Hey, prices are going up!

The weekly balance of stock indices, red or green, will depend on the session of the day. Yesterday, a new fall in US stocks brought to naught the stubborn growth of the beginning of the week. In Europe, the same observation or almost. Race review: there is always a lot of movement from one session to the next, but the indices are in a rather lateral movement: no impressive decline, like those that have occurred at irregular intervals since the beginning of the year, but no steady recovery. or. Investors continue to monitor the behavior of central banks in the hope that they will not make mistakes in their attempt to deflate the liquidity bubble and the inflation they helped support. And they’ll justify their money this weekend as the ECB spoke yesterday and May US inflation data is due this afternoon.

If you had nothing to do yesterday, you may have been trying to understand the European Central Bank’s decision on monetary policy by reading comments from financial experts. If not, I’ll try to walk you through it without being too boring.

But first of all, I will give you an idea behind the scenes. You should be aware that the comment spitting machine kicks in as soon as a central bank decision comes out, and even more so after a presentational press conference, be it the ECB, the Fed or another institution. FYI, since yesterday, I’ve received exactly 44 of these comments by email alone, from economists, asset managers, banks, and, a small innovation in two years, credit startup or neobank executives. As always, there is everything from analyzes of indescribable emptiness to almost incomprehensible papers, going through very interesting things and incentives to go to a realtor because the rates will rise. The goal of each is to get media attention. A pleasure that I will not give them this morning, even if among this pile of comments there are some professionals whom I appreciate and whom I willingly quote in my chronicles.

But first, let’s be a little more serious: a monetary policy decision like yesterday’s always has a relative scale and an absolute scale. Relative scale is if you want to compare the market’s opinion of this decision with what it expected. We know that finance is a waiting game that requires the best possible positioning given the event or series of events we are trying to guess at. If the ECB’s stance is exactly what most financiers were expecting, then there shouldn’t be too much fuss about stock and bond returns because, according to renowned investor Hannibal Smith, the plan worked without a hitch. In reality, however, it is often a bit more complicated, because advertising rarely lives up to expectations in every way. Yesterday, the ECB was seen as a little more alarmist than expected… which could lead to even more rate hikes to fight inflation… which equity investors don’t like. European bond yields have risen sharply, especially in Southern Europe. For example, the interest rate on 10-year debt is 4.08% in Greece and 3.59% in Italy, compared to 1.42% for German debt. This is all quite logical.

There is also an absolute scope that goes far beyond the short-term reaction of financial markets. For example, money will be worth more because rates will rise. For example, no more real estate loans at 1%. And companies will pay more to fund themselves. So do the states, besides, as I mentioned earlier about raising bond rates. The ECB’s austerity decision (which also confirmed the end of its asset purchase program 1uh July) just yesterday, Germany’s debt rose by 7 points and Italy’s by 22 points. Why ? Because Italian debt is perceived as riskier and economists agree that if the ECB has remained very accommodating for a very long time, it is due to the greater financial needs of the Italian banking system. “this is not a lie“, said the Welsh economist Percival. It goes without saying that if there is less money because it is more expensive for households, companies and the state, this state of affairs will have social consequences. If the situation continues, more and more consequences. This is what what I call the absolute effect because it has direct implications for the real economy.

But let’s talk about the relative effect of yesterday’s decision. The market feared that Christine Lagarde would lead to a 50 basis point rate hike from July. He was somewhat relieved by the news that the turn of the propeller would be limited to 25 points. But he wasn’t quite ready for the risk of an additional 50 bp rate hike in September. The choice between 25 and 50 points will take place depending on the following inflation indicators, the ECB said in a statement. European stock markets fell after the announcement, which was more active than expected. It was objectively illusory to imagine that Europe could distance itself for a long time from the inflationary throes that are giving headaches to other Western central banks. We will have to digest this news, even if most investors deep down knew that it could not be otherwise. It’s a bit of a reverse intuition: we know what’s going on, but we can’t or refuse to understand its true meaning.

