A silver lining in all the gloom

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New data shows the Eurozone Purchasing Managers’ Index fell to 52.0 in June from 54.8 in May, marking an economic contraction.

In addition, the Bank of England also warned on Tuesday that the global economic outlook had deteriorated since the start of the year and urged banks to increase their capital buffers to prepare for tough times.

Amidst all this pessimism, there is some optimism about the prospect of improved relations between the United States and China. Investors believe that Washington and Beijing could make a “win-win” announcement in the short term. It was announced today that US Secretary of State Antony Blinken will meet Chinese Foreign Minister Wang Yi alongside the G20 Foreign Ministers meeting in Bali this week.

Specifically, the Biden administration could ease some of the trade tariffs that have plagued imports of Chinese goods since the Trump era, particularly on consumer staples. Benefit for the USA: send a deflationary signal on prices. Benefit for China: get a little accelerator pedal to revive a still sluggish economy. A discussion described as “constructive” took place last night between Chinese Vice Premier Liu He and US Treasury Secretary Janet Yellen.

The pricing narrative is a relatively powerful short-term catalyst for stocks. Investors are indeed sorely lacking in good news. This is an important element for both the “inflation control” and “China is waking up” themes, which are the two most credible drivers of a recovery at the moment. The timing would also be positive, since the announcement would come before the publication of the major series of quarterly corporate results and before the important central bank meetings, on July 27 for the Fed. The United States can justify lower tariffs with exceptional circumstances and a helping hand from Beijing, and China can enjoy a windfall without having to beg Washington. I would add that the Caixin manufacturing PMI indicator rose to 51.7 points in June, which is higher than expected and is one more brick for the aforementioned “China is waking up” theme.

Economic highlights of the day:

The final June services PMI reading for the major economies will be spread out over the day. In the United States, durable goods and factory orders will be released at 10 a.m. The whole macro diary here.

The euro is trading at 0.9717 EUR. The ounce of gold stagnates at 1799 USD. Oil is down with North Sea Brent at $110.73 a barrel and US Light WTI at $107.24. The yield on US 10-year debt is up slightly to 2.95%. Bitcoin rallied back to 19401 USD.

On the stairs :

Tesla on Saturday reported a 17.9% drop in second-quarter electric vehicle shipments to 254,695 due to the impact of health restrictions in China on its production and supply chain.

Exxon Mobil – The U.S. oil company said Friday that higher margins on fuel and crude oil sales could generate a record $16 billion profit in the second quarter.

Warner Bros. Discovery fell 6% in premarket trading after reports from Variety magazine that its video-on-demand service HBO Max will cease production of original content in several European countries.

Analyst Recommendations:

  • Antero Resources: Truist Securities upgrades to buy pending. PT increases 63% to $50.
  • BAE Systems: AlphaValue remains “light” with a price target raised from 760 GBp to 845 GBp.
  • Burberry: Exane BNP Paribas downgrades from outperform to neutral. PT up 16% at 1,900 pence.
  • Croda: Jefferies remains “Hold” with a price target reduced from GBP 7,500 to GBP 7,000.
  • Diageo: Stifel resumes tracking to buy at 4530 GBP.
  • Flutter: Jefferies remains Buy with a reduced price target of GBP 15,500 to GBP 12,900.
  • HP Inc: Evercore ISI has reduced its inline recommendation to outperform. PT up 13% at $36.
  • Otis Worldwide: BNP Paribas Exane downgrades to outperformance neutral, price target at $80 instead of $95.
  • RS Group: Citigroup resumes stalled monitoring, targeting 900 GBp.
  • Teradyne: JP Morgan initiated coverage with a neutral recommendation. PT increases by 40% to $120.
  • Texas Instruments: DZ Bank Downgrades to Hold Long. PT up 1% to $150.
  • Travis Perkins: Jefferies remains on hold with a price target reduced from 1,049 GBp to 1,040 GBp.


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