Let’s start with a little recap of last week. Friday's session ended in the red, but this was not enough to prevent the S&P500 and the Nasdaq 100 from recovering 1.7% and 3.5%, respectively. Over the last 15 years, the tech index was a must-have for investors who wanted to follow the global digitization. The bubble burst at the end of 2021, but the correction was short-lived for the real stars of technology, which are now back into investors’ good graces.

Especially since these companies seem to have found a new catalyst in the content-generating tools based on artificial intelligence. And because you only lend to the rich, it is once again the mega-cap companies that are benefiting. Bank of America calls them The Magnificent Seven, a nod to the 1960 film starring Yul Brynner, Steve McQueen and Charles Bronson. These are Apple, Microsoft, Google, Amazon, Nvidia, Meta and Tesla, which pay themselves about 30 times the results against 17 times on average for the rest of the US market. These companies have fueled the rise of the S&P500 and the Nasdaq since January 1. Bank of America also mention their European peers, but in the luxury sector, with LVMH, L'Oréal, Hermès, Christian Dior, Compagnie Financière Richemont, Kering and Ferrari, whose average P/E is 36 times, compared with 12 times for the STOXX Europe 600. That gives us two Magnificent Seven categories, one powered by AI and the other by the strengthening upper middle class in Asia and elsewhere.

Wall Street's close in the red on Friday coincided with the temporary breakdown in negotiations between Republicans and Democrats on the US debt ceiling. The issue is making investors a little tense. The talks will continue today. Janet Yellen, the head of the U.S. Treasury, however, has suggested that the situation will become critical by mid-June for debt servicing. Until then, June 1 had been presented as "Date X", the time when things could really get out of hand. Jerome Powell's comments, more dove than hawk on Friday, almost went unnoticed. The Fed chair said that the current problems in the banking sector could mean that there won’t be any need to keep interest rates high to curb inflation.

However, today, Federal Reserve Bank of St. Louis President James Bullard – known for his hawkish stance - said he expects there will be two more rate hikes this year to curb inflation. “I think we’re going to have to grind higher,” he said, quoted by Bloomberg.

In other news, there were some important geopolitical developments this weekend. The Japanese G7 produced a press release that angered China, especially regarding the situation in the China Sea and Russia.

In Ukraine, Moscow has claimed the city of Bakhmut. Kiev retorted by saying that its troops are trying to encircle the area. It is difficult to distinguish between actual news and propaganda. At the same time, the United States has authorized the use of F-16 fighters by Ukraine. Joe Biden received assurances from Volodymir Zelensky that the jets would not be used on Russian territory.

China has taken a rare decision by banning the chips of the American Micron from its infrastructure in the future, judging that they are not sufficiently reliable in terms of cyber security. It is a way for Beijing to retaliate to the embargoes decided by Washington, which was quick to react by judging the measure arbitrary and unfounded. An eye for an eye, a tooth for a tooth. Alternative semiconductor suppliers, especially Korean, are up after this announcement. It does not fit in well with Joe Biden's announcement on the sidelines of the G7 meeting that relations with China will improve very soon.

Today, Wall Street's main indexes opened flat as investors await updates on' talks about raising the U.S. debt ceiling.

 

Today's economic highlights:

The dollar is slightly up to EUR 0.9250 and GBP 0.8038. The ounce of gold is worth USD 1972. Oil is losing ground, with North Sea Brent at USD 75.43 a barrel and US WTI light crude at USD 71.52. The yield on 10-year US debt is up to 3.65%. Bitcoin is trading at USD 27,000.

 

In corporate news:

  • Meta Platforms- The Irish Data Protection Commission (DPC), the European Union's top data protection authority, announced Monday that it had fined the social network $1.3 billion for transferring personal data of users from the block to the United States. Separately, Meta announced on Sunday that its Instagram app was back up and running for most users after a technical issue that affected thousands of accounts. The stock was down 1.1% in pre-market trading.
  • Micron Technology - China's cyberspace regulator announced Sunday that the U.S. semiconductor maker's products did not meet network security criteria and would be banned from key infrastructure operators. In pre-market trading, Micron shares were down 6%.
  • Nvidia announced Monday that it has collaborated with the University of Bristol in the development of a new supercomputer using its own chips to compete with Intel and Advanced Micro Devices.
  • Applied Materials - The U.S. semiconductor equipment maker said Monday it plans to invest up to $4 billion in a research center in the heart of Silicon Valley to improve chip production.
  • Blackstone announced on Sunday that it has acquired a 100% stake in jewelry certification group International Gemological Institute (IGI) from China's Fosun and the company's founding family.
  • Albemarle gained 1.4% in pre-market trading after it signed an agreement with Ford Motor to supply 100,000 metric tons of lithium hydroxide for use in batteries, which should enable the carmaker to increase its production of electric vehicles.
  • PacWest Bancorp gained 3.8 percent in premarket trading as the regional bank announced it is in negotiations to sell a portfolio of 74 home loans with a current value of about $2.6 billion to a subsidiary of Kennedy-Wilson Holdings.
  • Apple gave up 1% in pre-market trading, with Loop Capital moving from "buy" to "hold" on the stock, according to trade site thefly.com.

 

Analyst recommendations:

  • Canadian National: Citi downgrades to neutral from buy. PT up 4.6% to C$168.76.
  • CSX: Citi upgrades to buy from neutral. PT up 15% to $37.
  • Foot Locker: Williams Trading downgrades to sell from hold. PT down 17% to $25.
  • Hibbett: Williams Trading downgrades to hold from buy. PT up 14% to $54.
  • Hikma: Jefferies remains Buy with a price target raised from 2080 to 2125 GBp.
  • Knight-Swift: Citi upgrades to buy from neutral. PT up 21% to $66.
  • Man Group: Exane BNP Paribas upgrades from underperform to neutral, targeting GBp 235.
  • Nike: Williams Trading cut its recommendation on Nike Inc. Class B to sell from hold. PT down 17% to $95.
  • Norfolk Southern: Citi upgrades to buy from neutral. PT up 18% to $257.
  • Ormat: Barclays initiated coverage with a recommendation of equal-weight. PT set to $89.
  • Union Pacific: Citi upgrades to buy from neutral. PT up 19% to $237.