Asian equities end the week in the red, sometimes quite noticeably, with the exception of Shanghai, which is gaining momentum at the time of writing. European leading indicators are bearish as we need to close the gap with Wall Street’s sharper fall last night. US futures are approaching bullish balance ahead of the posting of the 2:30 pm daily knife. The CAC40 lost 0.6% to 6313 points shortly after the open.

Economic events of the day

US inflation for May will be published at 14:30. The University of Michigan Consumer Confidence Index will be released at 4:00 pm. The entire macro diary is here. This morning, China reported inflation in May at 2.1%, slightly lower than expected. Chinese producer prices are in line with expectations (+6.4%), lower than in April (+8%).

The euro pulled back to $1.0630. An ounce of gold is stable at $1,845. Oil declined but remained high, with North Sea Brent at $122 a barrel and US WTI light at $120.65. The yield on 10-year US debt remains stable at 3.05%. Bitcoin is still clinging to $30,000.

Major changes in recommendations

  • ABB: Citigroup remains long, target lowered from 40 to 35 Swiss francs.
  • Ageas: ING is taking further action to keep the €45 bar.
  • Aryzta: Kepler Cheuvreux is moving from cutback to retention, aiming for CHF1.10.
  • Rural: JP Morgan went from negative to neutral, aiming for 295 GBp.
  • CRH: Berenberg remains long, target price reduced from 56 to 46 euros.
  • Eutelsat: Berenberg remains in effect, target price raised from 11 to 11.60 euros.
  • EVS Broadcast: Kepler Cheuvreux moves from ownership to purchase, targeting 26 euros.
  • GFT Technologies: Berenberg moves from buying to owning, aiming for 48 euros.
  • Halma: Jefferies remains underperforming as price target cut from £2200 to £1960.
  • HeidelbergCement: Berenberg remains long, target price reduced from 70 to 65 euros.
  • Holcim: Berenberg remains short, target price lowered from CHF43 to CHF42.
  • ITM Power: Jefferies maintains a long position from 600 GBp to 370 GBp.
  • Knorr-Bremse: Citigroup is moving from neutral to buying.
  • Kojamo: SEB Equities is transitioning from a buy to a holding targeting 19 euros.
  • Legrand: Citigroup cuts its target price from 97 to 85 euros.
  • Rockwool: Berenberg remains in effect, target price reduced from 2700 DKK to 2100 DKK.
  • Saint-Gobain: Berenberg remains in place with the aim of reducing from 62 euros to 60 euros.
  • Schneider Electric: Citigroup cuts its target from 154 euros to 139 euros.
  • SES: Berenberg remains on the side of the buyers with an increase in the target price from 9.80 to 11.20 euros.
  • Signify: Citigroup moves from neutral to buy.
  • Swisscom: UBS moves from neutral to sales targeting CHF500.
  • Vika: Berenberg remains in effect, the target price has been reduced from 40 to 32 euros.
  • Operating area: JP Morgan resumes neutral tracking with a target of 870 GBp.

In France

Important (and less important) announcements

In the world

Important (and less important) announcements

  • State Street officially denies any interest in Credit Suisse.
  • The Securities and Exchange Commission launched an investigation into Ericsson’s activities in Iraq.
  • The Apollo Foundation is said to be among the potential bidders to acquire Grubhub’s Just Eat division.
  • KKR made an offer to take over Accell for 1.56 billion euros unconditionally.
  • The GSK vaccine against respiratory syncytial virus (RSV) has successfully passed phase III in the elderly.
  • Denso is considering exiting its chip business.
  • BPER Banca promised on Friday to reward investors with at least €1 billion in dividends under the new plan.
  • Ferrari plans to expand its Italian electric car plant.
  • Public Power acquires Volterra’s (Avax) renewable energy portfolio.
  • OMV, Brenntag and Grieg Seafood post their dividends.
  • Grifols, Ultra Electronics, Kindred and THG hold their general meetings.
  • Main publications of the day: Taiwan Semiconductor, Mediatek, Pegatron… The whole agenda is here.

Readings