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The S&P500 hit a record high yesterday, its 30th record high since the beginning of this year. The technology stocks led the rally. Big banks revised their PTs up and IMF confirmed that nearly a third of global funds went to the US since the pandemic.

Of course, this much optimism is never good sign and when you start hearing big revisions to price targets, it’s generally time to sell. But sell to go where? The European and the British stocks were supposed to perform well in the reflation context and now they are falling off the race. China is sputtering with housing crisis, geopolitical tensions and slow recovery. Other emerging markets are bearing the brunt of a polarized world and uncertain global outlook.

Today, all eyes are on the US retail sales and industrial production data. A softer-than-expected set of figures could fuel the Fed doves, while stronger-than-expected data could fuel the goldilocks optimism. If investors want to see the glass half full, they will find a reason to do so.

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Last week was brilliant for the major US indices but gloomy elsewhere. Stocks in the Chinese CSI 300 fell below their 200-DMA and extended losses to more than 5% since the May peak. Japanese stocks took a dive this morning to lowest levels in more than two weeks and stocks in Europe lost 3% during the course of last week as the French election jitters ended in tears for the French CAC 40 which tumbled more than 6% compared to the previous Friday’s close.

Thousands of people took the streets to show their opposition to the far right’s rise – but Marine Le Pen’s party is still seen amassing more than 30% of the votes in the upcoming legislative elections. And because conservative policies never bode well with investment prospects, we will likely see French, the European markets and the euro under a continued pressure this week. The spread between the French and German 10-year yield spiked past 80bp, the highest since the debt crisis that hit the Eurozone more than a decade ago.

Elsewhere, the Reserve Bank of Australia (RBA) and the Bank of England (BoE) will announce their latest policy verdict on Tuesday and Thursday respectively.

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Market sentiment was once again very different on both sides of the Atlantic. The European markets remained under the pressure of tense political environment in France, the euro was sold off against the greenback despite softer US yields but the major US indices remained bid on softer-than-expected US PPI data. The divergence between the US and Europe could widen.

Note that there is also a notable divergence within the US stocks: the technology carries the major indices to record highs while sentiment across other sectors remain gloomy.

Elsewhere, oil sees resistance near key Fibonacci level, while the pullback in nat gas could be interesting opportunity to increase long bets.

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The Federal Reserve’s (Fed) dot plot plotted one rate cut for 2024, down from three in March and the Fed revised its inflation forecasts higher. But the Fed’s announcement didn’t get more hawkish than this because the distribution of the dots was much narrower than in March, the dots also suggested 4 rate cuts in 2025 instead of 3, and the Fed tweak its communication slightly: they no longer think that there is a ‘lack’ of progress in inflation toward the 2% goal but a ‘modest further progress’ instead. And the cherry on top, the CPI update that came in a few hours before the policy announcement was softer-than-expected.

As reaction, the US yields and the dollar fell, equities and oil rallied. If all goes well, the optimism and the reflation trade will continue to shape sentiment early summer – except for France, where unrest mounts.

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We have different moods on different continents this week. The European equities remained under the pressure of heating French political tensions on Tuesday, meanwhile, on the other side of the Atlantic Ocean, the major stock indices in the US advanced to fresh records on the back of a strong 10-year auction a day before the latest CPI update and the Federal Reserve (Fed) decision which will likely determine the global market mood for the rest of the month, and a good part of summer.

In the FX, while the US yields are giving back the post-jobs advance, and the softer yields echo well across the major indices, the US dollar index remains upbeat by inflation and Fed uncertainties, and the political shenanigans on this side of the Atlantic Ocean.

While the election uncertainty in France doesn’t do much good to the euro, the pound sterling looks much less battered by the idea that the Conservatives will likely say Good Bye to their majority next month. In fact, a recent survey from Bloomberg hinted that a Labour win would be better for both the pound, gilts and stocks – which is unusual.

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Unimpressive was to investors what Apple revealed about its AI plans at its Worldwide Developer conference yesterday. Apple shares declined nearly 2% yesterday. The S&P500 and Nasdaq both eked out small gains, and energy stocks recovered as oil jumped to $78pb following news that the US imposed fresh sanctions on Yemeni Houthis.

