U.S. stock index futures rose today after data showed inflation cooled in May in America. The personal consumption expenditures (PCE) price index, considered to be the Fed's preferred indicator, rose 3.8% last month year-on-year from 4.3% last month. Excluding volatile food and energy components, the core PCE gained 4.6% in May on an annual basis, which is below the 4.7% expected in the consensus, and down from 4.7% in the previous month.

The session today is therefore up to a good start, after Thursday’s pretty good session that saw the Dow Jones narrow its gap with the Nasdaq by recovering 0.8%, driven by its financial stocks.

The big US banks passed the Fed's latest economic stress test, which galvanized the market. It reassures investors about the solidity of the financial system and secures the payment of the generous dividends which these establishments generally reward their shareholders with.

Overall, the narrative hasn't changed much: investors want the market to go up, but they're afraid of high rates and the recession that's bound to follow. But since the much-talked-about recession has yet to materialize, equity markets are doing rather well. Indeed, the latest US statistics show that things are going a little too well, except of course for the widening wealth gap caused by rising financial assets and falling purchasing power. Employment remains at high levels, the economic sectors that are on the front line in the face of high interest rates, such as real estate, are not cracking, and the US even has the luxury of posting a third and final reading of his first-quarter GDP that is much more favorable than expected.

This situation led to a rather logical reaction in the US bond market yesterday. Yields on US Treasuries rose and the inversion of the yield curve intensified. Basically, this means that the market is increasingly buying into the idea of two further Fed rate hikes this year. And on the other hand, it is increasingly of the opinion that this increases the risk of a recession. Business as usual, in fact: investors are scared of an economic slowdown that is not coming. So, they postpone the timetable. However, this situation cannot be repeated forever: at some point, something has to give. But it hasn't happened yet.

We're changing continents. The eurozone’s annual inflation rate fell by more than expected in June to 5.5%, thanks to lower energy costs. German inflation is higher than expected, but price increases are clearly cooling in Italy and Spain. There are several ways of interpreting this. I'll give you the most pragmatic one possible: the ECB can't be pleased with such a configuration, which considerably misaligns the interests of eurozone countries with regard to monetary policy. With, of course, a divergence between Germany and other major economies in the region, otherwise it wouldn't be much fun.

 

Economic highlights of the day:

June inflation estimates for France and the Eurozone will enliven the morning, before US PCE inflation, household income and spending, the Chicago PMI and the University of Michigan consumer confidence index. The full agenda is here. China announced a manufacturing PMI of 49 points (in line with expectations) and a services PMI of 53.2 points (slightly below expectations).

The dollar is flat against the euro at EUR 0.9210 and down 0.2% against the pound to GBP 0.7905. The ounce of gold is stable at USD 1907. Oil recovered a few cents, with Brent North Sea crude at USD 74.55 a barrel and WTI US light crude at USD 69.93. The yield on 10-year US debt jumped to 3.84%. Bitcoin is up to USD 31,000.

 

In corporate news:

  • In an earnings conference, Nike said it expected little or no revenue growth this year, while analysts were expecting growth to average 5.8%. The group's share price was down 4% in early trading.
  • ASML Holding - The New York-listed group's shares lost 2.1% in premarket trading after the Dutch government announced new rules to restrict the export of sensitive semiconductor-related equipment.
  • Adobe loses 0.4% before the opening of the session, as the British competition regulator wishes to deepen its examination of the proposed $20 billion takeover of Figma.
  • Circor - KKR raised its offer for the industrial machinery manufacturer by $5 to $56 per share, as the private equity group sought to fend off a rival takeover bid from Arcline Investment Management.
  • Nikola gained 2.4% in pre-market trading, as the company once again complies with Nasdaq rules. The exchange had warned the company that it risked delisting if it did not comply with its rules.
  • Spirit Aerosystems declared that work would resume on Friday at its Kansas plant, which has been blocked by a strike for a week and is essential to the group's production, the unions having accepted the agreement proposed by the company.
  • Renalytix gained 38.2% in pre-market trading, as the US regulator grants marketing authorization for its artificial intelligence-based test designed to assess the risk of progressive decline in kidney function in certain patients.

 

Analyst recommendations:

  • Anglo American: BMO remains Outperform with a price target reduced from 3500 to 2800 GBp.
  • Aviva: HSBC upgrades from hold to buy, targeting 480 GBp.
  • BHP: BMO remains Outperform with a price target reduced from GBp3000 to GBp2800.
  • BP Plc: Goldman Sachs remains Buy with a price target reduced from 700 to 650 GBp.
  • British Land:  Kempen & Co upgraded to buy from neutral. PT up 16% to 350 pence.
  • Carnival: Jefferies upgrades to buy from hold. PT up 46% to $25.
  • Ferrari: Intermonte upgrades to outperform from neutral. PT up 24% to $393.49.
  • HP inc: Citi reinstated coverage with a recommendation of neutral. PT set to $32.
  • NetApp: Citi reinstated coverage with a recommendation of neutral. PT set to $80.
  • Nike: RBC research has Buy rating. The target price is now set at USD 134 versus USD 138.
  • Occidental Petroleum: Stephens Inc initiated coverage with a recommendation of overweight. PT set to $72.
  • Rio Tinto: BMO remains Outperform with a price target reduced from GBp6500 to GBp6000.
  • Safehold: RBC Capital Markets initiated coverage with a recommendation of outperform. PT set to $41.