US election heats up, Alfen rout, and Micron earnings US election heats up, Alfen rout, and Micron earnings US election heats up, Alfen rout, and Micron earnings

US election heats up, Alfen rout, and Micron earnings

US Election 2024 5 minutes to read
Peter Garnry

Chief Investment Strategist

Key points

  • Market winners and losers: Japanese equities surged by 2.8% due to the weakening JPY, boosting export profits, but raised concerns about potential U.S. currency manipulation accusations. Energy stocks also performed well, up 3.2%, with significant gains from oil and gas companies like Baker Hughes, Schlumberger, Petrobras, Equinor, and Exxon Mobil. In contrast, technology stocks declined by 2.5%, led by Nvidia, Xiaomi, Qualcomm, and Micron Technology, as large institutional investors started selling tech stocks, signaling a possible market rotation.

  • US presidential debate and market reaction: The first US presidential debate between Trump and Biden highlighted Biden's age as a major issue, raising stakes for the Democratic National Convention. The market reacted positively, with US equity futures pointing to a higher open, as Trump's perceived win alleviated market concerns about his potential return to presidency.

  • Challenges in the green energy sector: Alfen's shares plunged by 47% due to postponed deals and a forecasted revenue decline in energy storage systems. This reflects broader challenges in the green transformation sector, with companies like Statkraft scaling back their renewable energy ambitions due to higher commodity prices, interest rates, and lower electricity prices. Despite this, the green transformation basket had a good week, driven by positive news from Rivian's partnership with Volkswagen.

Japan and energy stocks are the comeback kids

The two biggest winners over the past week have been Japanese equities up 2.8% as the JPY continues to weaken inflating export profits. However, the weaker JPY is raising the stakes that the US government could designate Japan as a currency manipulator which could pre-emptively force Bank of Japan to raise its policy rate faster than expected to close to policy rate gap to the rest of the world.

Energy stocks were another big winner the past week up 3.2% with oil and gas services providers such as Baker Hughes and Schlumberger as the key gainers but also oil and gas majors such as Petrobras, Equinor, and Exxon Mobil.

Technology stocks were the biggest loser over the past week down 2.5% driven by Nvidia, Xiaomi, Qualcomm, and Micron Technology. Several large US investment firms are talking about large institutional clients have begun selling technology stocks. The beginning of a rotation in the equity market could be under way.

First US presidential debate shocks the Democratic core

Last night, Trump and Biden hit it out at the first US presidential debate. The general takeaways across US media are that Biden crashed with age becoming the key issue and talking point that will potentially overshadow any political discussion from the Democrats. According to this Wall Street Journal article, there are now serious talks inside the Democratic Party about replacing Biden, but whether it will happen or not is too early to say. But last night’s debate clearly raises the stakes ahead of the Democratic National Convention from 19 to 22 August. However, as this AP News article says, it is not easy to replace Joe Biden on the presidential ticket.

In terms of the market reaction it is so far positive as US equity futures are pointing to a higher open of around 0.4%. Given that Trump was the perceived winner last night the immediate interpretation is that the market is not worried about another period with Trump as US president.

Alfen plunges  as bad news pour over the green transformation

The biggest single stock story this week was the 47% plunge in Alfen shares as the energy storage company said deals in Q2 are being postponed and that energy storage systems revenue will be down 20% in 2024. The worsening demand in the green transformation part of the economy is getting widespread with Statkraft, Norway’s largest electricity producer and Europe’s largest producer of renewable electricity, also saying yesterday that it is scaling back ambitions in solar, wind, and hydrogen. The return on investment calculations are simply not as rosy any longer due to higher commodity prices, higher interest rates, and low electricity prices.

Our overview of theme basket performance is showing that the energy storage basket, which includes Alfen, is the worst performing basket this week down 7.1% making it the worst performing basket this year down 32.8%. Renewable energy and the energy storage baskets are highly correlated which can be seen from performance.

At the other end of the spectrum the green transformation basket had a good week up 4.6% being the best performing basket. One of the news driving the performance in this basket was Rivian announcing this week that Volkswagen is investing $5bn into the business and planning a joint-venture for the next-generation electric vehicles. Rivian also announced this week that Q2 deliveries will range 13-13.3k vs est. 10.2k reflecting a priority to bring down inventory.

Alfen | Source: Saxo

Micron shares plunge on unrealistic expectations

Micron Technology shares were down 7% yesterday after reporting what was actually a strong earnings with FY24 Q3 figures beating estimates and the FY24 Q4 revenue and EPS guidance was higher than estimates. The fact that Micron shares sold off indicates that expectations are so high in the AI ecosystem of stocks that it is almost possible to meet at this point. Micron said that it expected pricing of its memory chips to continue rising and that AI demand drove a 50% QoQ revenue growth in its data centre business. Despite the setback, Micron is still one of the best performing stocks this year up 55%.
JOLTS job openings divided by the number of unemployed people | Source: Bloomberg

Next week: Germany CPI, JOLTS, FOMC Minutes, NFP, and earnings drought

Macro will dominate next week’s trading action and below we highlight the key events to watch.

  • Germany CPI: Europe’s largest economy reports June CPI figures on Monday with consensus looking for +0.2% MoM vs +0.1% MoM in May while the YoY figure is expected to decline to 2.3% down from 2.4% in May. Inflation pressures remain muted in Germany but with inflation ticking higher in Spain and Australia recently there are still inflation dynamics playing out and it is too early to say whether inflation is on track to sustainably dip below the 2% target.

  • JOLTS job openings: The JOLTS job openings data have gotten more focus in recent years and the May figures are published on Tuesday. In April, the figures declined to 8.06mn from 8.36mn in March and down from 9.9mn in April 2023. The decline in US job openings is suggesting that the current policy rate is slowing down the labour market, but the labour market is still as tight as before the pandemic. Many market observers have forgotten that inflation and wage pressures were actually building just before the pandemic and thus the current labour market would still be categorized as tight with around 1.24 available jobs for every unemployed person in the US economy (see chart below).

  • FOMC Minutes: Released on Wednesday for the rate decision (no change) on 12 June. The FOMC Minutes were releases on 22 May and here the Fed expressed the reasons for keeping the policy rate unchanged. It mentioned “lack of further progress towards the Committee’s 2% inflation objective” and “continued solid growth”. The Fed highlighted that inflationary pressures are persistent in the US economy and that especially core services inflation excluding housing (the “supercore” measure) had increased. It will take longer than previously expected to get inflation back below the policy objective of 2%. The previous FOMC Minutes also explained why the Fed has slowed the reduction in the Fed’s securities holdings from $60bn per month to $25bn while mainlining the reduction in mortgage bonds at $35bn per month. The reason was to facilitate a smooth transition from abundant to amble reserve balances and reducing the likelihood of undue stress in money markets.

  • Nonfarm Payrolls: The official US labour market figure on employment is published on Friday with estimates looking for a monthly change in June of 188k compared to 272k in May which was the big surprise. There is a lot of noise in the US monthly employment figures and they revised multiple times after the first release. If we look at the 6-month average then it has increased around 204k in November 2023 to 255k in May suggesting the US economy is still producing new jobs at a healthy pace.

  • Earnings: Next week is very thin on earnings releases with Constellation Brands as the only meaningful earnings release to watch on Wednesday (reporting before the market opens). Analysts expect Constellation Brands to report FY25 Q1 (ending 31 May) revenue growth of 6% YoY and EBITDA $1.02bn down from $1.05bn a year ago.
Alfen share price | Source: Saxo

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