The first week of July was a difficult one for stock markets, particularly in Europe, where some cyclical indices took a beating. This was the case for the CAC40 in France (-4%), while several major markets (London, Frankfurt, Zurich) lost more than 3%. Wall Street did not escape the downturn, but the contractions of the three main US indices were more contained.

Investors are giving more weight than before to the prospect of further rate hikes by the Fed and other central banks. In the United States, this adjustment in forecasts can be seen in the fall in ten-year government bonds, whose yield has risen as high as 4.09% in recent hours. Let me remind you that bond values fall when bond yields rise. However, it's more a question of a sort of realignment between sentiment and reality. The US central bank keeps saying it will continue to raise rates, but investors have so far taken to take the threat lightly. They know that the Fed can use the weight of words to overplay its hand. Now that inflation is a little more docile, investors are looking to the labor market to determine whether monetary policy will remain austere. The June employment figures for the United States, published on Friday, showed some signs of easing, even if the unemployment rate remains very low (3.6%). Wall Street interpreted this as a positive harbinger, while acknowledging that one swallow doesn't make a summer. All three indices therefore declined slightly at the close.

The week kicked off with new inflation figures, this time from China. The country is not facing the same problems as the West. Consumer prices were flat year-on-year. Meanwhile, producer prices continued to fall (-5.4%) more sharply than expected. The optimists among investors see this as a sign that Beijing has considerable room for maneuver, both monetarily and politically, to get its bumpy economy back on track. The Cassandras believe that deflation looms, while pragmatists see the fall in Chinese producer prices as good news for global overheating. Finally, the cynical ones see this fall in production costs in China as a good opportunity to increase profit margins.

The link between inflation, production, consumption and corporate behavior is obvious: second-quarter earnings releases and forecasts from listed companies for the second half of the year. The serious business starts at midday on Thursday, with figures from PepsiCo and Delta Air Lines in the USA. They will be followed on Friday by those of insurance giant UnitedHealth and financial quartet JPMorgan Chase, BlackRock, Citigroup and State Street. The pace will pick up considerably the following week.

In terms of macroeconomics, the week will be busy, with June inflation figures for the United States (Wednesday) and the confidence index for the American consumer (Friday). Then there's the Bank of Canada's decision on its key interest rates (Wednesday), topped off by several speeches by various central bankers, from Bank of England chief Andrew Bailey today to Jerome Powell's team throughout the week (including a fine line-up today: Mary Daly, Loretta Mester and Raphael Bostic). In the meantime, US equity futures were just slightly up after the opening bell.


Economic highlights of the day:

US wholesale inventories for May is on the agenda

The dollar is up 0.1% to EUR 0.9130 and up 0.6% to GBP 0.7835. The ounce of gold is stable at USD 1917. Oil has rallied, with North Sea Brent at USD 77.80 a barrel and US light crude WTI at USD 73.20. The yield on 10-year US debt climbed to 4.07%. Bitcoin is trading at around USD 30,200.


In corporate news:

  • General Motors cut the price of the first Cadillac Lyriq models in China by almost 14% on Monday, amid a price war on electric vehicles sold in the country.
  • Wall Street-listed Chinese electric vehicle manufacturers were down in pre-market trading after the industry federation decided to abandon its pledge to avoid "abnormal pricing".
  • Amazon - Nearly 900 employees at a British warehouse of the American online retail giant will begin a three-day strike next week as part of a wage dispute, the GMB union announced on Saturday.
  • Icahn Enterprises - Carl Icahn and banks have finalized amended loan agreements that separate the billionaire's personal loans from Icahn Enterprises stock, after short-seller Hindenburg Research criticized the group's "opaque investment portfolio" in May, the Wall Street Journal reported Monday. Ichan Enterprises shares were up 4.9% in pre-market trading.

Analyst recommendations:

  • AMD: Phillip Securities reinstated coverage with a recommendation of accumulate. PT up 10% to $125.
  • Anglo American: Citigroup remains Buy with a price target reduced from GBp 3,500 to GBp 3,000.
  • Antofagasta: Citigroup remains neutral with a price target reduced from GBp 1,600 to GBp 1,500.
  • Apple: Phillip Securities downgrades to neutral from accumulate. PT down 4% to $183.
  • Bakkavor: HSBC upgrades from hold to buy, targeting GBp 120.
  • Citizens Financial: Evercore ISI downgrades to inline from outperform. PT up 7.7% to $29.
  • Coca-Cola Hellenic: Numis moves from accumulate to buy, targeting GBp 2950.
  • JD Sports Fashion: BNP Paribas Exane remains Outperform with a price target raised from 225 to 230 GBp.
  • Microsoft: Phillip Securities downgrades to neutral from accumulate. PT down 2.7% to $328.
  • Ocado: Barclays maintains in-line rating with a price target reduced from GBp 740 to GBp 640.
  • Safestore: HSBC downgrades to hold from buy. PT down 7.9% to 770 pence.
  • Shaftesbury: HSBC downgrades to hold from buy. PT up 8.5% to 121 pence.
  • Tesla: Jefferies raised the target on Tesla Inc. to $265 from $185. Maintains hold rating.