier to Nvidia and Apple and was boosted on Wednesday when Apple said it plans to ship 1-% more new iPhones in 2024.
-TSMC leads chips stocks higher. Sales show AI boom isn't over.

US Banks kick off earnings season
JPMorgan reports a Q2 profit jump of +25% boosted by a rebound in dealmaking in its investment bank. Q2 Adj rev $50.99bn, EPS $6.12. Provision for credit losses of $3.1bn is bigger than expected and net reserve build increases to $821m. Shares drop more than -1% in US pre-market. Wells Fargo reports Q2 Revenue and EPS that beat analyst estimates. However shares drop more than -7% in premarket after the lender reported climbing expenses and a Q2 net interest income miss with FY24 now expected to be down 7-9% from 2023’s $52.4bn.
-Big banks continue to feel the pressure from higher rates

Next week brings China Q2 GDP figures (Monday), US June retail sales (Tuesday), UK and EU June CPI (Wednesday), ECB rate policy meeting (Thursday). Jerome Powell will also speak again on Tuesday as will other FOMC member throughout the week. Earnings season will get into full flow with some highlights including; Goldman Sachs (Mon), UnitedHealth Corp, Bank of America, Morgan Stanley (Tues), ASML, Johnson & Jhonson (Weds), Netflix, Novartis, Abbott Laboratories (Thurs), American Express, Schlumberger (Fri).