So what happened? I'd be lying if I claimed to have a precise answer. By all accounts, investor sentiment was dented by the prospect of the US central bank tightening its stance and triggering a widespread recession.. But the fall began before the release of the U.S. economic data, so the explanation sounds a little like hindsight bias. What is certain, however, is that two statistics published yesterday in the United States left their mark. The first was the ADP survey of private employment growth in June, which was roughly twice as strong as expected. The second was the ISM services index, which showed a clear improvement on the previous month.

They reflect the strength of the US economy, which doesn't sit well with the Fed's desire to keep activity under pressure to calm inflation. Translation? It's hard to envisage anything other than a resumption of rate hikes in the near future. Investors are understandably wary of higher prices. They also fear that restrictive monetary policies will continue elsewhere, in the eurozone and the UK. The publication this afternoon of official data on the US labor market in June provided further support for this theory.  The labor market is still very tight. The unemployment rate dropped to 3.6% last month, which is lower than the 3.7% expected.  However, payrolls increased by 209,000 instead of the 230,000 expected. But average hourly earnings for all employees on private nonfarm payrolls rose by 12 cents, or 0.4 percent, to $33.58. Over the past 12 months, average hourly earnings have increased by 4.4 percent.

It's always a little counter-intuitive to imagine that robust employment data is frowned upon by investors at the moment. Indeed, many economic models are looking for what is known as full employment. This is the current situation in the United States, where the unemployment rate is just 3.6%. The European Union stands at 5.9%, the best figure in a long time. Economically speaking, full employment is achieved when the unemployment rate falls below 5% (definitions fluctuate somewhat). Everyone would be happy with such rates in normal times, but in 2023 in the USA, it's also a sign that the economy isn't really decelerating, and that high inflation is likely to persist. This means that the Fed will have to continue to fight by raising rates, at the risk of causing economic cracks that would be worse than the disease it has tackled.

As a result, fears of rate hikes are back. Equity markets are in the red and there’s major tension on the bond market, where the rate on US 10-year debt has exceeded 4% for the first time in weeks, while the 2-year is flirting with 5%. At the same time, the first corporate forecasts are rather cautious, just a few days before the avalanche of half-year earnings from listed companies. And China is still missing out on the economic recovery, with a number of sharp sectoral falls, such as those in the banking sector following a note of great caution published by Goldman Sachs mid-week. In this respect, the official Chinese press tried to light a counter-fire, which is not a very reassuring signal in itself. An editorial in the Securities Times advised investors not to follow the American bank's recommendations, which were deemed too pessimistic. I leave it to you to judge the relevance of this kind of intervention.

On today's agenda, the focus is also on Janet Yellen's meeting with Chinese Premier Li Qiang.

 

Today's economic highlights:

US employment data is the focus today. The full agenda is here. 

The dollar is stable at EUR 0.9185 and GBP 0.7835. The ounce of gold is worth USD 1917. Oil is firm, with North Sea Brent at USD 76.57 a barrel and US light crude WTI at USD 71.88. The yield on 10-year US debt is tense at 4.04%. Bitcoin is trading at around USD 30,100.

 

In corporate news:

  • Levi Strauss was down 7.3% after lowering its annual profit forecast, as rising costs weighed on margins.
  • Tesla announced on Friday a new discount on the price of its electric vehicles in China in order to boost sales there, while at the same time laying off some employees at its Shanghai battery plant. The share price was down 0.7% in pre-market trading.
  • Alibaba Group Holding gained 2.6% in premarket trading, as sources told Reuters that Chinese authorities were likely to announce this Friday the end of the investigation into its payment subsidiary Ant Group, which could be fined at least 8 billion yuan (around one billion dollars).
  • Shell expects second-quarter results from its gas trading activities to be "significantly lower" than in the previous quarter, the group warned on Friday ahead of the publication of its quarterly accounts on July 27.
  • Biogen gained 1.76% in pre-market trading after the FDA, the US health authority, gave the green light to Leqembi, the group's Alzheimer's treatment developed in partnership with Japan's Eisai.
  • Nikola lost 2.3% in pre-market trading after the electric vehicle manufacturer failed to secure enough votes for a proposal to increase the number of shares outstanding. The group also postponed its general meeting of shareholders for the second time this year.

 

Analyst recommendations:

  • Adtalem: BMO Capital Markets upgrades to outperform from market perform. PT up 31% to $44.
  • Alamo Group: Raymond James initiated coverage with a recommendation of outperform. PT set to $215.
  • Anglo American: Bernstein maintains its Market Perform rating with a price target reduced from 2540 to 2460 GBp.
  • Antofagasta: Bernstein maintains its Market Perform rating with a price target raised from GBp 1400 to GBp 1480.
  • Burberry: Bernstein maintains its Market Perform rating with a price target reduced from 2450 to 1267 GBp.
  • Cedar Fair: Citi downgrades to neutral from buy. PT up 3.4% to $41.
  • ConvaTec : HSBC moves from Light to Hold, targeting GBp 200.
  • Elementis: J.P. Morgan upgrades from neutral to overweight, targeting GBp 144.
  • Glencore : Bernstein remains Outperform with a price target reduced from 650 to 615 GBp.
  • Humana: J.P. Morgan downgrades to neutral from overweight. PT up 22% to $540.
  • IBM: J.P. Morgan initiated coverage with a recommendation of neutral. PT set to $145.
  • Newmont: Barclays raised its recommendation to overweight from equal-weight. PT up 47% to $61.
  • Ocado: Bernstein remains Outperform with a price target reduced from 1450 to 1350 GBp.