July 4 2024: Global stocks continued to reach new record highs on Thursday after U.S. data increased the likelihood of a September Fed interest rate cut. Meanwhile, Europe was on alert as U.K. voters participated in national elections.
Market Reactions Amid UK Elections
The July 4 holiday in the United States resulted in thin trading. Investors were cautious, waiting to see the extent of the Labour Party’s potential victory as results were expected to start coming in late in the evening.
Markets have anticipated this change, with opinion polls predicting a landslide victory for the centre-left party over the Conservatives, who have been in power for 14 years, managing Brexit and the COVID-19 pandemic.
“After being very negative on sterling for a long time, institutional investors are approaching this election with a neutral stance,” said Michael Metcalfe, head of macro strategy at State Street (NYSE) Global Markets.
This neutrality is partly due to rising political risks in France, which holds the second round of its parliamentary elections in three days, and in the United States ahead of its November Presidential vote.
“The UK has unexpectedly ended up in a neutral position,” Metcalfe added. “Also, the election result has never really been in doubt.”
London’s FTSE rose 0.6% for the second consecutive day of gains. The MSCI’s main global index also notched a new record, while sterling crept up to $1.2760, having risen nearly 4% against the dollar and 2.2% against the euro since April.
Across the English Channel, polls suggested that the National Rally (RN) would not win a majority in Sunday’s French election as mainstream parties moved to block the far right.
France’s bond yields, which move inversely to price and are a proxy for government borrowing costs, edged higher as investors watched for a challenging €10.5 billion French bond sale.
Technology Sector Gains
Wall Street hit more record highs on Wednesday as Nvidia (NASDAQ) jumped 4.5%. Asia-Pacific shares rose nearly 1% overnight, reaching their highest levels since April 2022. Japan’s Nikkei climbed 0.8%, nearing its March peak, while the broader Topix hit all-time highs. Taiwan’s main index also set a record, led by the tech sector, and Taiwan Semiconductor Manufacturing Co (TSMC) surpassed T$1,000 for the first time.
Economic Data and Fed Expectations
The U.S. ISM services activity measure fell to its lowest since mid-2020, with weak employment data ahead of Friday’s June payrolls report. Analysts noted discrepancies between the ISM and PMI surveys but highlighted easing inflation indicators in both.
Citi’s U.S. economic surprise index fell to -47.5, the lowest since August 2022, while the Atlanta Fed’s GDPNow estimate dropped to 1.5% from 1.7%. These data points suggest a cooling economy, aligning with the Federal Reserve’s minutes, which indicated a desire for more evidence of economic slowdown before cutting rates.
Markets raised the probability of a September rate cut to 74% from 65%, with expectations of 47 basis points of easing this year. As a result, the dollar weakened across the board. The euro rose to $1.0797, and the dollar index hit a three-week low. The Australian dollar gained, touching a six-month peak of $0.6733, while the yen remained low, trading at 161.53 yen after hitting a 38-year high of 161.96.
Commodity Prices and Market Trends
The drop in the dollar boosted commodities, with gold rallying to $2,358 an ounce from $2,318 earlier in the week. Oil prices eased slightly, with Brent dipping 73 cents to $86.62 a barrel, and U.S. crude falling 82 cents to $83.03 per barrel, following a surprising decline in U.S. crude stocks indicating stronger demand as the driving season begins.
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