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Stocks across the globe yesterday were headed for their largest quarterly percentage increase in six years, while Brent oil was on track for its largest quarterly drop since 2020, as traders kept tabs on a fragile ceasefire between the United States and Iran.
On the last day of the second quarter, the US dollar was set to rise against a basket of peers for a fourth straight quarter, pushing the yen to a 40-year low as expectations for US interest rate hikes shifted dramatically. Emerging market currencies as a bloc gained over 1 per cent to the greenback throughout the quarter.
In energy markets, the Strait of Hormuz has reopened gradually and haphazardly as hostilities between the US and Iran receded into a fragile ceasefire, knocking almost 40pc off the price of Brent oil this quarter.
A seemingly unstoppable boom in artificial intelligence stocks kept the equities rally going for the quarter, with South Korea’s KOSPI up 68pc and Taiwan’s benchmark up 45pc. The Nasdaq Composite added more than 20pc. The MSCI All-World index has gained 14pc so far and touched a record high earlier this month, marking its best quarterly performance since 2020. Emerging Market stocks are up 23pc for the period.
Europe’s STOXX 600, which does not have nearly as many AI beneficiaries as many Asian or US indexes, was still up nearly 10pc for the quarter, having risen every month since March.
“Investors can’t see an end in sight to this bull run,” said David Morrison, senior market analyst at Trade Nation. “Whenever there’s a bit of a selloff, we seem to be in a situation where you get a fresh impetus to buy.”
For the day, the Dow Jones Industrial Average rose 126.78 points, or 0.25pc, to 52,309.52, the S&P 500 rose 28.81 points, or 0.39pc, to 7,469.63 and the Nasdaq Composite rose 207.36 points, or 0.81pc, to 26,029.22.
MSCI’s gauge of stocks across the globe rose 5.31 points, or 0.48pc, to 1,117.36. The pan-European STOXX 600 index rose 0.78pc, while Europe’s broad FTSEurofirst 300 index rose 20.66 points, or 0.81pc, while emerging market stocks rose 16.86 points, or 0.99pc, to 1,723.79. Japan’s Nikkei rose 594.21 points, or 0.86pc, to 70,062.32.
The dollar has been the standout winner this quarter among developed currencies, gaining 1.4pc against a basket of peers. Yet emerging market currencies have strengthened 1.3pc this quarter against the greenback.
Investors are amassing bullish positions at a record pace thanks to a remarkable re-pricing of the US interest rate outlook, which has flipped from cuts to hikes, due to the strength of the US economy and persistent inflationary pressures beyond energy prices. Traders are pricing in at least one rate hike by the Federal Reserve by the end of this year, compared with earlier expectations of rate cuts. The world’s most influential central bankers are in the Portuguese town of Sintra this week for the European Central Bank’s annual meeting and no one will be more in the spotlight than new Federal Reserve Chair Kevin Warsh, who is scheduled to address the gathering on Wednesday.
The dollar’s rise has partly driven gold to a 14pc quarterly drop, its largest such fall in more than a decade, while the yen has been driven to its weakest point in 40 years to trade around 162.38 per dollar yesterday. Traders were on edge about a possible Japanese intervention, with Finance Minister Satsuki Katayama issuing another warning.
Katayama’s comments “avoided the verbal escalation that often precedes a buying effort, instead reiterating that authorities stand ready to respond at any time,” said Karl Schamotta, chief market strategist at Corpay.
That said, “we would note that Thursday’s non-farm payrolls report and Friday’s Independence Day holiday – when US liquidity will thin dramatically – could provide attractive opportunities for wrong-footing speculative short positions,” Schamotta said.
Brent August crude futures, which expired yesterday, were flat on the day. The contract was on track for a third straight monthly decline, down about 20pc so far in June and 38pc for the quarter. The more actively traded September contract was also flat. US crude was on track to fall 30pc this quarter.
“I wouldn’t say the market has priced out a risk premium, but previously stranded ships have become available with the increase in ships moving out of the Gulf, creating a temporary wave of new supply,” UBS analyst Giovanni Staunovo said.
Morgan Stanley said it now models an implied global oil market surplus of 4.8 million barrels per day in 2027.
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