The month of June was defined by various political events around the world. In India’s general election, Prime Minister Narendra Modi retained power but his ruling BJP party failed to win a large majority as expected. Equity markets in India reacted negatively to the results, but recovered quickly.
In the European Parliament elections there was a clear shift to the right in terms of party support. In response to the huge success of the French National Rally, President Emmanuel Macron dissolved parliament and called a snap election. It is feared that the election result will tarnish the image of French politics and shift the focus of its Europe policy to the right. The reactions of both equity and fixed income markets were negative. The CAC 40 Index remained 5% in the red in June, also weighing down the Italian and German equity markets. European equity markets recovered slightly after June when the results of the first round of voting came through.
In June, the Stoxx 600 Index remained 1% in the red. London’s FTSE 100 Index also remained in the red, although markets were not concerned about the landslide victory that is predicted for the Labour Party in the UK’s general election.
The key event in global politics was the televised debate between US President Joe Biden and his challenger Donald Trump. Support for Biden has increased slightly in polls, and the two main candidates are currently almost head-to-head. There was stunned reaction to Biden's poor performance in the debate.
In the US, consumer confidence continued to slide and unemployment to rise. The unemployment rate reached 4% in May and is expected to keep rising as the earlier rapid economic growth is now slowing. Expectations of a Federal Reserve rate cut during the year remained largely unchanged. Markets are anticipating at least one, or possibly two, rate cuts this year. By the end of next year, the rate is expected to be 4%, down from the current 5.25-5.50%.
Nvidia, Nvidia, Nvidia
Semiconductor producer Nvidia dominated equity market comments and headlines in June on account of the astronomical rise of its equity price. Although the price declined 15% from its peak after the company’s AGM, the price is still 15% above that of the end of May and 155% above that of the end of 2023. The company’s market capitalization briefly rose to over three trillion dollars, making it the world’s most valuable company.
Nvidia’s weight in the US equity markets has increased to around 7% in the S&P 500 Index. About a third of the Index’s value increase is due to Nvidia's equity price rise during the current year. The company’s strong sales and earnings performance has made it a favorite with analysts. Investors are now prepared to pay 40 times the forward earnings per share.
The equity rally continued in the US. The MSCI North America Index and the MSCI Emerging Markets Index both rose by around 5% in euro terms.
In the euro area fixed income market, the rise of political risks sent government bonds into two different directions. The German 10-year bond yield declined 0.16 percentage points whereas the France and Italy 10-year bond yields rose 0.14 and 0.09 percentage points, respectively. The yields continued to rise after the end of the June. The euro weakened by about 1% against the dollar, to 1.07.
Figure: Nvidia’s equity price rise has left the other Magnificent 7 behind in five years
Tomas Hildebrandt
