Widening spreads, falling Euro – The Fed won’t help lift sentiment

Unimpressive was to investors what Apple revealed about its AI plans at its Worldwide Developer conference yesterday. The company gave details regarding its partnership with Sam Altman’s OpenAI, they said that they will integrate ChatGPT into iPhones via Siri, they promised that many workloads will be done on-device (without need to share user data), and a ‘private cloud compute’ will be available if there is need for more computational power. And yet, none of it surprised or impressed investors. Apple shares declined nearly 2% yesterday. Cherry on top, Elon Musk said that he would ban Apple devices at the office if ChatGPT is integrated at the operating system level due to data security risks. Voila. The announcement from Apple didn’t go down smoothly the market’s throat yesterday.

Elsewhere, 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. I believe that the oil rally triggered by geopolitical news will see solid resistance within the $78/80pb band and that oil needs fundamentally supportive news – like softer monetary policies – to make a sustainable attempt above this resistance band.

Widening spreads, falling Euro

Mood in French streets were chaotic yesterday; imagine, people are supposed to be eating fine food and drinking good wine in beautiful coastal cities at this period of the year and not worry about whether Marine Le Pen’s far-right party will take over control. 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. Thanks Macron.

Political uncertainty and division are never welcome. And Le Pen securing 32% of the cake in the EU Parliament is not excellent news for France’s EU friendly reputation. But France has a history of being an important pillar of the EU and the French may take their responsibility and vote accordingly. Look, Britain never managed to strengthen its back after Brexit and French watch the show from the front seat. We will see how France will respond to Macron’s gambit – and I think France will be fine - but political turmoil in the next few weeks could lead to higher and wider spreads across EU yields and negatively impacting eurozone growth expectations and stock valuations. And the latest turmoil comes when the European Central Bank (ECB) is at a crossroads due to a renewed uptick in inflation. As such, grey clouds may be gathering for the SXXP near its peak level.

The Fed won’t help lift sentiment

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.