The last week of June and the first week of July are rarely exciting in terms of stock market news, because they fall between two periods of earnings releases and coincide with the start of summer. There's absolutely no action when you add the 4th of July holiday, which brings Wall Street to a standstill.

Although the session was pretty quiet in Europe, there was one event that investors should be aware of that highlighted the rise of debt default among big corporations. French retailer Casino had its share suspended, as it undergoes restructuring. Management presented the two rescue proposals it received, which had quite different characteristics, but which resulted in the same outcome for small shareholders: they were likely to be severely diluted, i.e. to suffer a huge loss in the value of their shares.

It comes after the bankruptcy of U.S. retailer Bed Bath & Beyond and shows the problem that high rates are causing for companies that were relying on models to fund themselves that were dependent on low rates.

I’m sure you’ve read about Collateralized loan obligations (CLOs), which have been the topic of many articles in the past few weeks. They could become the catalyst for the next financial crisis. Today, we have an article on MarketScreener stating that CLOs represent a market worth $1.5 trillion, but it is now slowly dying. CLOs are financial mechanisms that put together loans of the weakest corporates and repackage them as bonds. They were popular for businesses that wanted to borrow money to survive during the Covid crisis. The problem is that they've become much less appealing due to the current higher rates. The article mentions some estimates from S&P Global that indicate that more than one in 25 U.S. businesses and almost one in 25 European companies will default by March 2024. There’s definitely some echoes of 2008 and its subprime crisis…

Today, investors are assessing the second reading of June's services PMI indicators, to get an idea of which sectors are keeping the economy going, given that the manufacturing sector has been suffering for months. It didn't get off to a very good start, with the Chinese Caixin Services PMI at 53.9 points, compared with 57.1 points in May and an average expectation of 56.2 points. In London, the S&P Global/CIPS services Purchasing Managers' Index (PMI) fell to 53.7 in June from May's 55.2, the lowest reading since March. However, this was in line with expectations and remains in expansion territory (above 50). The composite PMI, which includes manufacturing PMI data, also declined to 52.8 from 54 the previous month.

In other news, China implemented export restrictions on germanium and gallium, which are essential for the semiconductor industry, in retaliation at US-led restrictions on chip sales.

 

Economic highlights of the day:

Services PMI indicators for the major economies are published throughout the day. In the US, durable goods orders complete the picture. The full agenda is here. 

The dollar is worth EUR 0.9178 and GBP 0.7865. The ounce of gold is stable at USD 1928. Oil is little changed, with North Sea Brent at USD 76.29 a barrel and US light crude WTI at USD 71.43. The yield on 10-year US debt stands at 3.84%. Bitcoin is trading at around USD 30,500.

 

In corporate news:

  • Tesla achieved record deliveries of its Chinese-made vehicles in the second quarter (247,217 units), according to data from the China Passenger Car Association.
  • Apple has infringed two Optis patents in 4G technology, the London Court of Appeal announced on Tuesday, rejecting the American giant's appeal in a long-running dispute.
  • Meta plans to launch its microblogging app Threads, days after Twitter boss Elon Musk drew criticism by announcing a temporary limit on the number of messages users can read on his platform.
  • British electric vehicle group Arrival is pulling the plug on its planned merger with a SPAC, while Nikola plans to wind up its recently acquired Romeo Power battery business, the two companies said on Monday, heightening concerns about the difficulties facing start-ups in the electric vehicle sector. Nikola lost 3.7% in pre-market trading.
  • Rivian, on the other hand, gained 8.3% in pre-market trading after Amazon announced that it would be launching its first electric vans produced by the American manufacturer in Germany in the coming weeks.
  • United Parcel Service - The Teamsters union declared that the parcel delivery group had withdrawn from negotiations on a new agreement affecting some 340,000 employees, thereby increasing the risk of strikes.
  • Moderna advanced 1.5% in pre-market trading after signing an agreement to create research, development and manufacturing opportunities for mRNA drugs in China.
  • Brookfield's reinsurance arm to buy American Equity for $4.3 billion.

 

Analyst recommendations:

  • Abrdn: Citigroup remains Sell with price target raised from 185 to 195 GBp.
  • Anglo American: Jefferies remains Buy with a price target reduced from GBp 3000 to GBp 2800.
  • Antofagasta: Jefferies remains Buy with a price target reduced from 2000 to 1800 GBp.
  • BHP: Jefferies remains Buy with a price target raised from 2600 to 2700 GBp.
  • Biomarin: BMO Capital Markets upgrades to outperform from market perform. PT up 19% to $102.
  • Conagra Brands: Jefferies downgrades to hold from buy. PT up 11% to $38.
  • Gladstone: Jefferies initiated coverage with a recommendation of buy. PT up 11% to $11.
  • GSK: Jefferies remains 'Hold' with a price target reduced from GBp 1575 to GBp 1525.
  • London Stock Exchange: Goldman Sachs remains Buy with a price target reduced from 11,250 to 11,050 GBp.
  • Netflix: Goldman Sachs upgrades to neutral from sell. PT down 9.4% to $400.
  • Rio Tinto: Macquarie remains neutral with a price target reduced from 5000 to 4900 GBp.