European stocks missed the three pass by contracting slightly by 0.6% last week. This is at least what happened at the level of the broad Stoxx Europe 600 index, since certain markets saved the current series. This is the case of the CAC40, which gained 0.3%, which allows the French index to claim a fifth consecutive week in the green. Wall Street also ended on a positive weekly balance sheet, the third in a row, despite a Friday session down for the technology compartment. Too many numbers? Just remember that the summer bounce has lost a bit of vigor but doesn’t seem to have gone away. And that Western indices are still lower than they were on 1er January, between -10 and -20% generally, but higher than before the outbreak of the coronavirus.
I’m going back to Friday’s session to remind you that it was the data on the US job market in July that caused the indices to falter. According to the good old principle of “good news, bad newswhich you’ve no doubt seen written about a lot in the past week. Basically, the US economy is still creating lots of jobs, unemployment is low, and wages are still going up.
And then you are going to tell me: where is the problem? The problem is that this situation is a source of inflation and that it creates damage to the economic and social fabric. It therefore requires responses, in particular a monetary response that involves raising key rates. By raising its rates, a central bank reduces the amount of money in circulation by restricting access to credit. Households are expected to spend less and companies to invest less, which should reduce economic overheating and therefore bring inflation back into territory compatible with more harmonious economic development. I’m oversimplifying on purpose, but that’s kind of the underlying mechanism.
But among the things that the financial markets do not like, but then not at all, there is uncertainty. Quite simply because it reduces the effectiveness of models based on forecasts and probabilities. The current major uncertainty for financiers is the level to which the US central bank will have to raise its rates to curb inflation. Thus any promising economic statistics is the “good news” which I mentioned above, is an indication that the efforts made so far by the Fed are fruitless. And that it will have to do more, but how far? This is the “bad newsquoted above, which explains Friday’s market decline. In reality, the situation is a little more complex, because there is a strong inertia between the moment when the rate hikes are deployed and when they act deeply in the economy. But the financial markets tend to react in a half-hearted way, they will be ready to pounce when the first signals of a reversal in the slope of the prices are visible, even if the economy is in recession.
This second week of August is synonymous with reduced activity on several markets, for lack of fighters who have left to seek the heat wave further south. The sacrosanct Augustian cut is more rooted in Latin countries (there are hardly any corporate publications in France, Italy or Spain during the next 15 days) than in northern Europe (the agenda is much more substantial in Germany or the United Kingdom over the same period). Highlights of the week include:
- On the corporate agenda: the Japanese NTT and Softbank and the American Dominion Energy today. Walt Disney Company and Vestas on Wednesday then Deutsche Telekom, Hapag-Lloyd, Zurich Insurance, Orsted and Siemens AG
- On the economic agenda: US inflation for July will be released on Wednesday 10 August. The next day, place at the producer prices of the same period. On Friday, August 12, the University of Michigan will release the American Consumer Fitness Report. Elsewhere in the world, Chinese inflation for July will be published on the night of August 9 to 10.
Needless to say, the US inflation figures for July are the main attraction of the week, for the reasons I mentioned above. That’s the problem with statistics: they don’t take vacations.
In other news, the US Senate passed Joe Biden’s climate, health and tax plan. This is an important step for the majority in the United States, even if the measures adopted are much less ambitious than the initial project. Beijing is still making shows of force around Taiwan after Nancy Pelosi’s visit to the island last week. In the Russian-Ukrainian conflict, the belligerents transfer the responsibility for strikes near the largest Ukrainian nuclear power plant.
The week starts higher in Japan, India and Australia and lower in Hong Kong and mainland China. Leading indicators are bullish in Europe, suggesting an opening in the green. American “futures” are very close to equilibrium.
* For title reference: Lost in Translation.
Economic highlights of the day
Almost nothing to eat today on the macro agenda. The whole macro diary here. China announced on Sunday an increase in its exports and imports in July. The export is more dynamic than expected and the import a little less.
The euro is trading at 1.0183 USD. The ounce of gold is now stagnating around 1773 USD. Oil is picking up a little higher this morning, with Brent from the North Sea at 95.26 USD a barrel and US light crude WTI at 89.31 USD. The yield on US 10-year debt rose to 2.91%. Bitcoin is trading around $23,300.
The main changes in recommendations
- Adecco: Goldman Sachs remains neutral with a price target reduced from 38.50 to 33 CHF.
- Ascom: Research Partners remains long with a price target reduced from 19 to 17 CHF.
- Deutsche Post: Goldman Sachs remains long with a target reduced from 57 to 55 EUR.
- Lanxess: Goldman Sachs remains neutral with a price target raised from 40 to 42 EUR.
- Legal & General: JP Morgan goes from neutral to overweight, targeting 365 GBp.
- Saipem: Jefferies goes from underperformance to hold by targeting EUR 0.90.
- Societe Generale: Jefferies remains long with a target raised from 35 to 37 EUR.
- Subsea 7: Jefferies goes from buying to underperforming by targeting NOK 70.
- Vestas: Fearnley goes from buying to selling aiming for 155 DKK.
- Volkswagen: Goldman Sachs remains long with a target raised from 191 to 197 EUR.
In France
Important (and less important) announcements
- Veolia will sell Suez’s waste activities in Great Britain to Macquarie for around €2.4 billion.
- Navya is launching a pilot project with a city in Minnesota to deploy an autonomous shuttle.
- Claranova and Euro Resources have published their accounts.
In the world
Important (and less important) announcements
- The Porsche and Piech families want to strengthen their grip on Volkswagen.
- Siemens Energy warns that its 2022 loss will be heavier than expected, especially because of Russia.
- London is opening an investigation into the sale of National Grid’s gas transmission business to Macquarie.
- Berkshire Hathaway posted a book loss of $43.8 billion in the second quarter due to falling markets.
- Pfizer is negotiating the acquisition of Global Blood Therapeutics for $5 billion, according to the WSJ.
- PostNL cuts its profit target for 2022 due to inflation.
- CVS Health is close to acquiring Signify Health, according to Bloomberg.
- Oz Minerals rejects an informal offer at AUD 25 per share issued by BHP Group.
- Elon Musk challenges the CEO of Twitter to a public debate on bots.
- Amazon will acquire iRobot for $1.7 billion in cash.
- United Parcel Service would negotiate the acquisition of the Italian Bomi.
- Credit Suisse says it has no big exposure to Mexico’s Credito Real.
- California’s motor vehicle agency accuses Tesla of lying to consumers about its self-driving technologies.
- Eni buys a floating liquefaction plant in the Republic of Congo.
- Main publications of the day: Dominion Energy, BioNTech, International Flavors & Fragrance, Barrick Gold, Palantir, Porsche, Take-Two, Siemens Energy, ICA Gruppen… The whole agenda here.
Readings