(CercleFinance.com) – The CAC40 (+0.8% to 6,310) ‘hangs’ at 6,300, validating a rebound of +525Pts (+9%) since July 5 (and +400Pts since July 1, i.e. +6 .6%).
The month of July, which ends tomorrow, sticks to perfection with its reputation as the best month of the year… when the stock market hardly ever retreats.
What inspires the return of such confidence in the future?
Would bad news become ‘good news’ again?
The sharp contraction (-0.9%) of US GDP is greeted by a rebound of +0.5% in the US indices compared to their pre-opening levels: the Dow Jones and the S&P500 return to equilibrium and the explanation would be that the risk of further -sharp- rate hikes would recede a little.
But if this is the case, it is because the ‘macro’ parameters are deteriorating sharply, which should impact the results of CAC40 or ‘S&P’ companies.
The interest rate markets reflect these recessionary anticipations with a new marked inversion of the yield curve on the US T-Bonds, with a ’10 year’ which falls clearly below 2.7% while from 1 year to 3 years, the yields range between 2.92 and 2.84%, then 2.72% over ‘5 years’.
In a statement released last night, the Federal Reserve announced its intention to raise rates for a fourth straight time.
The central bank also hinted that it could decide on more by the end of the year, depending on forthcoming economic data.
‘Its chairman, Jerome Powell, has made it clear that the fight against inflation remains a priority, even at the cost of a possible entry into recession’, underline analysts at Commerzbank.
But the central authority’s announcements came in very much in line with market expectations, causing investors to pay heightened attention to the language used regarding the recent slowdown in economic growth.
As such, many economists expect the Fed to take more cautious measures as its monetary policy becomes more restrictive.
‘The subtle changes in the FOMC statement as well as President Powell’s comments during the press conference reinforce our expectation that by September the Fed will raise rates at a less aggressive pace’, assure Lombard Odier’s teams.
The Swiss private bank says it is planning a further increase of 50 basis points at the end of the September meeting, followed by increases of 25 basis points at subsequent meetings.
For the time being, the second quarter of GDP contraction pleads for a less aggressive Fed in September.
Real GDP in the United States fell by 0.9% at an annualized rate according to an initial estimate by the Department of Commerce, while a return to growth (+0.4 to +0.5%) was expected on average by economists.
The contraction comes after a 1.6% fall in the first quarter, thus marking the country’s entry into recession, with the slowing of the decline mainly reflecting a recovery in exports and a smaller cut in federal spending.
Furthermore, the PCE price index increased by 7.1%, as in the previous quarter. Excluding food and energy prices, the index rose by ‘only’ +4.4%, ie a softening of prices after +5.2% in the first quarter.
After three consecutive weeks of growth, weekly jobless claims resumed their downward path (-5,000) last week in the United States, show data released Thursday by the Department of Labor (256,000 at the end of the week from July 17 to 23, but it is a trompe l’oeil because the figure for the previous week had been revised by +10,000).
The four-week moving average, believed to better reflect underlying trends in the labor market, came in at 249,250, up 6,250 week-on-week.
These data seem to confirm the scenario of a good resistance of the labor market and therefore of the economy.
Stakeholders are preparing for a particularly busy day on the front of quarterly publications, many European heavyweights of the caliber of ArcelorMittal, Nestlé, Sanofi, Stellantis or Volkswagen having already unveiled their accounts in the early morning.
On the bond side, the upturn is also on the agenda in Europe: our OATs eased by -14Pts towards 1.3900% (against 1.9500% on 07/21), Bunds by -12Pts to 0 .82%, down from 1.3600% a week ago (July 21) at the same time.
Italian BTP fell -12Pts to 3.3050%… the spread with the Bund contracting to +245Pts, which remains worrying.
On the currency side, the Euro fell -0.3% to 1.016% while oil is now down -0.4 to $107.1 in London.
Among the results of the largest companies, EDF announced a half-year net loss of more than 1.3 billion euros, to be compared with a profit of 3.7 billion euros in the first half of 2021.
Stellantis driven by its 8 billion euros in profits (+34%) in the 1st half (turnover up by +17% to 88 billion euros and margins up sharply with the prioritization of ‘premium’ vehicles, sales fell by -7%) climbed by +4.8%, Schneider wins +5.6%.
Orange announces net income of 1.47 billion euros for the first half of 2022, up 4.07 billion in historical data and 369 million excluding impairment of goodwill in Spain.
Benefiting from a near doubling of Brent prices over the quarter, a consequence in particular of the war in Ukraine, TotalEnergies (-3.2%) saw its adjusted net income reach 9.8 billion dollars, almost tripling a year to year.
Air Liquide publishes net income group share of 1.3 billion euros for the first six months of 2022, up 5.3%, and an operating margin of 16.1%, down 1.9 points as reported but up 0.5 point excluding energy effect.
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