June 27, 2024
CURRENCIES
French elections:
- National Rally: Leads the polls but unlikely to secure an outright majority.
- Impact: A fractured French government may weigh on the Euro.
- Poll Predictions:
- National Rally (RN): 31.5% to 35%.
- People’s Front (left coalition): 28% to 29.5%.
- President Macron’s alliance: 19.5% to 22%.
- Implications: The fragmented vote will affect both French assets and the Euro in the coming days.
- Second round: Final vote on Sunday, July 7th.
EUR/USD drivers:
- Recent decline due to US dollar strength and Euro weakness.
- Key data releases today: US durable goods and final Q1 GDP.
- Focus: Friday’s US core PCE report for further guidance.
Market impact:
- Volatility: High-importance US data and French elections will create a volatile environment for EUR/USD traders.
- Current price: EUR/USD below 1.0700, struggling to move higher.
- Technical analysis:
- Downward trend since late December with lower highs and lower lows.
- Key levels: April 16 multi-month low and October 2023 double low around 1.0516 as downside targets.
- Initial resistance around 1.0750.
Retail trader data:
- 66.18% of traders are net-long (ratio of 1.96 to 1).
- Increase in net-long positions: 14.14% higher than yesterday, 25.04% higher than last week.
- Decrease in net-short positions: 14.48% lower than yesterday, 22.26% lower than last week.
- Contrarian view: High net-long positions suggest potential for further EUR/USD decline.
- Bias: Stronger EUR/USD-bearish contrarian trading bias due to current sentiment and recent changes.
STOCK MARKET
Market impact:
- Nvidia Corp. (NVDA): Recently experienced a significant drop, losing nearly half a trillion dollars in market value.
- South Korea’s major companies: Samsung Electronics Co. and SK Hynix Inc. also saw declines due to their roles in the AI supply chain.
Micron’s role in AI:
- High-bandwidth memory: Micron’s memory is used alongside Nvidia’s chips for AI applications.
- Stock performance: Micron’s shares had more than doubled in the past year but were punished for not exceeding high expectations.
- Analyst expectations: The company’s outlook was in line with average estimates, but this was not enough to satisfy the market.
Market sentiment:
- Unrealistic expectations: Many companies that beat estimates are still being sold off.
- Andrew Jackson’s view: The market holds unrealistic expectations and is aware that US names are overvalued.
AI sector volatility:
- Nvidia correction: Nvidia shares entered correction territory earlier this week before recovering.
- Semiconductor index: A global semiconductor index fell about 5% from its recent high.
Micron’s position:
- Traditional business: Micron is still recovering from a slump in its traditional memory supply for PCs and smartphones.
- Share price uncertainty: The company’s briefing fell short of SK Hynix’s announcement that its HBM production capacity is sold out through 2025.
Industry insights:
- Tom Kang’s perspective: Micron does not hold a dominant position in AI memory like SK Hynix or in the broader memory industry like Samsung.
- Reality check: This situation serves as a reality check for the AI sector, which appears to be in a bubble.
Valuation concern:
- High valuations: The rally in US megacap stocks associated with AI has led to historically high valuations.
- Micron’s valuation: Micron shares are priced at 4.5 times projected sales over the next 12 months, compared to an average of 2.2 times over the past 10 years.
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