Yesterday, the Nasdaq ended the session 0.4% higher thanks to investors' bets on artificial intelligence. A few short-term winners have been clearly identified, such as Nvidia. For the rest, it's mostly a case of blind bets, but a promising one for the US technology index.

In the financial markets, there are many ways of classifying events. One of the most common is to divide them into "expected" and "unexpected". To put it bluntly, an "expected" event has little upheaval potential. Or at least, it's unlikely to change the course of events. Unexpected" events, on the other hand, are a source of rupture in the narrative. They generally bring volatility to all or part of the financial system. These are the events that thrill investors, because they create extraordinary situations that need to be interpreted. The boundary between "expected" and "unexpected" fluctuates. Excellent authors regularly point out that it depends on the level of collective investor complacency. This complacency was at its peak during the Internet-related speculative bubble at the start of the millennium. Closer to home, it was post-covid, when money was still free and could be used to promote companies with no viable business model.

There’s the unexpected that happens because the collective misjudged the situation. This is the most frequent case. For example, wheat or gas prices are currently at a two-and-a-half-year low, when everyone thought they would remain high, following their surge after Russia's invasion of Ukraine. Another example is China's famous economic awakening after the end of covid-related restrictive measures. Data released yesterday showed that the manufacturing PMI contracted to 48.8 points in May, a sign that the acceleration is faltering. Hong Kong has lost 20% since its January highs. The bet on Chinese equities in the first half of the year didn’t work out.

Another kind of unexpected event is when the collective either didn't see coming… Or did. The most recent example is the explosion of everything to do with artificial intelligence. This kind of event, as we can see, has the power to move the masses. For example, it can rekindle the enthusiasm for American tech stocks. As we've seen with Nvidia, this kind of unexpected event provokes "buy first, think later" reactions, because you've got to be in it, at any price. Incidentally, the new American processor star yesterday briefly entered the club of companies weighing over $1,000 billion on the stock market, which includes only six other companies: Apple (since August 2, 2018), Amazon, Microsoft, Alphabet, Meta Platforms and Tesla. The last two have since left due to their stock market corrections. It's worth noting that oil giant Saudi Aramco (Saudi Arabian Oil Company) is also part of the club ($2,050bn capitalization), but on an ultra-reduced free float and listing in Riyadh.

Meanwhile, investors remain focused on the progress of the deal to raise the debt ceiling in the United States. There was some good news since it went successfully through the House of Representatives committee yesterday. But it still needs to pass both the House and the Senate this week before it becomes law. The suspense is weighing on investors sentiment, as a failure to pass the deal would mean that a US default could come as soon as June 5.

Stock index futures were in the red this morning ahead of the vote on the debt-ceiling deal at the House later today. Investors are also awaiting the Labor Department's jobs report for May, due on Friday, to get more clues about the Fed's monetary policy.

 

Economic highlights of the day:

In Europe, France and Germany released their first estimates of May inflation, which showed that price increases cooled more than expected in both countries. In the US, the Chicago PMI, the JOLTS employment survey and the Fed's latest Beige Book are also on the agenda. The full agenda is here. Earlier today, Asian statistics were mediocre: Japanese industrial production and retail sales failed to meet forecasts, while the Chinese manufacturing PMI sank into contraction at 48.8 points, against expectations of 49.5 points.

The dollar is up 0.4% to EUR 0.9360 and GBP 0.8088. The ounce of gold is trading at USD 1962. Oil loses further ground, with Brent North Sea crude at USD 71.63 a barrel and WTI US light crude at USD 67.31. The yield on 10-year US debt falls to 3.67%. Bitcoin is trading at around USD 27,000.

 

In corporate news:

  • American Airlines on Wednesday raised its profit target for the second quarter, thanks to lower kerosene costs and strong demand. The airline gained 2% in pre-market trading.
  • Competitor United Airlines gained 2% in pre-market trading in its wake. The group also announced the retirement of CFO Gerry Laderman next year.
  • Capri, owner of the Versace and Michael Kors luxury brands, gained 5% in premarket trading after reporting better-than-expected quarterly sales and earnings, boosted by higher sales in China.
  • HP inc - The group's quarterly sales fell short of market expectations due to the impact of inflation on PC demand. The IT group's shares were down 4.7% in pre-market trading.
  • Hewlett Packard Enterprise reported second-quarter sales below expectations, as customers cut back on spending amid the economic slowdown. Its shares lost 7.5% in pre-market trading.

 

Analyst recommendations:

  • Asos : AlphaValue remains Buy with a price target reduced from 649 to 522 GBp.
  • Burberry: AlphaValue remains at "light" with a price target raised from 2192 to 2241 GBp.
  • Chevron: J.P. Morgan upgrades to neutral from underweight. PT up 11% to $170.
  • Heico: Vertical Research Partners upgrades to buy from hold. PT up 20% to $191.
  • J D Wetherspoon: HSBC upgrades from hold to buy, targeting GBp 940.
  • Microsoft: Credit Suisse advises its customers to buy the stock. The target price has been lifted and is now set at USD 420 compared to USD 350 before.
  • Mitchells & Butlers: HSBC upgrades from hold to buy, targeting GBp 300.
  • Netflix: Jefferies advises its customers to buy the stock. The target price is revised upwards from USD 440 to USD 405.
  • Nova: Bank Leumi downgrades to hold from buy. PT down 1.4% to $110.
  • Teleflex: CL King & Associates initiated coverage with a recommendation of buy. PT up 26% to $293.
  • Toll Brothers: Argus Research Corp raised the target on Toll Brothers Inc. to $80 from $70. Maintains buy rating.
  • Warner Bros Discovery: Barrington Research downgrades to market perform from outperform. PT jumps 122% to $25.