mixed trend in Asia; Contract increases in New York

11:09

Trading in Europe opened this morning with a positive trend in line with the trend in the world this morning (Asia and New York). Indices in Europe are now up 0.4%.

08:50

In Asia this morning, the trend is mixed – trading opened higher, but the momentum weakened later in the day. The Kospi in South Korea went from a decrease of about 3% at the beginning of trading to a decrease of 1.7%.

SK Hynix’s ADR offering on Nasdaq this week, in the amount of 29 billion dollars, is expected to be the largest initial public offering (IPO) ever in the US of a foreign company. The move will expand the accessibility of American investors to the leading company in memory chips for AI, will improve the marketability of the stock and may reduce the pricing gap with Micron. In Tokyo decreases by 1%, Shanghai increases by 0.1% and Hong Kong by 0.9%.

Wall Street contracts signal increases – Nasdaq up 0.8% and S&P 500 up 0.4%.

Last week, the Dow Jones index jumped by almost 2%, approaching the level of 53,000 points – a benchmark that has not yet been recorded. The S&P 500 index and the Nasdaq index recorded sharp increases of 1.8% and 2.1%, respectively.

These gains came even though chip stocks – which were a major engine of gains on Wall Street this year – weakened last week. Investors reduced exposure to chip manufacturers and diverted funds to other sectors in the market, as part of a rotation between sectors. The SOXX hedge fund lost 3.2%, recording a second consecutive week of declines.

The phenomenon can be seen in its full force through the gap between the return since the beginning of the year of the S&P 500 index with equal weight compared to the index itself (2 percentage points) as well as in the small stocks – the Russell 2000 index jumped by about 22% in the first half of the year – the most in six months since 1991. It even surpassed the Nasdaq index by about 9 percentage points, the largest gap in 20 years.

This move is especially noticeable against the background of years when the market was almost completely dominated by the giants of technology and artificial intelligence. Now, some investors see this as a sign that the rally is starting to “broaden” beyond the major chip and technology stocks, into other sectors such as industrial, healthcare and consumer.

One of the main reasons for the increase is a change in macro expectations. The decline in oil prices following the calm in the Middle East and the cease-fire agreement between the US and Iran has reduced inflationary pressures. At the same time, employment data points to a moderate slowdown – enough to support hope for interest rate cuts, but not weak enough to raise fears of a recession. This environment is historically considered relatively favorable for small stocks.

In the US bond market, last week the government bond market in the US transmitted a complex picture: on the one hand, relatively weak macro data, and on the other hand, surprising resistance in long-term yields. The employment report, which indicated only a moderate addition of jobs and downward updates to previous months, did initially lead to a decrease in returns, but the move did not last.

In a weekly summary, the yield on 10-year US government bonds remained around 4.5%, while the two-year yield was around 4.1%. This means that the market continues to price in certain interest rate cuts in the near term, but does not adopt a scenario of sharp or rapid monetary easing as some investors expected at the beginning of the week.

One of the main reasons for this is the transition of the market to focus on fiscal factors and not only monetary ones. The high US deficit and the growing volume of government bond issuances create a heavy supply of debt, which puts pressure on yields to rise – especially in the long part of the curve. Therefore, even if the Federal Reserve starts to reduce interest rates, investors demand higher compensation for holding 10-year bonds, which limits the decline in yields.

In the commodity and currency market – last week the dollar registered the sharpest drop in 12 weeks, after weak employment data published in the US yesterday reduced investors’ expectations that the Federal Bank will raise interest rates this year.

The dollar index, which tracks the exchange rate of the dollar against the currencies of six major trading partners of the United States, lost 0.5% in a weekly summary. The Japanese yen strengthened against the dollar by about 0.7%, but it is still trading at a 40-year low against the American currency. This raises concerns about Japanese intervention in the yen exchange rate, which could create ripples in the global economy. This morning the yen traded at 161.8 yen to the dollar.

● From acute shortage to oversupply: the oil market is facing a new kind of challenge

In the commodities market, Brent oil traded stably and its price was locked around $72 per barrel; WTI oil fell by almost 1%, marking a fourth week of declines, at a price of $68.8 per barrel. This morning oil prices are stable for now.

Bank Citi estimates that the price of Brent oil may drop to around $60 per barrel by the end of the year, as the disruptions in the Straits of Hormuz continue to dissipate and the oil market returns to being governed by demand and supply factors, and not by the geopolitical risk premium.

According to the bank’s strategists, “economic fundamentals are quickly returning to center stage.” The movement of oil tankers in the Straits of Hormuz is stabilizing, buyers from China are still not increasing demand, the physical oil market has weakened significantly, and world oil stocks have decreased much less than expected.

Besiti points out that some volatility is still expected in the near future, as the shipping routes, the insurance markets and the logistics chain continue to adapt to the new reality. However, the increase in the volume of traffic in the Straits of Hormuz indicates, according to them, that the shipping operators no longer see the area as a risk that prevents regular commercial activity.

Bitcoin, which fell last week to about $58,000, its lowest level since September 2024, returned and climbed beyond the level of $62,000. This is encouraged by the weak employment data published in the US that reduced expectations for an interest rate hike. A high interest rate environment tends to reduce demand for non-interest bearing assets, such as digital currencies.