Global equities are trading near record highs on Monday, with markets poised for further gains. Despite a rebound in oil prices, stocks remain resilient as the AI-driven demand surge continues to offset the impact of fresh hostilities in the Gulf region, while the US and Iran remain deadlocked over a potential peace agreement.
As of the latest update, Dow Jones futures are up 0.3%, S&P 500 futures have risen 0.2%, and Nasdaq futures have gained 0.1%.
European markets are down 0.1%, with tech stocks and oil majors advancing, while energy-intensive stocks are declining. The London FTSE 100 index fell 0.2% despite gains from Shell and BP. The Paris CAC 40 index is flat, as declines in automotive and industrial manufacturing shares offset tech sector gains. The industrials-heavy German DAX index edged up 0.1%. Italy's FTSE MIB index rose 0.1%, while Spain's Ibex 35 index fell 0.1%. The Dutch AEX index declined 0.3%.
The MSCI World Index is up 0.13%, trading near record levels. Markets in Tokyo and Seoul are at or near all-time highs, supported by robust investor demand for any asset linked to artificial intelligence. In Asia, SoftBank Group's share price surged 14%, overtaking Toyota to become Japan's most valuable company by market capitalization.
As June trading begins, US stock index futures point to another record high for Wall Street. All three major US index futures are in positive territory. The S&P 500 recorded 11 record closes in May, driven by a rapid rally in chipmaker stocks.
The US-Iran agreement remains elusive, with prospects for a deal becoming more uncertain after Israel intensified its offensive against Tehran-backed Hezbollah militants in Lebanon. Iran attacked an airbase in Kuwait over the weekend, while the US conducted a "defensive strike" on radar and command-and-control facilities used by Iran for drones.
Over the weekend, the two sides exchanged information seeking amendments to a draft agreement. The US President called for calm regarding the Iran deal, stating that "everything will work out fine." Iran, however, indicated that Israel's attacks on Lebanon are hindering progress towards a deal.
Analysts note that markets need an agreement that would reopen the Strait of Hormuz to propel stocks into their next leg higher and drive interest rates lower. The prevailing view is that markets should see a further rally once a final deal is reached.
Despite the recent attacks, markets are clinging to the fact that negotiations are still ongoing, and a difficult US-Iran agreement remains a possibility, which could end the Middle East conflict and reopen the Strait of Hormuz. As the market focus shifts to a series of key macroeconomic data releases later this week, investors will be watching how the situation develops; any delays in reaching an agreement could dampen market sentiment.
Oil prices have surged more than 3% as the market remains unclear about whether the US and Iran are making progress towards a lasting ceasefire and an agreement to restore shipping flows through the Strait of Hormuz. Brent crude rose 3.5%, climbing above $94 per barrel, on track for its first daily gain in four sessions. Last week, the benchmark closed at its lowest level since mid-April. WTI crude futures also gained 3.5%, to $90.40 per barrel. The market is once again pricing in heightened military tensions and uncertainty surrounding the deal-making efforts, though the gains remain relatively contained. Analysts point out that global oil inventories are declining rapidly, and the market has not yet priced in a scenario of a prolonged closure of the Strait of Hormuz, implying upside risks for oil prices.
A peace deal is still possible this week, but as markets have already heavily positioned for this outcome, the risk balance appears skewed towards disappointment. Oil prices have already started rising today, and any further delays or setbacks could expose prices to the risk of a more significant upward move.
Bond prices are falling, with short- and medium-term yields rising more than long-term yields. Short-term uncertainty from the Middle East conflict continues to push inflation expectations higher. The yield on the 2-year US Treasury note rose 1.9 basis points to 4.032%; the 10-year yield increased 1.6 basis points to 4.468%; and the 30-year yield edged up just 0.1 basis points to 4.993%.
The US dollar is rising as escalating US-Iran tensions support safe-haven assets. The DXY Dollar Index gained 0.1% to 99.011. On Friday, the index hit a two-week low of 98.751 as hopes for a deal boosted market sentiment. The dollar rose a further 0.12% against the yen to 159.46, just below the 160 level. Many believe that a break above 160 for the dollar/yen pair could trigger another round of official Japanese intervention to support the yen.
Gold prices fell more than 1%, pressured by a stronger dollar and rising oil prices. New York gold futures dropped 1.2% to $4,536.90. Oil's more than 3% gain on Monday has exacerbated concerns about inflationary pressures and potential interest rate hikes.
This week will feature speeches from several Federal Reserve officials, alongside key US economic data including the ISM manufacturing survey and Friday's May non-farm payrolls report. The market expects a solid addition of 85,000 jobs, with the unemployment rate holding steady at 4.3%. Stronger-than-expected data could further reduce market bets on rate cuts and increase the likelihood of a hike.
Speeches from a series of Fed officials this week are expected to continue reinforcing a two-way balanced policy stance, where officials remain open to both rate hikes and cuts depending on incoming data. Consequently, markets may gradually form the expectation that the Fed will slowly shift away from an easing bias towards a more neutral policy stance in the coming months.
Market pricing indicates about a 50% probability of a Fed rate hike by year-end. This is helping the dollar maintain its strength against a basket of currencies, with its performance against the yen particularly notable.
In premarket trading, NVIDIA announced a collaboration with Microsoft to launch a new personal computer processor. Its shares were up about 2%, while Microsoft shares gained nearly 4%.
News of NVIDIA's new chip drove related stocks higher. Dell and HP, which will launch computers featuring the new chip, saw their shares rise 1.5% and over 3.5%, respectively. The chip is based on Arm technology, and Arm's stock price surged 14.5%.
While NVIDIA shares rose, shares of its chipmaking peers declined. Qualcomm fell sharply by 9.5%, Intel dropped over 6.5%, and Advanced Micro Devices also declined more than 4%.
Homebuilder Taylor Morrison Home surged nearly 23% after Berkshire Hathaway agreed to acquire the company for $6.8 billion. Berkshire's CEO stated that Taylor Morrison is a top-tier homebuilder and its addition to the portfolio will help more Americans achieve homeownership. Berkshire's shares were slightly lower.
Yum Brands is in talks to sell its Pizza Hut brand to Roark Capital, sending the restaurant operator's shares up 1.5%.
Summit Therapeutics saw its shares rise 2.5% after results from a Phase III trial in China for its investigational lung cancer drug showed it reduced the risk of death by 34% in patients. A global Phase III trial for the drug is also underway.
IBM shares surged 13% after Barclays initiated coverage with an Overweight rating. Analysts believe quantum computing will become the next mainstream computing paradigm and that IBM's development strategy in this field is highly competitive. Melius Research also raised its price target for IBM.
On the first trading day of June, software stocks extended and strengthened their gains. The iShares Expanded Tech-Software Sector ETF (ticker: IGV) was up 4.5% premarket. SAP gained 11%, while Workday and Adobe both rose 6%, and Salesforce advanced nearly 7%.
Bitcoin prices fell below $73,000, dragging down shares of trading platforms Robinhood and cryptocurrency exchange Coinbase to new lows since mid-April. Robinhood shares fell nearly 3%, while Coinbase declined 2%.
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