Mood in French streets – and the markets - was chaotic yesterday; the CAC 40 sold off more than the European peers, the French 10-year yield spiked to the highest levels since November, the spread between the 10-year French and German yield spiked past 55bp and the EURUSD retreated to 1.0732, and is consolidating losses near 1.0770.

The Federal Reserve (Fed) starts its two-day meeting today and is widely expected to trim its rate cutting projections for this year due to sticky inflation and still-tight jobs market. The US dollar index spiked past its 50-DMA following last Friday’s surprisingly strong jobs data, and is consolidating gains above this level ahead of tomorrow’s most important CPI data and the Fed announcement. Provided the economic data and the inflation trends, there is a greater chance that we hear a hawkish Fed statement than the contrary.

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The sight of the 272K new nonfarm job additions and the fastening wages growth above 4% on a yearly basis smashed the dovish Federal Reserve (Fed) expectations on Friday, and sent the US yields and the dollar higher. We are back to the starting point where the Fed could hardly justify a rate cut when jobs data remains strong and inflation is not easing as fast as it should. Happily, suspense about what the Fed thinks about this won’t last long; the Fed will start its two-day policy meeting tomorrow and announce its latest decision on Wednesday, just after the CPI update for May due the same day.

Equity markets’ reaction to Friday’s strong jobs data was contained. The S&P500 and Nasdaq closed last Friday slightly in the negative after having advanced to a fresh record. The GameStop frenzy probably came to an end last Friday, as the company announced earnings earlier and they looked worse than expected.

All eyes are on Apple’s WWDC event, the Fed and the Bank of Japan (BoJ decisions this week!

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As widely expected, the European Central Bank (ECB) announced a 25bp rate cut when it met yesterday, but raised its inflation target for this and the next year, warned that the road for easing inflation could be bumpy, and ruled out a July rate cut. Still, two G7 central banks announced a 25bp rate cut this week, and marked the beginning of the easing cycle for major central banks and proved to be supportive of reflation flows: oil and metals rebounded. The S&P500 hit a fresh record.

Today, all eyes turn toward the US jobs data. The week was marked by softer-than-expected job openings in April, a significantly lower-than-expected May ADP report, a surprise decline in the pace of unit labour costs from 4.7% to 4% and an unexpected jump in US weekly jobless claims. The consensus of analyst estimates on Bloomberg bet that the US economy may have added around 180K new nonfarm jobs last month, the unemployment rate is seen steady near 3.9% and wages growth may have slightly accelerated on a monthly basis. A soft jobs report should support the dovish Fed expectations and further weigh on the US dollar.

Elsewhere, Nvidia eased after hitting a fresh ATH yesterday, and Microsoft consolidated gains above $420 a share on news that the US opened antitrust investigations into two of the world’s most valuable companies due to their dominance in the rapidly emerging field of AI. GameStop jumped 47% on Roaring Kitty which is the only reason the stock rises these days…

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The data from the US yesterday was mixed: a softer-than-expected ADP read and a stronger-than-expected ISM services data marked the session. The bond traders focused on the weak ADP report rather than on the strong ISM read, and sent the US 2-year yield down to 4.72%. The fact that the Bank of Canada (BoC) announced the widely expected 25bp and left the door open for more rate cuts – if inflation progress toward the right direction – and the expectation that the European Central (ECB) will be the second G7 central bank to announce the first rate cut also helped tilting the balance in favour of the doves.

Lower yields boosted appetite in global indices as chipmakers led rally. Nvidia rallied more than 5% to a fresh record and joined the club of companies that are worth more than $3 trillion. Qualcomm rose more than 3% yesterday, AMD jumped nearly 4%, even the sputtering Intel added 2.50%. Here in Europe, we also had a change in top ranks of the market leaders. The Dutch ASML – which sells machines to the world’s leading chipmakers – jumped 9.50% yesterday and became Europe’s second most valuable company – overtaking LVMH - on news that TSM will receive the high-NA extreme ultraviolet machine by the end of this year.

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