I immediately give in to all of us for balance sheets and statistics, since the month of May has just closed. European stocks, personified by the STOXX Europe 600, have lost 1.56% over the past month and 9.11% since the start of the year. I don’t know if some bullshit traders or facetious algorithms were at work, but US equities, for which I use the S&P500, have a positive monthly balance sheet by the smallest of margins, +0.01% in May . The index yields another -13.30% since the 1er January. I push a good big open door by writing that it could have been worse without the net rebound started ten days ago, but it’s true, what, it could have been worse. And yet the script has not been rewritten: inflation, more austere monetary policies, shortages, war… But investors’ perception of the situation has changed. They’ve become less complacent too, which is pretty good news since complacency is the source of a lot of our excesses. They are a little less excessive too, even if that remains to be proven since FOMO is never far away. June is therefore starting in a climate that is still tense, but the markets seem to have come out of panic mode.
This is a good opportunity to take a little height. I like Bank of America’s “Longest Pictures”. It is a biennial document published since 2012 which proposes a reflection on investment strategies. Basically, it’s about lifting your head off the handlebars and gauging what’s happening in the financial markets. The big story behind the little one, if you will. For example, there is such encouraging information as:
- 2000 years ago, China accounted for 32% of the global economy.
- The oldest still operating company in the world is Kong Gumi, a Japanese construction company established in 578.
- The Fed’s balance sheet went from 4% of US GDP during the Great Depression to 11% during World War II. Then at 15% during the Great Financial Crisis of 2008 to 36% after the Covid.
- Since 2000, companies have spent $9,300 billion on stock buybacks and $6,400 billion on payroll in the United States.
- Interest rates have just left their lowest level of the last 5000 years. How to determine interest rates in the Babylonian Empire? The sources are available here (page 19 of the document).
The American bank was rather skeptical about the turmoil at the start of the year. But for her, they are part of a kind of groundswell that foreshadows a big change. It is induced by societal (inequality, polarization, political mistrust) and political (progressivism, populism) trends. But also by geopolitics (war, sanctions), the environment (food/energy shortages, net-zero), the economy (end of globalization) and demography (decline of the Chinese population). But all these elements have in common to be inflationary, explains BofA. In such a backdrop, which the bank calls the “Great Reset”, bullish themes are small caps, emerging markets (via dollar depreciation), real assets like commodities, infrastructure, clean energy, Asian consumption and the transfer of wealth from Baby Boomers to Millennials.
Conversely, and for once the bank is taking a daring bet, US technology stocks should be the worst performing sector of the decade. “Technological disruption, aging populations and globalization have been the three most dominant investment trends of the past 40 years“explains BofA, adding that headwinds are now legion against the major technology platforms. There are economic and financial factors, such as market saturation, the valuation of some of them and the context of rising rates. But also the consequences of the inequalities they have fueled: the fiscal and regulatory response of States, syndication in particular.American technology would be joined in purgatory by bonds, credit and private equity, assets whose presence here should not come as no surprise to those of you who have a little mastery of the main financial gears.
The atmosphere is buoyant in Europe this morning, where we ended the previous day’s session down sharply. Leading indicators are bullish. Shanghai today lifted the most significant anti-covid restrictions imposed for two months on its 25 million inhabitants. A prospect which the markets had already known for a few days, but which is helping to strengthen the morale of investors, who have been waiting for China’s economic awakening for several months. Oil should be kept an eye on as OPEC reportedly considers excluding Russia from production deals on a temporary basis, given Western restrictions on Moscow. The main indexes of Japan, Australia and Korea end higher. It’s more uncertain in Hong Kong and Shanghai.
Economic highlights of the day
The day is marked by the final manufacturing PMI indices of the main economies, the American manufacturing ISM and the JOLTS survey on job openings in the United States (4:00 p.m.). Speeches by Christine Lagarde (BCE, around 1:00 p.m.) and James Bullard (Fed, 7:00 p.m.) will be well attended. The whole macro diary here. This morning, Australia announced quarterly GDP growth of 0.8%, slightly above expectations. In China, the PMI Caixin index is still in a contraction phase, but it is improving compared to that of April.
The Euro loses some ground at USD 1.0720. The ounce of gold is trading down to 1837 USD. Oil calmed down with North Sea Brent at $116 a barrel and US WTI light crude at $115. The yield on US 10-year debt rose to 2.86%. Bitcoin is stabilizing around $31,600.
The main changes in recommendations
- Bavarian Nordic: Jefferies remains long with a reduced target price of 290 to 280 DKK.
- BP Marsh & Partners: Jefferies is starting to track the purchase by targeting 380 GBp.
- Bucher: Berenberg remains long with a price target reduced from 670 to 650 CHF.
- Dätwyler: UBS remains in charge with a price target reduced from 414 to 374 CHF.
- Flatexdegiro: Berenberg remains long with a price target reduced from 38 to 35 EUR.
- GEA Group: Exane BNP Paribas resumes neutral tracking, targeting EUR 40.
- Krones: Exane BNP Paribas starts tracking outperformance by targeting EUR 104.
- MBB: Berenberg remains long with a price target reduced from 176 to 170 EUR.
- Miliboo: GreenSome Finance remains long with a reduced price target of EUR 7.79 to EUR 5.19.
- Rational AG: Exane BNP Paribas starts monitoring at underperformance by targeting EUR 550.
- Rolls-Royce: Jefferies remains to be kept with a price target raised from 95 to 100 GBp.
- Serco: Jefferies remains long with a price target raised from 185 to 215 GBp.
- Siemens Energy: DZ Bank remains long with a target price reduced from 23 to 22 EUR.
- U-Blox: Credit Suisse remains neutral with a price target raised from 77 to 92 CHF.
- Ypsomed: Credit Suisse remains neutral with a price target raised from 160 to 165 CHF.
In France
Important (and less important) announcements
- New car registrations were down 10.09% in May in France.
- Saint-Gobain acquires Canadian cladding specialist Kaycan for $928 million.
- The FDA grants Breakthrough Therapy designation to Sanofi’s lefanesoctocog.
- Kering finalizes the sale of Girard-Perregaux and Ulysse Nardin.
- Crédit Agricole launches its annual capital increase reserved for its employees.
- Gaztransport & Technigaz receives an order from Hyundai Heavy Industries and Hyundai Samho Heavy Industries for the design of the tanks of four new LNG carriers.
- Ipsen will buy back 125,000 of its own shares in three months.
- Technicolor has finalized the sale of its Trademark Licensing business for €100 million.
- Société Foncière Lyonnaise issues €99 million in similar bonds.
- Pharmasimple buys 4 pharmacies.
- Capgemini, Boiron, Kaufman & Broad and Evolis detach coupons.
- Lumibird finalizes the acquisition of the defense laser rangefinder activity of the Saab group.
- Valneva appoints Thomas Decker and Michael Pfleiderer to its scientific board.
- Showroomprive (SRP Groupe) finalizes the acquisition of the bradery
- Predilife issues new OCEANES.
- Buy-Rent acquires Allodata.
- Stemcis (Hybrigenics) enters into a partnership for training in the MYFILL arthropathy protocol.
- Sopra Steria holds its general meeting.
- Wavestone, Miliboo have published their accounts.
In the world
Important (and less important) announcements
Readings