This morning, several large American banks released their results and they are mixed. Citigroup's profit rose in the second quarter, thanks to a 60% jump in investment banking revenue and gains in its services division. Net income rose to $3.2 billion, up from $2.9 billion for the year-ago period. JPMorgan saw its quarterly earnings jump from $14.47 billion to of $18.15 billion over the same period, boosted by higher investment banking expenses and an $8 billion accounting gain from a share swap agreement with Visa. However, Wells Fargo posted lower profits, mainly due to higher deposit costs amid intense competition.

Also this morning, investors have been able to assess the US Producer Price Index, which gained 0.2% in June, after a steady reading in May. This was slightly above the 0.1% gain expected in the Bloomberg consensus. Excluding food and energy prices, core PPI rose by 0.4%, against 0.2% expected and following a 0.3% increase in the previous month.

Futures on Wall Street remained slightly above zero despite the PPI reading. This comes after new data published yesterday showed consumer prices inflation slowed sharply last month. On a year-on-year basis, consumer prices are now up by just 3%, which looks like the normalization that was hoped for so long by the Fed. Even core inflation is more moderate than expected, suggesting that inflation is indeed on track to return to the 2% price target, which makes a Fed rate cut likely in September. The market now gives a 93% chance of it happening, compared with 75% just a few days ago.

In all logic, the previous day's statistics should have given a nice boost to the major US indices, but as you know, financial markets are quite the opposite of an exact science with predictable rules. US markets stalled yesterday. Investors clearly needed a break from their frenzied buying of tons and tons of technology stocks. The Nasdaq 100 closed down 2.2%. Apple, Microsoft and Amazon lost between 2 and 3%, as did Alphabet and Broadcom, Meta shed 4%, Nvidia dropped more than 5% while Tesla fell 8%.

The index that fared best, as it best illustrates the paradigm shift the market is contemplating, was the Russell 2000, the index of small and mid-caps, which soared by 3.57%. This is the market segment most likely to benefit from a fall in the cost of money, since this parameter is a powerful lever for medium-sized companies. Let me remind you of the basic pattern: imminent rate cuts means cheaper money, more available liquidity, support for the economy and improved corporate earnings.

In Europe, the Stoxx Europe 600 gained 0.6%, with gains ranging from 1% in Sweden, a market rich in cyclical stocks, to -0.3% in the Netherlands, where the party was spoiled by the fall of two overweight stocks in the index, ASML Holding and Shell.

On the bond market, yields nosedived. The yield on T-Bonds fell by almost 10 points to 3.20%. The dollar came under attack from all sides. The euro climbed back to USD 1.088, and even the yen gained strength as the USD/JPY pair fell to JPY 158, sparking rumors of intervention by the Bank of Japan. Overall, the Dollar Index, which measures the strength of the US currency against a basket of world currencies, lost 0.65% yesterday. On the commodities front, falling inflation benefited gold, which gained over 1.82% yesterday to USD 2,416. Any downward pressure on rates is excellent news for the barbarian relic, which has the characteristic of delivering no yield.

Finally, in other news, calls for the withdrawal of Biden's candidacy could multiply in the coming days. At a press conference that was supposed to convince voters that its cognitive faculties are not in decline, the president has confused the names of Zelensky and Putin, and also switched the names of Kamala Harris and Donald Trump. These two blunders will do little to dispel doubts about his ability to run for a second term in the White House.

In the Asia-Pacific region, the Japanese markets are following in Wall Street's footsteps this morning. The strengthening yen weighed on the Nikkei 225, down 2.4%. South Korea, also well-endowed with technology stocks, lost around 1.1%. Special mention must go to Hong Kong, the region's most bullish market overnight, with the Hang Seng up 2.5%. Mainland China is hovering around equilibrium, while mining-rich Australia is up 0.80%. European leading indexes are slightly up.

Economic highlights of the day:

US June producer prices is the main indicator today, along with consumer confidence. The full agenda is here. 

The dollar is down to EUR 0.9186 and GBP 0.7719. The ounce of gold is trading at USD 2403. Oil is holding steady, with North Sea Brent at USD 85.93 a barrel and US light crude WTI at USD 82.36. The yield on 10-year US debt falls to 4.23%. Bitcoin is trading at USD 57,000.

