Dow +1.03%, S&P 500 +1.21%, Nasdaq +0.92%, Russell 2000 +1.37%, SOX +1.15%, Eurostoxx +1.23%, SMI +0.66% .
“And in the middle flows a river of fantasized liquidities”. That’s how you could sum up the mood on Wall Street. Ever since Jerome Powell whispered sweet words into a distressed market Wednesday night, stock indexes have never stopped celebrating this return of a tiny hope of more accommodative monetary policy to come. After the Nasdaq100 (NDX) surge of more than 4% observed on Wednesday, no one would have been shocked if the indexes paused or even consolidated yesterday, all the more so as yesterday’s US second quarter GDP showed us that the Growth in Uncle Sam’s country has contracted again for two straight quarters and is verging on a recession, although the Ad Hoc Bureau hasn’t decreed it yet.
The market hardly raises an eyebrow, stocks to be exact, on the bond side it’s a different story, I’ll get back to that. It takes an hour for the S&P500 (SPX) index to establish a base and move north again. At the bell, the 100-day moving average looks less and less utopian, standing at 4122 versus the SPX’s close at 4072. The index’s daily podium is made up of housing, utilities and industrials markets, with volatility falling 4% as the broke VIX its uptrend, the bears are definitely having a tough time these days.
But why is the market so ignorant of US growth statistics? Well… First of all we have to remember that the SPX fell 24% from its high to its low in June, so we can say that a recession could already be in prices, I say “maybe”. Most importantly, a contracting economy could encourage the Fed to really slow down its rate hike process. And to celebrate the market again, it’s that simple.
On the bond market front, the reaction to the US GDP release is very different than for equities. The 10-year yield, which was trading at 2.80% ahead of the numbers, quickly fell to its 2.70% support, breaking it triggering stop-loss orders and trading at 2.67% this morning traded. Fed funds have remained fairly unchanged since Wednesday night and see rates at the end of the year around 100 basis points above current levels.
Dear bears, your Friday will probably look like Wednesday and Thursday, Apple and Amazon went through the confessional after the Wall Street bell and, guess what, that went pretty well. Stocks are rising after the market, most recently Amazon, which is up 13.6%, Apple is up 3%. Amazon beats sales forecasts and says it’s making strides in controlling costs. The net loss of $2 billion is due to the investment in Rivian. Apple was helped by sales of the iPhone and iPad, but Macs and wearables lagged behind. CEO Tim Cook expects sales to accelerate this quarter and sees improvement in China (note: the words “China” and “improvement” together will likely drive some algorithms completely insane…). Going back to Amazon for a moment, anyone might fear disappointment, follow my look at Walmart’s page… but if we scratch a little below the surface of the results, we see that this good quarterly result is due to AWS (Amazon Web Services), the cloud thing, which is making $5.7 billion in profits versus the e-commerce division, which is making $2.4 billion in losses. But in the end it’s the consolidation that counts, right?
The United States approves arms sales to Germany worth up to $8.4 billion, including Lockheed Martin F-35 fighter jets, emphasizing its ally’s role as a “key force for political and economic stability in Europe.” Ukrainian ships loaded with grain ready to leave Odessa but awaiting exit procedures, UN says. Russia requires Sakhalin-2 LNG plant customers to make payments through a Russian bank.
Rishi Sunak admits he’s the underdog in the race against Liz Truss to become the next UK Prime Minister. The ex-Chancellor points out that his pledge not to cut personal taxes until inflation is under control isn’t popular, but “it’s the honest thing”. Truss opposes the idea of introducing a windfall tax on energy company profits, the reports FinancialTimes.
In their call yesterday, Joe Biden and Xi Jinping ask their assistants to begin planning an in-person meeting that could be their first such meeting since Joe Biden became president. They exchange warnings about the growing risks of a confrontation over Taiwan. Nancy Pelosi departs for Asia today with a stopover on the island, which is yet to be confirmed, according to the Bloomberg Agency.
Bill Ackman takes to Twitter to challenge Jerome Powell’s claim that the Fed is in what the FOMC considers neutral. “We’re not close to a neutral course,” says the Pershing Square founder. He calls current policies “extremely accommodating” in the face of 9% inflation and says rates need to reach 4% or more.
Janet Yellen brushes aside the recession rhetoric and says that a real recession is a general weakening of the economy. “We don’t see that at the moment,” says the finance minister. After data was released showing US GDP contracted unexpectedly in the second quarter, Ms Yellen said: “We need to see a slowdown. The labor market is extremely tight and could be the source of inflationary pressures.”
On the program for this Friday, the French consumer price index for July (published monthly online), then the German GDP for the second quarter (10:00) and the inflation in the euro zone in July (11:00). In the United States, PCE inflation and Household Income & Spending for 2:30 p.m. ahead of Chicago PMI at 3:45 p.m. and University of Michigan Consumer Confidence Index at 4 p.m.
Givaudan: Research Partners changes from hold to buy and targets 4000 Swiss francs. Nestlé: Berenberg remains on the buy side with a price target raised from 128 to 130 francs. Lonza: RBC remains outperforming with a price target raised from 650 to 670 francs. STMicroelectronics: Berenberg sticks with a price target raised from 35 to 37 euros. Air France-KLM: The airline is profitable in the first fiscal quarter, you read that right: bé-né-fi-ciaire! BNP Paribas: The bank reports a 9.1% increase in net profit for the second quarter to 3.18 billion euros, higher than expected. Hermès: Results are up 40% in the first half. L’Oréal: The results are slightly above expectations. Organic growth is more dynamic than expected. Renault: After leaving Russia, the manufacturer has revised its forecasts for the 2022 financial year upwards. AMS-OSRAM: Despite a slight decline in sales in the first half of the year, the company is returning to profitability. AstraZeneca: Lab beats second quarter earnings and revenue estimates. The forecasts are revised upwards. Intel: Stock falls sharply 8% off-session after disappointing results. Sulzer: The group made losses in the first half of the year due to a value adjustment when leaving Russia. Instagram (metaplatforms) is taking a break from its TikTok-like transformation.
Tonight and this morning indices across Asia are trading lower with the exception of Seoul which is up 0.67%. Tokyo fell 0.05% at the bell, Hong Kong 2.71% and Shanghai 1.05%. It is technology and real estate stocks that are the main drag on the Hang Seng index, the market disappointed that the Chinese Politburo has not announced a support plan. The SPX future gains 30 points, paying homage to Apple and Amazon as Europe opens 0.7%. The Dollar is losing ground against the Euro, the pair moving to 1.0241, which is a form of further easing in the general market sentiment, only equities celebrated yesterday. Gold has risen again, an ounce is at $1766, oil too, a barrel of WTI Light Crude is just under $100.
Market news returns on Tuesday 2nd August.
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