Crude oil prices continue to fall as shipping through the Strait of Hormuz returns to a third of pre-war capacity, and despite today’s [potentially Iranian] attack on a ship transiting the region. With the Memorandum of Understanding directing the global economy towards normalisation we are reminded that asset prices were largely looking through this geopolitical concern and equity markets have been left exposed to a sharp bout of volatility this week as a result.
The tech-heavy Nasdaq fell sharply early in the week, a delayed response to the hawkish pivot from the Federal Reserve. Yet this comes at a time when the energy crisis is resolved, even if only temporarily, and prices are falling. Further, digging into the detail of the changes at the Fed highlights that one of Chair Kevin Warsh’s task forces will focus on increasing the quantum and speed of data inputs into the central bank’s inflation calculations, which could help lower the preferred inflation reading and aid the pursuit of interest rate cuts.
Strategists have this week shifted more towards the belief that the hawkish pivot will not be maintained, thus the market has really moved against expectations by not reacting quickly and only reacting after the dust had settled – albeit there are split opinions on the matter.
Maybe there were broader concerns over AI capex spending, triggered by high profile departures from Google, or market dynamics simply triggered a weak day of trading as SpaceX shares traded lower and the company announced new debt issuance, and while the S&P 500 Index rebalanced with profits taken from newly introduced AI hardware stocks.
The US counterpart of three major global producers of high bandwidth memory, Micron Technology, reported an outstanding set of results for the quarter ending May, with revenue up 346% compared to a year earlier. It also boasted an additional half of its quarterly revenue in upfront customer cash deposits for memory that is yet to be shipped, signalling strong AI Capex momentum.
This helped someway to reverse the losses from earlier in the week but much of the optimism in the aftermath of these results has since subsided.
Asian markets were most volatile, with Micron’s competitors Samsung and SK Hynix driving the South Korean market up 10% and down 6% in subsequent days. Taiwan and Japan also exhibited sharp moves.
Markets are behaving a little erratically in some way – one would have expected that an end to the energy crisis would put momentum back in the anti-US & anti-US-dollar trade and put the wind back in the sails of emerging markets, but the dollar has actually been strengthening and emerging market equities have been weak.
Gold on the other hand briefly touched below $4,000; a dynamic that entirely made sense amid the diminishing need for a safe-haven asset.
We hope you are all coping with the weather.
Where are markets up to?
The rolling 12 month % cumulative returns in local currency from various indices is shown in the following chart:
Where are the portfolios up to?
The portfolio performance, net of fees, to close of business on Thursday is as follows:
As ever, if you would like to discuss any aspect of your portfolio, please do not hesitate to contact us on service@blythefinancial.com.