Today is the official start of the summer, after a winter and spring that saw considerable gains on equity markets, like the European Euro Stoxx 50 (+14.5%), the Japanese Topix (+21.4%) and the Nasdaq 100 (+37.8%).

The stock markets have been on a roll this year, but Wall Street's recovery from a three-day weekend wasn’t the best. The Nasdaq 100 limited its losses to 0.1%, while the S&P500 (-0.5%) and Dow Jones (-0.7%) fell further. The tech sector continued to resist, while energy and raw materials nosedived. Real estate also suffered: the market opted for a glass half empty between worrying indicators for the office and retail markets and stronger-than-expected statistics on May building permits.

Earlier today, data showed that inflation remains sticky in Britain, which fuelled worries that the Bank of England may need to be more hawkish.

Consumer inflation remained steady at 8.7% in May, while economists expected a decline. Investors are now mostly forecasting a 50-bps rate hike on Thursday, instead of the previously-expected 25-bps increase.

A certain wait-and-see attitude has set in ahead of Jerome Powell's hearing this afternoon before the House Financial Services Committee as part of its semi-annual report. This type of meeting is not an exact science, but the Fed boss is unlikely to change his tune from what was said last week, namely that the central bank paused its monetary tightening cycle in June but will soon restart it to curb the inflationary episode. The futures market is betting 77% on a US rate hike of 25 basis points on July 26.

Investors seem to have taken this situation in their stride, as long as it doesn't generate any major economic glitches. The multiplication of papers on tensions in certain debt market segments (here and there) is proof enough that certain subjects are sensitive, but nothing has really cracked yet, and projections for the US economy are better than they were at the end of April. On Wall Street, the 2023 rebound was largely based, as we know, on large-cap tech stocks and the promise of artificial intelligence, which are pretty much the same companies. Since the beginning of June, however, there has been a slight upturn, with an acceleration in small and mid-cap stocks, which were largely overlooked at the start of the year.

On the economic-political front, we left the USA and China with a handshake between Antony Blinken and Xi Jinping on Monday evening. Now we're back with Joe Biden calling the Chinese leader a dictator. It's probably true, but let's just say that in diplomatic language, it doesn't really fit into the semantics of appeasement.

 

Economic highlights of the day:

British May inflation is the only major macro indicator of the day. Fed boss Jerome Powell will be heard by the House Financial Services Committee as part of its semi-annual update (10:00 am). The full agenda is here. 

The dollar is flat against the euro at EUR 0.9161 and is up 0.3% against the pound to GBP 0.7865. The ounce of gold is trading at USD 1930. Oil is stable, with North Sea Brent at USD 75.72 a barrel and US light crude WTI at USD 71.06. The yield on 10-year US debt stands at 3.79%. Bitcoin is trading at around USD 28,000.

 

In corporate news:

Fedex - The group said its margins were under pressure from the slowdown in the freight transport sector, and anticipates weak revenue growth for fiscal year 2024. The share lost 3.3% in pre-market trading.

Tesla - Group CEO Elon Musk said he would soon announce a "major" investment in India, at the request of Indian Prime Minister Narendra Modi. The Group was up 1.3% in pre-market trading. Barclays has also lowered its recommendation from "overweight" to "in-line weighting".

Crypto-currency and blockchain stocks climb in pre-market trading, with bitcoin hitting its highest level in six weeks. Crypto-currency platform Coinbase Global rises 2.6%, while Bitcoin-exposed software company MicroStrategy gains 3.7%.

Shares of US-listed Chinese automakers advance in pre-market trading, after China announced an extension of subsidies for the purchase of electric vehicles until 2027.

 

Analyst recommendations:

  • Amazon: Jefferies still considers the stock as a Buy opportunity. Previously set at USD 135, the target price has been raised to USD 150.
  • Barclays: BNP Paribas Exane remains Outperform with a price target reduced from 235 to 205 GBp.
  • Entain: BNP Paribas Exane upgrades to outperform from neutral. PT up 21% to 1,500 pence.
  • Fedex: Goldman Sachs maintains his Buy rating on the stock. The target price has been raised from USD 258 to USD 269.
  • Hikma: Liberum starts tracking with a Buy rating, targeting 2350 GBp.
  • Lloyds Banking Group: BNP Paribas Exane downgrades from outperform to neutral, targeting GBp 52.
  • Lookers: Liberum downgrades to hold from buy. PT up 1% to 120 pence.
  • NatWest: BNP Paribas Exane downgrades from neutral to underperform, targeting GBp 280.
  • Nike: Goldman Sachs advises its customers to buy the stock. Previously set at USD 148, the target price has been slightly modified to USD 144.
  • Oxford Biomedica: J.P. Morgan starts tracking at neutral, targeting GBp 495.
  • St. James's Place: Barclays moves from Equal-Weight to Overweight, targeting GBp 1,500.
  • Tesla: Barclays downgrades to equal-weight from overweight. PT down 5.3% to $260.
  • Tyler Tech: J.P. Morgan initiated coverage with a recommendation of overweight. PT set to $472.