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Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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London Quick Take – 4 June - European stocks advance as Wall St gains on hopes for Trump-Xi talks
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
European stocks were lifted with the DAX +1% on a report that the German government is planning to pass a package of tax breaks worth an estimated €46bn, while falling inflation in the Euro area is another big boost for risk appetite. Also lifting sentiment, Airbus rallied 4% on a report that China is considering placing an order for hundreds of aircraft in next weeks. Rheinmetall will join the Stoxx 50 benchmark on 20 June, replacing Kering SA. Rheinmetall's shares have risen some 200% this year on the boom in European military spending and generational realignment of the geopolitical map of Europe. More ammo is needed basically (see yesterday’s snapshot of the UK defence sector I published here...note Babcock up big again today).
Today will see G7 countries hold talks on trade at an OECD meeting in Paris ahead of their summit in Canada in two weeks – the key is whether there is much appetite to nail your colours to a trade deal with Trump before court cases are complete in the US. The US Court of International Trade’s ruling against Trump’s ‘Liberation Day’ tariffs prolongs the situation and creates further uncertainty. But markets seem content to see the glass half full for now. The G7 summit in Canada kicks off in 11 days. The White House has pushed for countries to submit their best and final offers by today...could we see an announcement from Trump if he doesn’t get what he wants? There is scope for another hit-and-TACO move here.
London Quick Take – 4 June - European stocks advance as Wall St gains on hopes for Trump-Xi talks
Key Points
- Rate cuts are coming
- FTSE 100 steady as Europe gets another lift
- CrowdStrike dips on soft guidance, US tech holds up
- G7 countries holding trade talks today ahead of June 15th summit
European stocks were lifted with the DAX +1% on a report that the German government is planning to pass a package of tax breaks worth an estimated €46bn, while falling inflation in the Euro area is another big boost for risk appetite. Also lifting sentiment, Airbus rallied 4% on a report that China is considering placing an order for hundreds of aircraft in next weeks. Rheinmetall will join the Stoxx 50 benchmark on 20 June, replacing Kering SA. Rheinmetall's shares have risen some 200% this year on the boom in European military spending and generational realignment of the geopolitical map of Europe. More ammo is needed basically (see yesterday’s snapshot of the UK defence sector I published here...note Babcock up big again today).
Today will see G7 countries hold talks on trade at an OECD meeting in Paris ahead of their summit in Canada in two weeks – the key is whether there is much appetite to nail your colours to a trade deal with Trump before court cases are complete in the US. The US Court of International Trade’s ruling against Trump’s ‘Liberation Day’ tariffs prolongs the situation and creates further uncertainty. But markets seem content to see the glass half full for now. The G7 summit in Canada kicks off in 11 days. The White House has pushed for countries to submit their best and final offers by today...could we see an announcement from Trump if he doesn’t get what he wants? There is scope for another hit-and-TACO move here.
US stock markets rallied Tuesday led by tech with Nvidia posting solid gains again. The market seems to think that President Trump speaking to China’s Xi this week is good for relations between the US and China. The inevitable noise though as Trump said on Wednesday that China’s President Xi Jinping was “extremely hard” to make a deal with. Meanwhile Elon Musk blasted Trump for his tax and spending bill.
CrowdStrike was the big faller after-hours in the US, declining about 6.5% after the company’s guidance fell short of expectations. The firm called for $1.14 billion to $1.15 million in revenue in the July quarter, shy of the average analyst estimate of $1.16 billion. Revenues rose 20% but still posted net loss..shares priced highly but still a retail favourite.
Among the mid-caps in London, Martin Sorrell’s s4Capital shares jumped 5% despite the company cutting its annual revenue forecast after warning that its major tech clients continue to prioritise capital expenditure on expanding AI capacity over operating expenses like marketing spend. Clients are also likely to remain cautious due to macroeconomic uncertainty. The positive for the company is AI is part of its schtick and Sir Martin is confident they will start to apply more technologies, “such as, but not only AI, to drive efficiency in a slower growth, higher inflation and higher interest rate environment.”
A 13% fall in operating profit did for B&M European Value Retail, with shares down 5% early doors today. It’s cut prices, which hits margins, and it’s seen its customers, who are at the lower end of the income scale, squeezed the most by inflation and higher household bills, as well as lower wage growth. Shares are down about 11% so far this year.
Big Picture
Rate cuts are coming...developed world central banks seem to have a clearer path to do more rate cuts this year as inflation cools and economic and trade policies remain fluid and uncertainty. The RBA looked at a 50bps cut, Swiss inflation turns negative, Eurozone inflation drops below target. The Bank of England will continue cutting rates, governor Bailey made it pretty clear yesterday, signalling weaker pay and inflation this year. The question is how far and how fast. have we left inflation behind? Can markets now relax about central banks loosening policy rates further without stoking inflation? If so, it could be very positive for risk assets.
The European Central Bank is a nailed-on certainty to cut tomorrow, particularly as yesterday’s data showed inflation in the Eurozone fell to 1.9% in April from 2.2% the month before and below the 2% estimated. We could see the ECB lower its benchmark policy rate to 1.5% from today’s 2.25% over the next 3-4 months, implying two more cuts after tomorrow.
JOLTS jobs data from the US yesterday was interesting – hiring picked up but so did layoffs...there was actually not a lot of churn at all actually. The data comes ahead of the May jobs report due out this Friday, which could be shaping up for a low 64k number according to Apollo (Slok). This will matter for how quickly the Fed moves on rate cuts. The key is once the hard data catches up with the soft survey reports – then we see the Fed pivot from ‘wait and see’ to ‘let’s cut’. All points lead to lower rates.
For a global look at markets – go to Inspiration.
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