Investors can thank the month of July 2022 for allowing them to mitigate the underperformance accumulated in the first half of the year. In Europe, the broad Stoxx Europe 600 index rallied 7.6%, its best monthly result since November 2020. More cyclical national indices such as France’s CAC40 fared better (+8.9%), while more defensive indices such as the Swiss SMI did not reached the average (+3.8%). The reason is simple: tech, industrials and consumption cyclicals have regained momentum, leaving health and finance in the lurch. Take advantage of that, because statistically, August and September are, on average, the least productive months of the year for the Stoxx Europe 600. A little music to celebrate July with dignity?
In the US, industry performances are more or less evenly distributed, with the tech-rich Nasdaq 100 index up 12.5%. We have to go back to April 2020 to find a cheaper month. The more diversified S&P500 rose 9%.
The market rally was built on a number of somewhat shaky elements that combined to form something more solid. Investors seem to have passed the stage where they see everything in black. This means that they begin to see the glass as half full instead of half empty. They have priced in the Fed’s punitive rate hike cycle and the ongoing macroeconomic slowdown. They also found that the majority of companies can still pass their rising costs on to consumers. And that valuations are less delusional than six months ago, even given less dynamic results than previous quarters. All of this remains very fragile and the impact of the macroeconomic forces at work, I am thinking in particular of inflation or energy and climate disruptions, is extremely difficult to quantify.
But in the “shock cycle” the market stopped denying the positive news, which is already a big step up from the weeks before. One only has to look at the warmly welcomed results from Apple or Amazon last week, which were a far cry from either company’s usual standards, to understand that something has been happening on investors’ minds of late. Investors who even found solace in the poor second-quarter US GDP numbers. Her animal spirit leads her to believe that the Fed may come and play the fire brigade again, ending its anti-inflation policy sooner than expected to get the economy moving again. Have investors lost their minds? That’s the theme of the second song of the day.
The Shock Cycle
At the start of the week you should know that Joe Biden is not completely cured of his Covid and that the Democratic Speaker of the House, Nancy Pelosi, has started a trip to Asia. Rumor has it that it passes through Taiwan, which would obviously lead to new tensions with China. On the macro agenda we have a decision from the Bank of England on its interest rates on Thursday and July US employment figures on Friday. This weekend, China released poor manufacturing activity figures for the month of July. So welcome to August, to music.
There will be another big series of corporate results this week, including around 60 worth more than $50 billion. In Europe, HSBC and Heineken will be followed this morning by BP Plc, AXA, Siemens Healthineers, BMW, Novo Nordisk, Bayer and Allianz. PayPal, Costco, CVS Health, Eli Lilly, Amgen and ConocoPhillips are particularly expected in the USA.
European leading indicators are down this morning as are the US market. We probably need to digest recent gains. In Asia, Tokyo and Sydney were up 0.6% at the close. Mainland China is on the up, but Hong Kong is losing some ground. The VIX volatility index fell to 21 points, not having seen it since last April. A sign that there is a little less nervousness in the market. The CAC40 lost 0.11% to 6441 points at the opening.
Economic highlights of the day
July manufacturing PMI indices are scheduled for the major economies including the Eurozone at 10am and the United States at 3:45pm. On the other side of the Atlantic there is also the Manufacturing ISM and Build Expenditures (4pm). The whole macro diary here. China reported an official manufacturing PMI of 49 in July, below expectations (50.3) back in contraction territory. The Caixin PMI, which includes more private companies, deteriorated to 50.4 points but remained in expansion territory.
The euro was little changed at $1.0228. Gold ounce stabilizes at $1761. Oil was down on the previous week with North Sea Brent at $102.90 a barrel and US WTI Light Oil at $97.30 a barrel. The US 10-year bond yield stabilized at 2.66%. Bitcoin is trading around $23,400.
The main changes in the recommendations
- Ageas: HSBC moves from hold to buy and targets 50 euros.
- Air France-KLM: HSBC goes from holding to buying and is targeting EUR 1.60.
- Amundi: Credit Suisse is raising its price target from 52 to 60 euros.
- Anglo American: JP Morgan switches to overweight from neutral and targets GBP 3850.
- Arkema: Berenberg remains on the buy side with a price target reduced from EUR 152 to EUR 131.
- BAE Systems: Jefferies remains long with target raised from 945 to 960 GBp.
- BNP Paribas: Jefferies remains long with target reduced to EUR 72 from EUR 73.
- Croda: Berenberg remains a buy with a price target reduced from 90 to 84 GBp.
- Diageo: Berenberg sticks to a read target of 3900 to 4160 GBp.
- Hermès: Citigroup raises price target by 1,000,213,366 euros.
- Inficon: Research Partners remains in place with a reduced target from 910 to 850 CHF.
- Ipsen: Berenberg is sticking with a target price raised from 98 to 102 euros.
- Jet2: HSBC goes from buy to hold, targeting GBP 970.
- Kerry: Berenberg remains long with price target increased from EUR 124 to EUR 128.
- Renault: Jefferies remains on the buy side with price target raised from EUR40 to EUR43.
- Rheinmetall: HSBC switches from holding to buying and is targeting EUR 242.
- Safran: Jefferies must be held with a target raised from 100 to 106 EUR.
- Scor SE: Jefferies sticks with a price target reduced from EUR 26.50 to EUR 17.50.
- Securitas: JP Morgan moves from underweight to neutral as it targets its SEC.
- Siltronic: Jefferies remains long with target raised from EUR 110 to EUR 115.
- STMicroelectronics: Citigroup increases price target from 44 to 52 EUR.
- Swedish Orphan Biovitrum: Morgan Stanley resumes overweight pursuit with target of 280 SEK
- Swiss Re: JP Morgan remains neutral with target reduced to CHF 80 from CHF 100.
- Tokmanni: SEB Equities switches from hold to buy and targets EUR 16.
- Eiffel Tower: Kepler Cheuvreux sticks with price target reduced from EUR 27 to EUR 23.
- Umicore: Jefferies remains underperforming with target raised from EUR 26 to EUR 27.
Important (and less important) announcements
- PFA registrations fell by 7.06% in France in July.
- Saint-Gobain completes acquisition of Kaycan.
- Vinci is buying Fintech Advisory’s 29.9% stake in Mexican airport operator OMA for $815 million.
- Ipsen signs partnership with Marengo Therapeutics in immuno-oncology. The lab acquires exclusive rights to an experimental ERK inhibitor as part of its research partnership with AGV Discovery.
- Fitch downgraded the outlook on Faurecia’s credit rating to negative from BB+ from stable.
- Moody’s could downgrade Eutelsat’s Baa3 rating after the OneWeb deal.
- Icade signs a purchase agreement for a building in Nanterre.
- Bolloré’s half-year results have risen sharply.
- Innate Pharma and AstraZeneca failed phase III in monalizumab in combination with cetuximab.
- Peugeot Invest and its partners are selling 13 bulk carriers.
- Gascogne signs a €126.8 million syndicated loan and €50 million loan agreement with the European Investment Bank.
- Uniti strengthens its partnership with PGIM Real Estate.
- PCAS, NSE, DLSI, Algreen, Cnova, ST Dupont, Finatis, Delfingen, Courtois, MG International, Carpinienne, Foncière Euris… have published their reports.
In the world
Important (and less important) announcements