Unusual times for stock markets

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The ISM non-manufacturing PMI for June is down slightly from May, but still scores well at 55.3. U.S. job openings data for May also fell slightly, but still showed 11.254 million job openings.

However, this morning new data shows that the number of Americans filing new claims for unemployment benefits has unexpectedly increased over the past week. The Labor Department said initial claims for state unemployment benefits rose by 4,000 to a seasonally adjusted 235,000 for the week ended July 2, versus 230,000 expected in a Reuters consensus.

Despite some turbulence, stock markets seem to be sailing in somewhat calmer waters since the beginning of July. Volatility has eased, although not entirely disappeared, as evidenced by the drop in oil prices on Tuesday and Wednesday. The S&P500 has lost about 1100 points since its highs at the start of 2022, when it was around 4800 points. It has just recovered 150 points since the low of June 17, when it stood at 3674 points.

Oil moved from the “USD 110 to 120” zone to the “USD 95 to 105” zone. Once popular, oil stocks have been subject to profit taking in recent days. On the upside, US investors focused on tech stocks but were less enthusiastic about consumer-related companies amid recession fears.

The Wall Street Journal yesterday published an article on this unusual recession that is looming, while the labor market is still booming and businesses do not seem to be suffering too much. The sharp deterioration in household morale observed in recent surveys or the cold snap in the real estate market have not materialized with enough violence to completely change the mood. Hence this strange in-between where investors fear a recession, but still hope that central banks can save the situation by curbing inflation.

The Fed released the minutes of its last meeting last night. Unsurprisingly, the tone is still very firm and the message remains unchanged: blood and tears until prices come back under control. The release pushed US bond yields up a bit, a sign that the market is once again taking the Fed seriously. This is exactly what the central bank is aiming for, after realizing that its economic approach to Goldilocks has been counterproductive in recent quarters.

The Fed’s goal could also be to scare investors as much as possible, over and over again, so that it doesn’t have to put in place every harsh measure at its disposal.

On the equities side, the market awaits the first round of corporate results, scheduled for next week with PepsiCo, American banks including JPMorgan Chase, but also UnitedHealth and Rio Tinto.

Meanwhile, the UK faces a political crisis. Boris Johnson has announced his resignation, after being let go by part of his entourage. He would like to stay in power for 12 more weeks, but many MPs would like to see him leave immediately.

Economic highlights of the day:

Weekly jobless claims and the Challenger layoff survey are the main indicators today. The whole macro diary here.

The dollar keeps the pressure on the euro at 0.9833 EUR. Gold continues to fall to 1740 USD. Oil is surviving after its fall, with North Sea Brent at $102.86 a barrel and US Light WTI at $101.16. The yield on US 10-year debt rebounded to 2.92%, below the 5-year and 2-year. Bitcoin is trading around 20,400 USD.

On the stairs :

* Intel, NVidia and Qualcomm gained just over 1% in premarket trading after South Korea’s Samsung reported its best April-June profit since 2018.

* Merck is in advanced talks to buy cancer biotech company Seagen in a deal worth around $40 billion, The Wall Street Journal reports. In pre-market, Seagen rose 5%.

* Virgin Galactic, specializing in space tourism, announced on Wednesday that it had signed an agreement with Aurora Flight Sciences, a subsidiary of Boeing, to design and manufacture new carrier aircraft. Virgin gained 3.7% in premarket trading.

* The Boeing Company – Qatar Airways said a memorandum of understanding to buy up to 50 737 MAX planes has expired, Airbus said in a court filing.

* Gamestop’s board of directors has approved a four-for-one stock split for the video game distributor. The stock rose 7.4% in premarket trading.

* Private equity firm Carlyle wants to sell its stake in AmbioPharm, aiming for a $1 billion valuation.

Analyst Recommendations:

  • AO World: Numis goes from hold to buy targeting 60 GBp.
  • BHP: Berenberg remains “Hold” with a price target reduced from 2,700 GBp to 2,200 GBp.
  • Bunge: Monness, Crespi, Hardt launch Bunge for purchase with a price target of $130.
  • Charles River Laboratories: Argus lowers price target to $290 from $350, maintains Buy rating.
  • Coinbase: Atlantic Equities goes from overweight to neutral. PT up 4.6% at $54.
  • Ford: UBS lowers its price target to $13 from $20.50, neutral rating retained.
  • Harmony Biosciences: Mizuho initiates coverage with a buy rating, $64 price target.
  • Moelis & Company: UBS downgrades to neutral from buy, lowers price target to $40 from $54.
  • Morgan Stanley: UBS lowers its price target to $95 instead of $103, buy rating retained.
  • Norfolk Southern: Susquehanna cuts price target from $350 to $275, reiterates positive note.
  • Rio Tinto: Berenberg goes from suspension to sale, targeting 4,200 GBp.
  • Segro: Exane BNP Paribas downgrades from neutral to underperforming, targeting GBP 800.
  • The Boston Beer Co: RBC Capital Markets downgrades to sector performance from outperformance. PT up 8.1% at $331.
  • The Goldman Sachs group: UBS lowers its price target to $325 from $345, neutral rating retained.
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