In my 22^nd of June email to you, I pondered whether President’s Trump peace deal with Iran would be as unsuccessful as Prime Minister Chamberlain’s “Peace for our time” deal with Germany in 1938. The Munich Accord only lasted 365 days before Germany invaded Poland while the Memorandum Of Understanding with Iran, lasted 504 - unfortunately that's hours not days, the Strait of Hormuz is once again closed as US and Iran are back to exchanging missile and drone strikes. So far, the price of oil is up only modestly, however that may well change should this current closure extend for any length of time. 

It was somewhat a meandering week for US stocks as investors continued to ponder AI-related spending, the Middle East conflict and elevated oil prices, nevertheless by Friday it was a winner for the major US indices as the S&P 500 ended over a 1% higher and the NASDAQ added nearly 2%. A big reason seems to be that analysts continue to ramp up their profit forecasts for US companies, the latest survey expects average second-quarter earnings growth rate of 23.6% for companies in the S&P 500, up from a 23.3% forecast a week earlier. Either way this would be the second consecutive quarter of growth exceeding 20%, and as I commented previously, at the beginning of the year profit increases in the range of only 10 to 12% were largely expected. And while interest rates have moved higher and the trend in US employment situation so far seems unclear, the index that tracks investors’ expectations of short-term U.S. stock market volatility fell for the second week in a row, slipping to its lowest level in more than six months. The CBOE Volatility Index finished the week at 15.0, down from a recent high of 22.2 reached on June 10. Bottom line: at the moment investors are unconcerned about the possibility of any major drops in US stocks; perhaps the summer heat and its peak vacation time might also have some to do with this.

Other than our TSX which benefited from the jump in oil prices, it was a losing week for all the European markets and most of the Asian ones. While for the year the two indexes that track the combined value of all the European and Asian stock markets are still firmly double-digit percentage positive, the stock markets for the major economic players in both regions are negative, China and India with year-to-date declines around 10%, and Germany, the dominant European economy, hovering just below zero.

On that note the Wall Street Journal last week reported how China is continuing to destroy Germany's famed industrial base and the source of much of its exports. I've already written previously that VW which represents almost 9% of German GDP, is predicting major layoffs and plant closures and this article illustrated that German midsize manufacturers, facing stiff competition from China, are laying off staff and also closing factories. In fact Germany now imports more advanced capital goods from China then it exports there. Overall China's exports to Germany alone have gained 17% year-to-date versus last year and for the overall European Union Chinese imports are up over 16%. The article concludes that European leaders are now seeking legal powers to reverse this trend. Could we see Europe follow America's lead and impose import tariffs on China?

To conclude, illustrating how narrow the leadership in the major US indices is, the combined market value of Apple and Nvidia total of about $9.6 trillion,  is greater than the value of any of the other S&P 500 sectors. The two closest are the Financials and Communication Services, both with the total market value of all the stocks in that sector each just under $8 trillion. The total value of the information technology sector is just under $26 trillion obviously dwarfing all the other sectors by a huge margin.  Nevertheless the desire to own AI related companies does not seem to be waning anytime soon and so here is a new term to add to your lexicon:

Supporters say that it's time to stop speaking of the dollar as a reserve currency, with all its time-honoured connotations of bank vaults, probity and solidity. Today America’s currency is, above all, a promise of liquidity and a vehicle for outsized and unfettered capital accumulation: the profit dollar.

There will be no The Week That Was next Monday, as I leave today for Bruges, which I’ve wanted to visit ever since the wonderful Colin Farrell movie in Bruges, and then ticking off another item on my bucket list- the Belgian Grand Prix at Spa. Sandra and Zazz are gallantly staying behind to keep an eye on financial markets as this week could really give an insight to the state of the US economy. Key numbers will be released on inflation and retail sales, also the major US banks report earnings and the new FED chair Kevin Warsh will provide an update with insights of FED’s view of inflation, interest rates and potential bank rate cuts

Dennis