Investors can appreciate the month of July 2022, which allows them to reduce the bad performance accumulated in the first half of the year. In Europe, the broad Stoxx Europe 600 index recovered 7.6%, the best monthly mark since November 2020. More cyclical national indices such as the French CAC40 performed better (+8.9%), while those more defensive as the Swiss SMI did not reach the average (+3.8%). The reason is simple: Technology, Industry and Consumer Cyclicals are back again, leaving Health and Finance in the doldrums. Can we also take advantage of this because, statistically, August and September are generally the lowest months of the year for the Stoxx Europe 600. A little music to celebrate July with dignity?.
In the United States, the performance of the sector is distributed in the same way, so that the Nasdaq 100 index, rich in Technologies, gained 12.5%. We must return to April 2020 to find a more favorable month. The broader S&P500 rallied 9%.
The change in the market is based on a number of relatively shaky elements, which together take the form of something more stable. Investors seem to have passed the stage where they see all black. Which means they start seeing the glass half full rather than the glass half empty at all. They are pricing in the Fed’s punitive rate hike cycle and the ongoing macroeconomic slowdown. They also found that most companies are still able to pass on their increased costs to the consumer. And those estimates are less delusional than six months earlier, even in view of less dynamic results than they might have been in previous quarters. All this remains very weak and the impact of macroeconomic forces at work, I think especially inflation or energy and climate disturbances, is very difficult to measure.
But in the “shock cycle” the market stopped denying the positive news, which was a big step from the previous weeks. You only have to look at the very warm welcome given last week to the results of Apple or Amazon when they are so far from the usual standards of both companies to understand that something has happened. Investors found comfort in poor second quarter US GDP numbers. Their animal spirit leads them to think that the Fed may come and play the bombers again by ending its policy of fighting inflation earlier than expected, to restore the strength of the economy. Have investors lost their minds? This is the title of the second song of the day.
The shock cycle
At the beginning of the week, find out that Joe Biden has not finally recovered from his Covid and that the Democratic President of the House of Representatives, Nancy Pelosi, has started a tour of Asia. Rumor has it that it will pass through Taiwan, which will obviously cause new tensions with China. On the macroeconomic agenda, we will find Thursday a decision by the Bank of England on its rates and Friday the employment figures in the United States in July. This weekend, China published poor manufacturing activity numbers for the month of July. So welcome to August, to music.
There was another big series of corporate results this week, including 60 worth more than $50 billion. In Europe, after HSBC and Heineken this morning, BP Plc, AXA, Siemens Healthineers, BMW, Novo Nordisk, Bayer and Allianz will follow. In the United States, expect in particular PayPal, Costco, CVS Health, Eli Lilly, Amgen or ConocoPhillips.
Leading European indicators are bearish this morning, as is the US market. Maybe we should digest the recent gains. In Asia, Tokyo and Sydney gained 0.6% at the end. Mainland China rose but Hong Kong lost some ground. The VIX volatility index fell to 21 points, which has not happened since April. A sign that there is little nervousness in the market. The CAC40 lost 0.11% to 6441 points at the open.
Economic highlights of the day
July manufacturing PMI indexes are on the program for the main economies, including the euro zone at 10 a.m. and the United States at 3:45 p.m. Across the Atlantic, there is also manufacturing ISM and construction spending (4:00 pm). The full macro diary here. China reported an official manufacturing PMI back in contraction territory in July at 49 points, below expectations (50.3). The Caixin PMI, which includes many private companies, weakened to 50.4 points but remained in the expansion zone.
The euro was little changed at 1.0228 USD. The ounce of gold stabilized at 1761 USD. Oil was down from last week, with North Sea Brent at $102.90 a barrel and US WTI light crude at $97.30. The yield on 10-year US debt stabilized at 2.66%. Bitcoin is trading at around $23,400.
The main changes in the recommendations
- Ageas: HSBC from hold to buy, targeting EUR 50.
- Air France-KLM: HSBC from hold to buy, targeting EUR 1.60.
- Amundi: Credit Suisse raised its price target from EUR 52 to EUR 60.
- Anglo American: JP Morgan went from neutral to overweight, targeting 3850 GBp.
- Arkema: Berenberg remains on the buy side with a price target reduced from 152 to 131 EUR.
- BAE Systems: Jefferies remains bullish with target raised from 945 to 960 GBp.
- BNP Paribas: Jefferies remains bullish with a target cut from 73 to 72 EUR.
- Croda: Berenberg remains a buy with a price target reduced from 90 to 84 GBp.
- Diageo: Berenberg remains conservative with a reading target of 3900 to 4160 GBp.
- Hermès: Citigroup raised its target price to EUR 1,000,213,366.
- Inficon: Research Partners remains on hold with a cut target of 910 to 850 CHF.
- Ipsen: Berenberg remains kept with a price target raised from 98 to 102 EUR.
- Jet2: HSBC from buy to save, targeting 970 GBp.
- Kerry: Berenberg remains bullish with target price raised from 124 to 128 EUR.
- Renault: Jefferies remains on the buy side with a target price raised from 40 to 43 EUR.
- Rheinmetall: HSBC from hold to buy, targeting EUR 242.
- Safran: Jefferies remains on hold with a target raised from 100 to 106 EUR.
- Scor SE: Jefferies kept a price target reduced from 26.50 to 17.50 EUR.
- Securitas: JP Morgan moved from underweight to neutral as it focused on its SEK.
- Siltronic: Jefferies remains bullish with target raised from 110 to 115 EUR.
- STMicroelectronics: Citigroup raised its target price from 44 to 52 EUR.
- Swedish Orphan Biovitrum: Morgan Stanley Maintains Overweight Track Target of SEK 280
- Swiss Re: JP Morgan remains neutral with a target reduction from 100 to 80 CHF.
- Tokmanni: SEB Equities from hold to buy targeting EUR 16.
- Eiffel Tower: Kepler Cheuvreux remains in stock with a target price reduction from 27 to 23 EUR.
- Umicore: Jefferies remains negative with a target raised from 26 to 27 EUR.
Important (and not so important) notices
- New car registrations fell 7.06% in July in France, according to the PFA.
- Saint-Gobain has finalized the acquisition of Kaycan.
- Vinci bought Fintech Advisory’s 29.9% holding in Mexican airport operator OMA for $815 million.
- Ipsen signs a partnership with Marengo Therapeutics in immuno-oncology. The laboratory obtained exclusive rights for an experimental ERK inhibitor as part of a research partnership with AGV Discovery.
- Fitch lowered Faurecia’s BB+ credit rating outlook from stable to negative.
- Moody’s may downgrade Eutelsat’s Baa3 rating after OneWeb deal.
- Icade signed a sales agreement for a building in Nanterre.
- Bolloré’s half-year results were very high.
- Innate Pharma and AstraZeneca failed with monalizumab in combination with cetuximab in phase III.
- Peugeot Invest and its partners sell 13 bulk carriers.
- Gascogne signed a syndicated loan of €126.8 million and a loan agreement of €50 million with the European Investment Bank.
- Uniti has strengthened its partnership with PGIM Real Estate.
- PCAS, NSE, DLSI, Algreen, Cnova, ST Dupont, Finatis, Delfingen, Courtois, MG International, Carpinienne, Foncière Euris… published their accounts.
In the world
Important (and not so important) notices