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Good evening,
It was another positive day for risk assets with leading US indexes gaining between 0.6 and 1.6% with the small-cap Russell index outperforming its peers and the S&P 500 and Nasdaq benchmarks up year-to-date as the market more than recovers from the steep tariffs sell-off in April. Demand for chip giants Nvidia, Broadcom, Micron and Applied Materials, helped the semiconductor sector outperform. Also, a strong earnings update before the market open by retailer Dollar General, helped sentiment.
US interest rates were little changed on Tuesday but the $ appreciated against all major currencies, gold ended marginally lower and crude oil prices continued to move upwards. European stocks traded firmer across markets driven by positive inflation updates.
In economic data, US factory orders or demand for manufactured goods, fell sharply in April, -3.70% MoM (to $595bn) , worse than expected and rose by 2.0% YoY and business spending in equipment decelerated at the start of Q2. The ISM PMI reported yesterday, showed a fourth month of deceleration and the third consecutive month of contraction in mfg activity.
China’s manufacturing activity shrank at the fastest pace since September 2022 according to the private survey Caixin manufacturing PMI, which came it at 48.3 pts, in contraction territory and missing estimates. During the weekend, the official PMI showed China’s manufacturing activity contracted for a second straight month. The country’s industrial output, expanded at a slower pace of 6.1% YoY in April.
Inflation in the Eurozone fell below the central bank’s target to 1.9% YoY for the first time in seven months, below expectations and significantly lower than a month ago. Core CPI inflation rose by 2.3% YoY, the lowest rise since late 2021. The unemployment rate remained stable at 6.2%. These figures come ahead of Thursday’s ECB policy meeting and markets are pricing an almost certain 25bp rate cut of its deposit rate to 2.0%.
In earnings after today’s close, Crowdstrike Holdings (mcap $110bn), Hewlett Packard (mcap $23bn) both beat top and bottom estimates, but Crowdstrike missed on outlook for the current quarter and shares plunged 7% in after hours while HP said that it expected a reduced impact from tariffs and shares advanced 3% on top of the 2% gain during the session. Dollar General (mcap $25bn) reported before the open, beat estimates, raised full-year forecast and shares rallied 16% to a nine-month high.
It was an active day for corporate deals with Toyota Motor Corp (mcap $250bn) bidding $33bn to takeover its largest supplier Toyota Industries, which 100 years ago was the car makers’ parent company. In the US energy sector, Viper Energy (mcap $12bn) will acquire smaller rival Sitio Royalties (mcap $3bn) to expand in the Permian Basin in a $4.1bn deal including debt. Sitio shares rallies 15% today.
In the UK, KKR has withdrawn its £3bn+ recap deal for Thames Water, the country's largest water utility which is controlled by pension funds and SWFs and could face a government rescue. In the private equity sector, software-focused firm, Thoma Bravo, raised $24bn for a new flagship fund, when many other private equity firms are struggling to exit from investments.
The Bank of Canada meets tomorrow, and the policy rate is expected to remain unchanged at 2.75%.
In headlines after the close, the Federal Reserve lifted restrictions on asset capital on Wells Fargo, almost a decade after the fake accounts scandal. WFC will no longer have to operate under a $1.95tn asset cap, allowing room for growth. Shares gained 2% following the news release.
See you tomorrow.
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