The VIX volatility index, nicknamed the "fear index", has decided to go into hibernation. It has dropped below 14 points, and it hasn't been this low since Valentine's Day 2020. I could play the bird of ill omen by pointing out that this was a week before the world realized that the Covid-19 wasn’t going to be confined within China's borders. A month later, the VIX exceeded 66 points, something that had only happened once in the last 20 years, in 2008.

The main reason for the VIX's low level is that while the economic and political news has been quite turbulent, it was ultimately within the realm of the predictable. Western economies are in a state of turmoil, but no disaster has yet struck. The Russian-Ukrainian conflict is bitter, but the balance of power is in line with expectations. Sino-American relations are tense, but both sides are trying to smooth things over because of the two countries' economic interdependence. Soaring energy and commodity prices have subsided. And corporate earnings are holding up well, even if some forecasters are predicting a period of dearth. In short, none of the promised disasters have really materialized, at least at this stage: we're still in the tepid zone. Beyond that, investors have now integrated the sudden rise in central bank rates and seem to have learned to live with this environment. They are, of course, still convinced that the Fed will be there to save them if things turn ugly.

Yesterday, Bitcoin rebounded strongly after plunging on news of the SEC investigations into Binance and Coinbase. Industry insiders point to a "leap to quality" benefiting crypto-currencies well established in the landscape and reputed to be "serious". The US regulator's belated crusade targets exchange platforms and is seen as a clean-up move in the Wild West of wacky cryptoassets.

One of the things that hasn't changed much over the last few months, however, is the daily disappointment that its the Chinese economy. The latest letdown is the weak export data in May. They fell by 7.5% year-on-year, bringing the trade surplus to a 13-month low. Imports fared slightly better than expected, but are still down sharply year-on-year. The boost expected after the country’s reopening did not last long. But investors continue to cling to the bad news is good news principle. Indeed, the accumulation of mediocre economic performances should, it is thought, force Beijing to take stimulus measures. Various rumors are circulating. A clue came yesterday, when China asked banks to reduce their deposit rates in order to inject more fresh money into the economy. There are rumors in authorized circles that China's central bank could cut its key one-year rate in the next few days.

 

Today's economic highlights:

German industrial production and the Bank of Canada's monetary policy decision are today’s main indicators. The full agenda is here. Earlier today, Australia reported Q1 GDP growth of 0.2%, slightly below forecasts. In China, May exports were very disappointing, but imports contracted slightly less than forecast.

The dollar is down 0.1% and 0.2% against the euro and the pound, respectively. The ounce of gold is little changed at USD 1958. Oil is stable, with North Sea Brent at USD 76.85 a barrel and WTI light crude at USD 72.40. The yield on 10-year US debt eases to 3.66%. Bitcoin is trading at USD 26,900.

 

In corporate news:

  • Coinbase rebounded by 3.9% in pre-market trading on Wednesday, following a 12% plunge the previous day in the wake of legal proceedings brought against it by the Securities and Exchange Commission (SEC), the US stock market watchdog. Ark Invest, Cathie Wood's company, announced that it had purchased over 400,000 Coinbase shares on Tuesday.
  • Campbell Soup reported a better-than-expected quarterly profit on Wednesday and confirmed its full-year forecasts, thanks in particular to several rate increases.

 

Analyst recommendations:

  • Croda: Goldman Sachs moves from Buy to Neutral, with a target of GBp 7200.
  • Herbalife: Mizuho Securities initiated coverage with a recommendation of neutral. PT up 6.1% to $13.
  • Modine: B Riley Securities initiated coverage with a recommendation of buy. PT up 30% to $40.
  • Pets at Home: Berenberg maintains the Buy position with a target price raised from GBP 430 to GBP 460.
  • SSP: Jefferies maintains its Buy rating, with a target price raised to GBP 325,340.