There has only been one bright spot on stock markets over the past six months: the Oil & Gas industry. Geopolitics has made a dramatic comeback in the range of risks. The war in Ukraine pushed energy prices higher, and this benefitted global Oil majors. The best performer on the S&P 500 over the period has been Occidental Petroleum, which almost doubled in price. Valero Energy grew more than 40%.

As interest rates and borrowing costs surged, investors turned away from highly valued tech stocks. The S&P 500's worst performer was Netflix, which lost 70%, followed by Etsy, down almost 65%.

It's always the same story. For decades, investors get a reality check at regular intervals, i.e. every time they can no longer convince themselves that their follies justify crazy asset prices. We invariably come back to John Templeton's famous maxim that the four most dangerous words in finance are "This time it's different".

Markets are now openly afraid of a recession. The decline in US government bond yields signals that investors believe the US central bank will have to take its foot off the gas pedal at some point. In the past few days, it seems that Jerome Powell and his entourage have been trying to scare off economic actors by relying on the weight of words. A way to calm inflation without having to apply the austerity cure all the way to the end. But for the time being, equity markets are harder to move than bond markets.

Today, all eyes are on the PMI data, starting with the S&P Global PMI Manufacturing- which is expected to be unchanged - and then the ISM Manufacturing PMI. A decline from 56.1 to 54.6 is expected. A worse reading would send markets deep in the red the finish the week.

 

Economic highlights of the day:

The market is taking note today of the refined reading of the June manufacturing PMI indices for the world's major economies. In Europe, the June inflation figures were broadly in line with expectations. In the US, at 09:45am we have the S&P Global PMI Manufacturing for June, and at 10:00am, the ISM Manufacturing for June and Construction Spending MoM. This morning, China reported a weaker than expected manufacturing PMI, albeit back in the expansion zone, while the services PMI accelerated strongly.

The dollar is slightly up to EUR 0.9601. The ounce of gold is down to USD 1785. Oil is up with North Sea Brent at USD 112.20 per barrel and U.S. light crude WTI at USD 108.82. The yield on 10-year US debt falls to 2.96% over 10 years. Bitcoin retreated to around USD 19,200.

 

On markets:

* Micron Technology on Thursday issued quarterly forecasts that fell short of market expectations, raising fears of the start of a down cycle for the semiconductor industry after two years of strong demand. The stock was losing 3.5% in pre-market trading. At least eight analysts have lowered their price targets.

* Citigroup is in talks to sell its Russian business to local investors, the Financial Times reported Friday, citing sources close to the matter. A spokesman for the bank did not immediately respond to a request for comment.

* Kohl's announced that it has terminated negotiations for a possible takeover by Franchise Group due to the current environment and market volatility. Kohl's shares were down about 11% in pre-market trading.

* Meta Platforms has cut its hiring plans by at least 30 percent for this year, CEO Mark Zuckerberg told employees, explaining that they should expect a sharp deterioration in the economy.

* Amazon will allow subscribers to its Prime service to unsubscribe with just two clicks, a move made after complaints from consumer groups, the European Commission announced Friday.

* Apple has raised the price of the iPhone in Japan by nearly 20 percent.

* Costco Wholesale announced Thursday night that it has bought the 45 percent it did not already own in its joint venture in Taiwan for $1.05 billion.

* JetBlue Airways extended its bid for Spirit Airlines by one month to July 29 after upgrading it earlier this week.

* Copper producers fall in pre-market trading after the metal's price fell to the lowest since February 2021 on the London Metal Exchange (LME).

 

Analyst recommendations:

  • Auto Trader: Jefferies remains Buy with a price target reduced from GBp 790 to GBp 750.
  • Burberry: Societe Generale reiterated Burberry's buy rating and reduced its price target to 21.42 pounds sterling from 23.00 pounds.
  • Comcast: Daiwa Securities initiated coverage with a recommendation of outperform. PT set to $43.
  • East West Bancorp: Wedbush downgrades to neutral from outperform. PT up 13% to $75.
  • FedEx: Berenberg cut its recommendation to hold from buy. PT up 21% to $275.
  • General Mills: Evercore ISI raises price target to $74 from $65, maintains in-line rating.
  • Harley-Davidson: D.A. Davidson & Co initiated coverage with a recommendation of neutral. PT up 11% to $35.
  • Huntington Bancshares: Wedbush downgrades to neutral from outperform. PT up 14% to $14.
  • KeyCorp: Wedbush downgrades to neutral from outperform. PT up 14% to $20.
  • Lancashire: Barclays moves from Overweight to Equal-Weight with GBp 482 target.
  • Micron Technology: Piper Sandler adjusts price target to $50 from $70, reiterates underweight rating.
  • Netflix: Truist Securities adjusts price target to $210 from $300, reiterates hold rating.
  • Ocado: Jefferies maintains a Hold rating with a price target reduced from GBp 1,300 to GBp 875.
  • Paramount Global: Daiwa Securities initiated coverage of Paramount Global Class B with a recommendation of neutral. PT set to $26.
  • PepsiCo: Evercore ISI lowers price target to $180 from $185, maintains in-line rating.
  • SVB Financial: Wedbush analyst downgrades to neutral from outperform. PT up 12% to $450.
  • Webster Financial: Wedbush analyst downgrades to neutral from outperform. PT up 15% to $50.