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Shocker! The exit polls were completely wrong in predicting the outcome of the Indian election. Not only that Narendra Modi’s BJP couldn’t secure a landslide victory in the latest elections – as it was suggested by Monday’s polls, but it couldn’t even win enough seats to secure a majority in the parliament. The Nifty 50 fell nearly 6% from a record and remains under pressure this morning while the Indian rupee depreciated as fast as it had jumped on Monday.

In the US, the JOLTS data from the US showed that job openings in the US fell to around 8 mio jobs in April. The softer-than-expected figure boosted appetite in US treasuries and increased the probability of seeing the first Federal Reserve (Fed) cut in September. US treasuries rallies, US crude consolidated near 4-month lows, the S&P500 eked out small gains, Nvidia hit a record.

Here is the link to my Bloomberg interview: https://www.bloomberg.com/news/videos/2024-06-04/the-battle-for-ai-chip-leadership-video

Today, the ADP report is expected to print around 173K new private job additions to the US economy last month, and the Bank of Canada (BoC) is expected to announce a 25bp rate cut.

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GameStop rallied nearly 90% after Keith Gill, aka Roaring Kitty on Twitter, posted a screenshot on Reddit showing a big stake in option. Other meme stocks saw positive vibes as well.

Elsewhere, US yields fell after the latest ISM manufacturing data showed an unexpected acceleration in contraction in May as prices eased. The US dollar index sank below its 100 and 200-DMA. The softer dollar sent the EURUSD above the 1.09 resistance, Cable rallied past the 1.28 as the USDJPY eased.

All eyes are on US jobs data this week. Soft data should further fuel the dovish Fed expectations.

Lower yields didn’t necessarily translate into gains for the major US indices. The S&P500 remained under pressure before paring gains into the close and eked out a small 0.11% gain only. The tech-heavy Nasdaq gained 0.35%. Nvidia led gains.

Crude oil had a rough session after OPEC decision. The barrel of crude went on a free fall, cleared the a critical support at $75pb level and is trading near the $73.50pb this morning.

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OPEC+ announced on Sunday that it will extend supply cuts to the Q3 but will gradually return barrels to the market over the following 12 months. The barrel of US crude fell to $76.50 at the weekly open before rebounding toward the $77pb on the back of a stronger-than-expected Chinese manufacturing PMI, with the Caixin index pointing at the strongest expansion in nearly 2 years.

In India, the Nifty 50 jumped to a fresh record, and the rupee rallied as exit polls for the Indian election hinted at a clear-cut victory for PM Modi’s party.

The combination of Friday’s soft US inflation data, OPEC’s hint on softer supply policy, the Chinese PMI figure and the positive reaction to the Indian election results paint the market in green this Monday as investors will be closely watching the Bank of Canada (BoC) and the European Central Bank (ECB) decisions (expect 25bp rate cut at both meetings) and the US jobs data this week.

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Market mood further darkened yesterday following another round of weak Treasury sales in the US. Treasuries and equities sold off, the US dollar gained across the board. Things could get better or worse in the coming hours. All eyes are on the US GDP update, due today, and the Fed’s favourite gauge of inflation – the core PCE number – due tomorrow.

Elsewhere, released yesterday, the Australian inflation unexpectedly rose in April and the German inflation came in worse than expected. Spain and Italy will release their inflation updates today, France tomorrow and we will have the aggregate CPI for the entire Eurozone tomorrow morning. Unless we see a big surprise – which I don’t think will happen, the European Central Bank (ECB) will probably announce a 25bp rate cut next Thursday. And if the Fed cut expectations vanish faster than the ECB cut expectations, the EURUSD should remain under pressure for further downside correction.

Happily, for everyone who doesn’t have a positive exposure to energy and energy stocks, oil prices don’t gather enough momentum above key resistance levels to further fuel the inflation worries. Energy stocks extend losses but they will be interesting to return to in both easing and not easing inflation setup.

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The first day back after the long weekend brought traders back down to earth. A weak sale of US 2 and 5-year notes, and Federal Reserve’s (Fed) Neel Kashkari’s comments that the Fed cannot rule out hiking the interest rates as a next move sent the US treasuries lower yesterday. Stocks stagnated, except Nvidia - which jumped 7% on news that Elon Musk’s xAI would use its H100 chips!