In corporate news:

  • Citigroup's profit rose in the second quarter, boosted by a 60% jump in investment banking revenue and gains in its services division.
  • Wells Fargo - The U.S. bank's second-quarter profit fell to $4.91 billion from $4.94 billion a year earlier, mainly due to higher deposit costs amid intense competition, the group said on Friday.
  • JPMorgan on Friday reported quarterly earnings of $18.15 billion, up from $14.47 billion a year ago, boosted by higher investment banking expenses and an $8 billion accounting gain from a share swap agreement with Visa.
  • BNY reported a 10% rise in second-quarter net income on Friday, as higher investment banking fees more than offset lower interest income.
  • Bunge - The U.S. grain trader and Glencore-backed Viterra have offered remedies to try to get the European Union's competition authority to give the green light to their $34 billion merger, according to an update on the European Commission's website.
  • ConocoPhillips The oil producer said Friday that it had received a second request for information from the U.S. Federal Trade Commission regarding its proposed acquisition of rival Marathon Oil.
  • KKR - German media giant Axel Springer, owner of tabloid Bild and news website Politico, is considering a demerger with the US private equity group, which would take control of Springer's classifieds business, two sources familiar with the matter told Reuters on Friday.
  • AT&T - The telecommunications group said on Friday that data from around 109 million customer accounts containing call and text records dating back to 2022 had been illegally downloaded in April.
  • Intel - The group's entry into software is going well and the company could achieve cumulative sales in the sector of one billion dollars by the end of 2027, Greg Lavender, the group's chief technology officer, told Reuters.
  • Apple on Thursday won a California federal court's dismissal of a proposed class action that accused the group of limiting access to the technology used to create applications on the iPhone.
  • Estee Lauder announced on Thursday that Tracey Travis would be stepping down as CFO on June 30, 2025, a position she has held for 12 years.

Analyst recommendations:

  • Arrow Electronics, Inc.: Baptista Research downgrades to hold from underperform with a price target raised from USD 118.90 to USD 127.20.
  • Las Vegas Sands Corp.: Mizuho Securities downgrades to outperform from buy with a price target reduced from USD 65 to USD 51.
  • Medpace Holdings, Inc.: William O'Neil & Co Incorporated upgrades to buy from dropped coverage.
  • Synaptics Incorporated: Baptista Research upgrades to buy from underperform with a price target reduced from USD 113.90 to USD 109.
  • Western Alliance Bancorporation: William O'Neil & Co Incorporated upgrades to buy from dropped coverage.
  • Albemarle Corporation: Citigroup maintains a neutral recommendation with a price target reduced from USD 137 to USD 100.
  • Amphenol Corporation: Baird maintains its outperform rating and reduces the target price from USD 137 to USD 68.
  • Bill Holdings, Inc.: Seaport Global maintains its buy recommendation and reduces the target price from USD 102 to USD 80.
  • Freshworks Inc.: Piper Sandler & Co maintains its overweight recommendation and reduces the target price from USD 22 to USD 17.
  • Klaviyo, Inc.: Piper Sandler & Co maintains its overweight recommendation and reduces the target price from USD 38 to USD 30.
  • New York Community Bancorp, Inc.: Morgan Stanley maintains its market weight recommendation and raises the target price from USD 4 to USD 12.
  • Snowflake Inc.: Piper Sandler & Co maintains its overweight recommendation and reduces the target price from USD 240 to USD 165.
  • Tesla, Inc.: Mizuho Securities maintains a neutral recommendation with a price target raised from USD 180 to USD 230. Citigroup also maintains a neutral recommendation with a price target raised from USD 182 to USD 274.
  • W.R. Berkley Corporation: Evercore ISI maintains its in-line recommendation and reduces the target price from USD 87 to USD 57.
  • Williams-Sonoma, Inc.: Telsey Advisory Group maintains its outperform rating and reduces the target price from USD 340 to USD 170.
  • Diageo Plc: Goldman Sachs downgrades to sell from neutral with a target price of USD 125 and GBX 3150.
  • International Consolidated Airlines Group, S.A.: HSBC downgrades to hold from buy with a price target reduced from GBP 2.20 to GBP 1.70.
  • Johnson Matthey Plc: AlphaValue/Baader Europe downgrades to reduce from add with a price target reduced from GBX 1811 to GBX 1798.
  • Polar Capital Holdings Plc: Investec upgrades to buy from hold with a price target raised from GBX 575 to GBX 635.