Summary:
- Wall Street eyes higher opening as outcome of G20 summit sparks widespread optimism
- Nasdaq (US100) trades slightly below early-May peak
- US chip makers are among pre-session top movers, Applied Materials (AMAT.US) announces $2.2 billion acquisition
US equities surge on Monday along with stocks from the other parts of the world. US-China trade truce struck during Trump’s meeting with Xi is the main reason behind increase in risk appetite. Another positive development, although more symbolic and definitely not a prime reason behind today’s optimism, is the fact that the US economy broke the previous record and is now experiencing the longest period of economic expansion in history - 121 months.
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Nasdaq (US100) is likely to be the most active US index today as the outcome of the US-China talks was especially promising for the tech sector, especially chipmakers. The index sits slightly below the record high of 7875 pts in the pre-market trading. Should bulls fail to break to new ATH, a pullback towards the breakout level at 7800 pts handle, or last week’s close in the 7700 pts area, may be on the cards. Source: xStation5
However, an agreement to postpone any kind of trade conflict escalation does not mean that the global economic outlook is as good as it was a year and a half ago. Tariffs, that were already imposed, are still in place and one should remember that similar truce was struck in December 2018. As we already know, it had little impact on the overall US-China conflict as the two sides failed to reach an agreement during the negotiated truce period. Optimistic surge on Monday risks leaving equities more vulnerable to disappointments should the US-China trade talks not progress smoothly. Apart from that, the bulk of the PMI data released today showed that the manufacturing activity around the world continues to be pressured by the spectre of the economic slowdown. The US manufacturing ISM for June is set to be released at 3:00 pm BST. The previous reading was at 52.1 pts and in case today’s print shows a dip into the contraction area (below 50 pts), the optimism may quickly disappear from the equity markets.
Applied Materials (AMAT.US) stock began to struggle in early-2018 and saw only a limited recovery in 2019 following last year’s share price declines. However, the stock finished last week’s trading in the vicinity of resistance zone marked by 50% Fibo level of last year’s sell-off. The price may drift higher today being fuelled by widespread trade optimism. In such a scenario, the next level to watch for the bulls is $49 area where 61.8% Fibo level can be found. Source: xStation5
Unsurprisingly, the decision to lift a ban that prohibited Huawei Technologies from purchasing equipment from the US companies, turned out to be a huge boost for the US semiconductor sector. Chipmakers are among the best performing US stocks in the pre-market trading. Among top movers from the group one can find Lumentum Holdings (LITE.US), NVIDIA (NVDA.US), Advanced Micro Devices (AMD.US) or Micron Technologies (MU.US).
Speaking of semiconductor sector, Applied Materials (AMAT.US), the US manufacturer of machines used to make semiconductors, announced today that it will buy Kokusai Electric from KKR & Co (KKR.US) for 250 billion JPY, or $2.2 billion. Following the acquisition Kokusai will continue to operate as a subsidiary of Applied Materials and will be still headquartered in Tokyo. However, given that the semiconductor market is becoming more and more consolidated, getting regulatory approval in this case may be challenging.
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