Friday's session ended with a bang on the equity markets, with gains often exceeding 1.5%. In some cases, even 2%, as on the Dow Jones. The agreement to raise the US debt ceiling, although expected, acted as a catalyst. Investors rediscovered the optimism they had lost last year. It has to be said that, so far, the predicted catastrophes have not occurred. Above all, the promised hard landing for the US economy has yet to materialize. The US recession has been two months away for a year now. The market is finding it hard to believe, especially as employment and real estate continue to hold up, despite the perverse effects of higher key interest rates.

But there's another factor to be taken into account to explain the color of indices. The world of finance has developed a passion for artificial intelligence. This is helping to improve the overall mood. But why? Because the presumed beneficiaries of the presumed revolution are also the champions of the last decade. So they already carry a lot of weight. And they're getting heavier. In short, it's always the same ones who win. A case in point is the S&P500, which has gained 10% since the start of the year. Of this total, 8.8% is attributable to the AI-related "Magnificent Seven" (a term coined by Bank of America) (Apple, Microsoft, Google, Amazon, Nvidia, Meta and Tesla). And consequently 1.1% is attributable to the average of the other 493 stocks. Technology bets are all the rage: last week, U.S. equities recorded $13.3 billion in inflows, according to BofA calculations, including $8.5 billion in technology. The contrarians argue that AI is the tree that hides the forest. In the meantime, it works quite well. Admittedly, the second-largest flows of the previous week were directed towards value stocks, which are perceived as more traditional, less risky bets. This still represented $2.5 billion, a sign that not all equities are comfortable with the AI boom underway. But for now, the winners are positioned in technology, not elsewhere.

We're moving on to macroeconomics, dominated by the US debt ceiling, which has been cut off until the end of 2024. On Friday, rumors of an economic support plan in China lifted indices. It's impossible to know whether these rumors are true or not, given that they recur at regular intervals but are never amounting to much. Here’s a hypothesis: a Chinese Communist Party official starts the rumor every time the market needs to bounce. It works every time.

Meanwhile, central banks will continue to make noise this week. ECB head Christine Lagarde will speak today. The Bank of Canada and the Bank of Australia are due to announce their key rates this week. On the other hand, there’s no noise at the Fed, which will unveil its monetary policy decision on June 15. The institution's bankers must observe a period of silence prior to this meeting. The blackout began on June 3.

Over the weekend, bitter negotiations took place between OPEC+ ministers, who agreed to support oil prices by reducing supply. Saudi Arabia will cut production to 9 million barrels a day in July, from the current level of around 10 million.

Wall Street indexes were flat at the open, as investors assess the chances that the Fed will opt for a rate hike pause at its next meeting. On Friday, the US job report showed the unemployment rate jumped to a higher-than-expected 3.7%, while wages growth cooled down, strengthening bets of a status quo by the Fed. Investors are pricing in a 77% chance that the Fed will hold interest rates at 5%-5.25% in its June 13-14 policy meeting, according to CME's Fedwatch tool.

 

Today's economic highlights:

The week kicks off with the second estimate of services PMI indicators for the major economies. A speech by Christine Lagarde is scheduled. In addition to the US Services PMI, there will also be the ISM Services PMI and Factory Orders. The full agenda is here.

The dollar is up to EUR 0.9363 and GBP 0.8078. The ounce of gold fell back to USD 1945. Oil rebounded yesterday, with Brent North Sea crude at USD 77.94 a barrel and WTI US light crude at USD 73.58. The yield on 10-year US debt climbed back to 3.71%. Bitcoin is trading at USD 26,800.

 

In corporate news:

  • Chevron, Exxon Mobil - Oil groups gain more than 2% in pre-market trading, buoyed by rising oil prices following the announcement by Saudi Arabia, the world's leading exporter, of a production cut in July.
  • U.S. regulators are preparing to tighten capital rules for major U.S. banks, in order to bolster the strength of the financial system after a series of failures, the Wall Street Journal reported Monday.
  • Tesla - The American carmaker delivered 77,695 electric vehicles manufactured in China in May, a 2.4% jump on April, data from the China Passenger Car Association (CPCA) showed Monday.
  • Global airlines have more than doubled their profit forecasts for 2023, from $4.7 billion to $9.8 billion encouraged by strong travel demand after the COVID-19 pandemic, Willie Walsh, director general of the International Air Transport Association (IATA), said Monday.
  • Apple - The American giant begins its Worldwide Developers Conference on Monday, at which it is expected to present a new mixed-reality headset. Share price up 0.6% in pre-market trading.
  • Circor International - Private equity firm KKR announced on Monday that it had acquired the industrial machinery manufacturer in a $1.6 billion deal. Circor is up 49% in pre-market trading.
  • 3M Company - The U.S. industrial conglomerate and the city of Stuart, Florida, are making "significant" progress in settling a lawsuit over water pollution linked to PFAS (per- and polyfluoroalkylated substances) toxic chemicals and have sought to delay a trial, according to a court document filed Sunday with a South Carolina court.
  • Cyxtera Technologies - The data center operator filed for bankruptcy protection on Sunday, two years after its IPO, as it struggles to repay its debts and faces a severe funding shortage.
  • Walt Disney's Pixar animation studios have cut 75 jobs, including those of two executives behind the disappointment of the animated film "Buzz Lightyear", sources told Reuters on Saturday, the first significant job cuts at the studio in a decade.
  • Walmart still expects to double gross merchandise volume in overseas markets to $200 billion in five years, a senior group executive said on Friday, despite the uncertain economic backdrop.

 

Analyst recommendations:

  • Dollar General: Morgan Stanley downgrades to equal-weight from overweight. PT up 8.4% to $180.
  • Equity residential: BMO Capital Markets upgrades to market perform from underperform. PT up 1.4% to $64.
  • Glencore: Deutsche Bank keeps Buy rating. The target price is now set at GBp 560 compared to GBp 575.
  • Oracle: Jefferies retains Buy rating. Previously set at USD 105, the target price has been raised to USD 125.
  • Rio Tinto: Deutsche Bank upgrades from hold to buy, targeting GBp 6,000.
  • Salesforce: Phillip Securities downgrades to accumulate from buy. PT up 6.1% to $226.
  • The Restaurant Group: Deutsche Bank upgrades from Hold to Buy, targeting GBp 56.50.
  • TUI: Deutsche Bank upgrades from Hold to Buy, targeting GBp 843.