Dow -1.94%, S&P 500 -2.38%, Nasdaq -2.74%, Russell 2000 2.12%, SOX -2.69%, Eurostoxx -1.70%, SMI -1.26%.
The week had started reasonably well for equity indices as market sentiment began to calm, but yesterday a new spate of bad news flew across the trading floors causing quite a stir. Growing concerns about the real state of global growth are infecting the travel industry, most airlines and hotels fell sharply yesterday and Shanghai’s new partial city lockdown isn’t exactly reassuring. Speakers’ eyes are on Christine Lagarde and the European Central Bank (ECB), I’ll come back to that, and everyone is ignoring the weekly report on US jobless claims, which are soaring again at 229,000 claims, the highest since July of last year. Market and economic statistics are therefore increasingly questioning the ability of the global economy to continue to grow and, above all, not to end up hard. At the same time, the crutch of the past few days (Wall Street-listed Chinese stocks) is taking the day off. ETF KWEB plunges 6.7%, while Alibaba falls 8.1% after Chinese officials denied plans to revive Ant’s IPO by Jack Ma.
As we can see the market has quite a complicated Thursday, nothing to encourage optimism and the day’s main move (the ECB) only adds fuel to the fire. The European Central Bank is raising its inflation forecasts and reducing its near-term growth prospects. The central bank is leading the market to rise by 25 basis points in July, slightly less than previously expected, but the ECB adds that “if the medium-term inflation outlook holds or deteriorates, a ‘major rise’ will be appropriate in September” Read: ECB opens door to 50 basis point hike in September and that decision will depend on stats coming by then So we are faced with an ECB dove in the short term and a hawk in the medium term we will say that the message ended up being a little more alarmist than expected and that’s all the market takes in, pushing European government bond yields higher 1.45%, the French OAT returns to 2.01% and one of the most notable moves is in Italy, where the 10-year bond in one move increases by 22 basis points to reach 3.65%. This more significant increase is explained by the fact that Italian debt is perceived by market participants as more risky.Recall that the ECB has remained accommodating for a very long time, in particular to support the Italian banking system, which is in trouble and has major funding needs.
There is one that didn’t benefit from the ECB yesterday, it’s the Euro, which initially took off to eventually move lower, trading at 1.0630 against the Dollar this morning. Ultimately, this morning the market is pricing in a 200 basis point probability by the end of the year.
Volatility resumes its upward path almost everywhere, the VIX (volatility of the SPX) recovers 9.35% and closes at 26.20. It is easy to understand that the nervousness is trying to come back, the first test of the week (the ECB) is rather unsuccessful and today is the CPI day in the US, the very important CPI is released at 2:30 p.m. from Geneva. Economists are forecasting an 8.3% yoy rise in May, which would mean flat from April’s figure. However, all eyes in the financial world today will be on this oh-so-important statistic.
The CAC40 has outperformed other major European indices during Emmanuel Macron’s presidency, but a shock in the general election could weigh on sentiment. A high score from the left coalition led by Jean-Luc Mélenchon would likely result in a negative reaction from bank and luxury stock prices, according to IG France’s Alexandre Baradez. “Any sectors that would suffer a tax hike with the extreme left risk being targeted,” he adds.
US inflation for May will therefore be released at 2:30 p.m. The University of Michigan Consumer Confidence Index is due at 4:00 p.m. This morning China reported May inflation at 2.1%, slightly lower than expected. Chinese producer prices are developing as expected (+6.4%), a lower rate than in April (+8%).
ABB: Citigroup remains buyer with target reduced from 40 to 35 francs. Aryzta: Kepler Cheuvreux goes from brightening to holding, is aiming for 1.10 francs. CRH: Berenberg remains on the buy side with a price target reduced from EUR 56 to EUR 46. Holcim: Berenberg remains short with price target reduced from CHF 43 to CHF 42. Saint-Gobain: Berenberg remains reduced with a target price of 62 to 60 euros. Swisscom: UBS goes from neutral to sell and is aiming for 500 francs. State Street officially denies its interest in Credit Suisse. The Apollo Fund is said to be among the potential contenders to acquire Just Eat’s Grubhub division. Ferrari wants to expand its Italian plant for electric vehicles.
After the market close on Wall Street, AMD announces optimistic sales forecasts and expects market share gains. Advanced Micro Devices, the second-biggest maker of computer processors, expects annual revenue growth of 20% over the next three to four years as it tries to grab more market share from Intel. Revenue will grow faster than the broader chip market, CEO Lisa Su says at a meeting with investors. And gross margin will climb to over 57%, she announces. It’s always interesting to know how the big players in the semiconductor industry fare, AMD gains 1.2% in the aftermarket.
Tonight and this morning, Asian indices are trading lower except for Hong Kong and Shanghai which are up 0.05% and 1.40% respectively. Tokyo falls 1.49% on the bell and Seoul loses 1.13%. SPX futures traded slightly higher and Europe opened 0.9% lower.
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