Recent market sentiment has been heavily influenced by events in Korea, causing significant volatility. Notably, a mega spending plan announced in Korea allowed the COSPI to regain ground after earlier losses, which in turn improved sentiment across the board. This dynamic was evident even today, as the COSPI's initial poor opening impacted Nasdaq futures.
Throughout the past few days and leading up to month-end and quarter-end, a rotation in stocks has been observed. Hong Kong stocks, which were major laggards in the past quarter, proved to be the outperformers today. While some short-term fallout from this rebalancing is expected to continue for another day or two, it is largely anticipated that July will begin on a positive note.
This positive outlook for July is contingent on navigating the week's substantial event risks, including Sintra, non-farm payrolls, and multiple options expirations, all compressed into a holiday-impaired week. However, if these events do not disrupt the market, several factors suggest a positive backdrop. Second-quarter earnings are expected to be strong, macroeconomic data in the U.S. has held up well, and companies have set low expectations, making beats more likely. Furthermore, recent Micron earnings indicate that the AI capital expenditure bubble is continuing.
While non-farm payrolls are a consideration, especially given the shortened trading session and U.S. holiday, they are not seen as the main driver of market sentiment. Instead, the focus will be on Warsh at Central, whose remarks will be closely scrutinized for any Federal Reserve guidance, even if unintentionally provided. Regarding currency, euro-dollar is expected to see more short-term downside, with a longer-term dollar downtrend anticipated later in the year.
