The first trillionaire

Metals continued to slide this week, gold down close to 3% w/w and now trading below its 200-day moving average, despite the latest round of airstrikes being called off in Iran. Gold is now priced around 20% lower than where it was trading when the war began. It did rebound on Thursday as risk sentiment turned more positive, after nearing the $4,000 mark. The primary catalysts cited for the broad decline are more persistent inflation and the associated rate adjustments. Periods of higher interest rates are bearish for commodities, who naturally pay no interest nor dividends. On top of this, as we have previously outlined, liquidity remains a concern while the conflict continues.  

"We'll negotiate with bombs" 

This week began in the aftermath of the largest ever single-day point drop in the Nasdaq last Friday. The rout followed a stronger than expected jobs number that decreased the chances of rates staying on hold in the US. More volatility followed, largely on the back of renewed attacks in the Middle East as the conflict dragged into a fourth month. Patience ran out on both sides - the US confirming that it had launched strikes on a number of Iran's "key facilities" after an American helicopter was shot down in the Strait of Hormuz. But just in time for kickoff in Mexico City, as Shakira was going through her final warmups, news came through that a deal had been reached. 

DJT called it “a very strong memorandum of understanding that is a little bit conceptual”, that would likely be finalised this weekend. The Iranian Students’ News Agency, however, reported shortly thereafter that Iran had “not yet reached a conclusion on this matter”, watering down the optimism on a conclusion to the war. Markets took more of a positive view, indices rebounding to sit largely close to flat on the week. One factor to be wary of in digging into the ongoing negotiations is the circuitous method in which they are being carried out. As the recently installed Supreme Leader of Iran is understandably in a secret hideout, where WhatsApp reception is patchy to say the least, messages can take days to reach their intended recipient. A far cry from the face-to-face negotiations that took place early in the conflict, human couriers are now being employed to hand over responses. With that reality in mind, it appears that a final deal remains some distance away. 

SpaceX - Tesla merger? 

It is now officially the largest IPO on record. 555.6 million shares have been sold at a fixed price of $135 each, setting the starting valuation at $1.77 trillion. Today retail traders will get their chance to buy in. At time of writing, grey markets are signalling a jump of around 25% on the highly anticipated first day of trading. This would send the market cap of the conglomerate swiftly up through the $2 trillion mark. Its CEO Elon Musk, with a controlling holding worth around $900billion, is set to become the world's first trillionaire. 

Does something need to go down for this to go up? I.e. Where are the funds being plunged into the IPO coming from? Perhaps an overly simplistic question to pose, but the most obvious candidate, should this point prove salient, is Musk's other future-building business, Tesla. Will retail traders pull an allocation of funds from their Tesla holdings to be able to involve themselves in SpaceX? From there it is not a giant leap for our kind to contemplate the possibility of SpaceX absorbing Tesla at some stage. Indeed among the 370 pages of the IPO prospectus, SpaceX said that it had purchased $700m worth of Tesla’s Megapack battery energy storage systems to power its data centres. Recent reports claim that "the two companies already have a laundry list of shared resources, and Musk has discussed with colleagues the possibility of folding the companies together". The two mega caps already share ownership in Musk's AI start-up, xAI. Musk does not own a controlling share of Tesla, however, so would need to convince its shareholders that a merger would be in their best interests as well as his own. Naturally the success or otherwise of SpaceX's IPO in maintaining the IPO price level will go a long way to determining their appetite for a deal. 

Meanwhile, Anthropic and OpenAI are waiting in the wings for their own IPOs. How long will SpaceX hold the record? 

Next week - Rates rates rates rates 

Yes that was four, and there may be more. Central bank boards around the world take to voting on their respective interest and/or cash rates. Tuesday brings the RBA and the BoJ. Wednesday the Fed. Thursday the BoE. In Australia, markets are pricing in very little chance of a move, on the back of three consecutive hikes and a more dovish tone from Governor Bullock in last month's presser. Big bank economists have now made the call that their next move will be down, so the language around the decision will be closely analysed for confirmation. In Japan, with Governor Ueda in hospital, Deputy Governor Uchida will step up to announce what is expected to be a hike to their highest level in over 30 years, 1%. 

Kevin Warsh makes his official debut as Chair of the FOMC meeting. As touched on, firmer data of late has brought about a flip in rate expectations. A hold is close to a certainty this month, but the press conference will be scrutinised for signs of willingness to defy DJT and hike later in the year. In the UK, the CPI release the day before their meeting will have impact on the ensuing messaging from Governor Bailey and in turn expectations there. 

China and the US will also release their retail sales figures for May.