SpaceX IPO set for next month, could test AI trade

The market has turned more cautious this morning, although the Brent crude oil price is at its lowest level of the week so far, and is trading just above $105 per barrel. In Europe, markets are edging higher, but the gains we saw on Wednesday are not getting replicated. In the US, futures are pointing to a slightly lower open as investors digest Nvidia’s monster results and news that Space X has filed to IPO in the US early next month. Elon Musk’s SpaceX could be valued at a record breaking $1.75 trillion after its IPO in early June, and the company could become the first US market debut that tops $1 trillion.

SpaceX’s has not finalized the total number of shares that it will sell next month, but the IPO is expected to raise between $40- $80bn. This is an unusual IPO in that the amount of shares allocated to retail investors, the man or woman on the street, is to be set at 30%, well above the 5%-10% that is usually offered at an IPO. Musk is hoping that his star power with individuals, rather than institutions, will boost SpaceX’s stock market debut.

This could be a blockbuster summer for IPOs with OpenAI also expected to list in the coming weeks. Thus, we could get two mega cap IPOs within weeks of each other. How the market absorbs these new listings will be crucial for the future of the AI trade, as both companies are at the heart of the AI revolution. It would also add some new faces and potentially cause some reshuffling of the Magnificent 7. Interestingly, Musk could have two companies in the Magnificent 7 if the SpaceX IPO goes as well as hoped for. Tesla and SpaceX will continue to list as two separate companies.

The impacts of SpaceX’s announcement are being felt in Europe. French satellite operator Eutelsat has seen its share price pop 12% on Thursday. It is considered a European competitor of SpaceX, however, in true European fashion, Eutelsat is worth a fraction of what SpaceX is hoping to achieve with its IPO. Eutelsat is worth EUR 4.05bn. German satellite maker OHB is also higher this morning, and its share price is up more than 3%.

Elsewhere, the market is focused on a deal between Iran and the US, and this is reflected in the oil price, which has backed away from the $110 level. The dollar is also pulling back after reaching a 6-week peak earlier this week. President Trump continues to suggest that a deal is near, but the market will want concrete conformation of this before the oil price falls further and FX traders ditch their dollar positions.

Economic data out of Europe suggests that the Middle East war is dampening the economic outlook. European PMI numbers were weak, and the flash UK PMI for May fell to 48.5, contraction territory, which is the first dip below 50 in 13 months. After a stronger than expected Q1 for the UK, things are looking cloudier for Q2 and beyond. The fall in the UK PMI was driven by weaker service sector data, while manufacturing PMI surprised on the upside and held steady at 53.7. The decline in the service sector PMI to 47.9 was the weakest reading in 64 months! This suggests how rising petrol prices, surging bond yields and a political crisis have weighed on consumer sentiment. Political risks remain, and a shift to the left from Labour will be all but guaranteed if Andy Burnham wins next month’s Makerfield by-election. This suggests that political uncertainty could weigh on UK sentiment for the medium term.

Bond yields are lower again this morning, with further declines for UK Gilt yields, after yields fell sharply on Wednesday. A flurry of weaker than expected economic data makes a June rate hike from the BOE unlikely in our view, and we could see yields continue to moderate through to the end of this week. This may limit GBP upside, the pound is up a mere 0.1% on Thursday, even as the dollar pulls back on peace deal hopes.