Dow -1.23%, S&P 500 -0.67%, Nasdaq -0.16%, Russell 2000 -0.05%, SOX -0.12%, Eurostoxx -0.59%, SMI -0.25% .
Nancy Pelosi’s trip to Taiwan is likely to deteriorate the already very bad Sino-American relations and have negative economic repercussions. China could respond with de facto boycotts of certain American products and delays or cancellations of investments in China and the United States. In short, the potential for further disruptions to trade and investment exists. Well… as it is, it’s still very calm Therese, certainly the United States ambassador has been summoned, a Chinese firm postpones the announcement of the opening of a production site in the United States and Chinese planes are making an incursion into Taiwanese airspace, but for the rest Sister Anne does not see much coming, let’s remain patient though…
In this somewhat anxiety-provoking context, the American equity indices fluctuate under the radar at the start of the session, to move into positive territory more or less with the announcement of Mrs. Pelosi’s landing in Taiwan, these little teasers…More of the session is devoted to the declarations of various members of the Fed, which bring the market back to its first reality, this damned inflation, which one would have almost forgotten while watching a plane land on a tarmac. Loretta Mester insists on the need to bring prices down: “That’s what we’re talking about, what we’ve been talking about this year and what we’ll continue to talk about,” the Cleveland Fed chief told the Washington Post. In Chicago, Charles Evans predicts a rise of 50 or 75 basis points in September while St. Louis Fed boss James Bullard expresses confidence in the Fed’s ability to keep the economy growing, even with a stricter policy. A soft landing is “doable,” he says. Minneapolis Fed Chairman Neel Kashkari had said over the weekend that the Fed is “far” from pulling out as inflation is higher than expected and spreads more widely through the economy. Icing on the cake, the words of Mary Daly, the boss of the San Francisco Fed, who does not go with the back of the spoon and declares bluntly that: “the Fed is “far” from having finished its fight against inflation.
That’s a bit of a lot of “hawkish” talk for a market that had been singularly relaxed on this subject since last week. This forced landing on the reality planet drags US Treasuries to the cellar and pushes up yields, for example that of 10 years, which is back at 2.71% against 2.52% yesterday afternoon. The US yield curve is sinking a little further into negative territory, the 2-10 year is evolving this morning at -32 basis points. As for the Fed Funds market, it is forced to revise its copy and push back its rate cut expectations to July 2023, or at least maybe July, the current probability is 54%. Yesterday morning, the market was expecting a first drop in the first half of 2023.
On the macro side yesterday, yesterday’s JOLTS report highlights the existence of a gradually cooling labor market…perhaps July’s rally is meeting some resistance in August ? JOLTS data shows a bigger than expected decline in job openings to 10.698 million, the first drop since January. The resignation rate remains high at 2.8% and the number of jobs per unemployed has returned to its February level of 1.8.
We return to Wall Street, where all the main sectors closed in the red yesterday. The dark side podium consists of real estate, financials and industrials. High-end consumption declines despite results from Simon Property -2.90% and Ferrari -1.02% (Ferrari reports deliveries up nearly 29% in the quarter, including staggering growth of 115, 7% in China/HK/Taiwan). Travel stocks pull back (Marriott -0.83%, Avis -4.72%) despite Marriott’s excellent results/guidance and management’s upbeat tone on what they see in the environment. “We have announced exceptional results, as the momentum of the global accommodation recovery continues. With demand increasing across all customer segments throughout the quarter, and nearly all countries easing their travel restrictions.” Tech is having a great day in terms of earnings, with HLIT +0.28%, LSCC +2.53%, MPWR +9.39%, NTNX +3.42%, SANM +6.55%, SBAC +1 .60%, UBER +18.90%, VRNS +9.65%, and ZI +11.24%, all good, while PINS +11.61% is doing well, its numbers could have been much worse. Yesterday, the combination of solid earnings, light positioning and a new move in Treasuries singularly boosts the appeal of growth and tech stocks.
Volatility increased somewhat, the VIX (volatility of the SPX) gained 4.7% and closed at 23.93. The dollar is also in demand, the eur/usd pair goes back below 1.0200, oil grabs a few cents, it is back at $93.95 a barrel of WTI Light Crude this morning. Oil industry watchers doubt OPEC+ will respond to Joe Biden’s call for more supply at its meeting today. The Wall Street Journal reports that a modest increase will be considered. Gold gives back a little ground, the ounce returns to $1768, probably impacted by the greenback’s renewed form.
Technically, the SPX has been struggling for three days with its 100-day moving average, which stands at 4119 points (closing last night at 4091 pts). If this level is broken, the next resistance is at 4177 points, this is the highest in the June 2 session. If we take a step back, we see that in July, the SPX recorded its best monthly advance in over a year, after suffering a significant drawdown, i.e. a price movement typically seen at the end of bear markets. Within the index, more than 75% of member stocks are in medium-term uptrends, which represents a strong rally, not long ago it was less than 5%. Historically, this pattern is bullish.
Nancy Pelosi says her trip to Taiwan makes it clear Washington won’t give up on the island and a trade deal could be imminent. President Tsai Ing-wen says Taipei will “hold the defense line of democracy” and preserve its sovereignty. Beijing summons the US ambassador, announces some of the most provocative military tests in decades and halts some trade with Taiwan. Beijing does not rule out a meeting between Xi Jinping and Joe Biden.
CATL is delaying an announcement of a multibillion-dollar North American plant to supply electric vehicle batteries to Tesla and Ford due to tensions over the visit, Bloomberg reports. The Chinese company had planned to choose a site in the United States or Mexico in the coming weeks, but it postpones this announcement until October.
The UK economy is already in recession and facing stagflation, according to the Niesr. In politics, Liz Truss is increasing her lead over Rishi Sunak in the race for prime minister. A YouGov poll of the Tories puts him 34 points ahead, significantly higher than the 18-point margin almost two weeks ago. However, most of the polls were taken before yesterday’s embarrassing flip-flop on civil service pay.
Today is the services PMI day for the major economies. There will also be the figures for consumption in Europe (11:00 a.m.) then, in the United States, the ISM for services and industrial orders (4:00 p.m.). This morning, China’s Caixin services PMI accelerated to 55.5 points in July.
Credit Suisse: Goldman Sachs downgrades the stock from neutral to sell with a price target of EUR 5.80. Holcim: Goldman Sachs remains long with a price target reduced from 59 to 58 francs. Lonza: Goldman Sachs maintains its buy recommendation with a price target revised from 770 to 747 francs. Temenos: UBS remains short with a price target reduced from 84.50 to 66.30 francs. UBS: Julius Baer does not change his recommendation to buy with a price target reduced from 21 to 19 francs. Axa: The half-year net profit is up slightly, the impact of the war in Ukraine is estimated at 300 million euros. The firm is launching a €1 billion share buyback program. Societe Generale: The group is in losses in the second quarter, the withdrawal from Russia is blamed. Stellantis suffers a production stoppage in Italy following the strike by logistics companies. Advanced Micro Devices: The stock drops 7% after the close and the publication of its quarterly results. Airbnb: Quarterly results disappoint with a title that loses 8% after the close. PayPal: The action takes off 11% after the bell, following the results, the announcement of a new share buyback and the presence of the activist fund Elliott in the capital. Starbucks: The title gained 1.5% off session after the publication of its quarterly results.
Tonight and this morning in Asia, the indices are trading globally up. Tokyo rose 0.53% at the bell, Hong Kong advanced 0.54%, Shanghai fell 0.29% and Seoul gained 0.89%. The SPX future gains 10 points and Europe is indicated in equilibrium at the opening of 9 am.
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