In the FX, the broad-based recovery of the US dollar sent the EURUSD lower yesterday before it reached the 1.09 resistance. Inflation expectations in the Eurozone fell to the lowest levels since 2021. All eyes are on a series of Eurozone inflation updates that are due to hit the ground starting from today. The euro-sterling is testing the critical support of 0.85, while the sterling-yen hit the 200 psychological, the highest level in 16 years.

Elsewhere, the news that China set a $48 billion fund to support domestic chip-makers didn’t resonated well across the Chinese AI-related stocks – to my surprise. PDD tanked 5% yesterday, Tencent is down by more than 1% and Alibaba is down by almost 4% in Hong Kong this morning. Chinese AI stocks are both appetizing and terrifying.

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Yesterday was a slow Monday. The US and the UK markets were closed, the news flow was light and the trading volumes were thin.

The barrel of US crude trades a touch below its 100-DMA. The tense geopolitical setup is supportive of further gains along with the rising US demand into summer and OPEC’s restrictive tone regarding its outlook.

Elsewhere, the European Central Bank’s (ECB) Francois Villeroy de Galau said yesterday that the ECB could lower interest rates both in June and the July meetings but the EURUSD is pushing higher at the start of this week, on the back of a broad-based weakness in the US dollar. The dollar index is preparing to test the 200-DMA support against hawkish odds. There is too much optimism that Friday’s PCE print will bring relief. So much in fact that even a softer-than-expected Bank of Japan (BoJ) core inflation this morning didn’t send the USDJPY higher.

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While last week began on optimism that inflation could allow the Fed to cut rates as early as in September, this week begins on pessimism that the latter will probably not be possible. The US markets are closed today, but the US 2-year yield ended last week near 4.95% and the probability of a September cut fell to a coin flip. But regardless, the US stock markets continue to trade near record levels. The S&P500 and Nasdaq both closed last week a few points below their ATH levels, boosted by a fresh shot of energy after Nvidia reported another set of blowout results and a strong forecast – under these conditions, it will be hard for the tech rally to expand to the rest of the market.

In China and nearby, the CSI 300 and HSI index are better bid this Monday morning, the Chinese stimulus measures are supportive of gains, but the rising tensions with the West are threatening the Chinese companies’ revenue expectations.

Here in Europe, investors will also be focused on fresh inflation data for May. If this week’s inflation data shows no surprise, the dovish divergence between the European Central Bank (ECB) and the Federal Reserve (Fed) should prevent the EURUSD from clearing the 1.09 offers.

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The week hasn’t been pleasant for the market bulls. On Wednesday, the FOMC minutes showed the disturbing truth that ‘many’ Fed members wondered whether keeping the rates ‘high for longer’ was sufficiently restrictive to tame inflation, and if hiking the rates wouldn’t be a better idea. Then, the UK PM Sunak announced a general election beginning of July – way earlier than many expected – abating the slightest glimmer of hope to see the Bank of England (BoE) cut its rates in June. Meanwhile, the latest British CPI data came in hotter-than-expected, anyway, warning that the policy easing wouldn’t necessarily be on the pipeline for June. Across the Channel, the data released this week showed that wage growth in the euro area increased 4.7% in Q1 – a red flag for officials who have been banking on a slowdown to keep inflation in check. And finally, a set of too-strong-to-be-pleasant data from the US gave a final punch to the bulls. Global yields rose, appetite in equities fell, oil, commodities and cryptocurrencies sold off from ATH levels.

Happily, Nvidia lived up to the lofty expectations. The stock price made it above the $1000 mark and could see further appetite above this level.

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Hawkish FOMC minutes sent the US yields high and stock indices lower yesterday. Happily, Nvidia announced another set of strong quarterly results and forecasts. The shares popped 6% in the afterhours trading – a bit less than 8% expected.

Qualcomm, on the other hand, extended gains past $200 per share as they will power Microsoft’s and Dell’s AI-focused computers.

In the FX, the US dollar gained on hawkish Fed minutes but sterling gained more after the British PMI Sunak announced a general election on 4th of July, waning expectations of seeing the Bank of England (BoE) cut rates in June.

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