Monday Report

Economy

US statistics were more or less in line with expectations. The ISM Manufacturing Index resumed its uptrend in May (up from 60.7 to 61.2), as did its Non-Manufacturing counterpart (up from 62.7 to 64). According to the employment report, 559,000 jobs were added to the economy in May, fewer than expected. Rising hourly wages (up 0.5% MoM) have fuelled inflationary fears. In the eurozone, the CPI came out in line with expectations in May (up 0.3% MoM; up 0.9% YoY) but April retail sales were disappointing (down 3.1% MoM), remaining volatile as economies come out of hibernation at differing rates. In China, the Caixin manufacturing and services PMIs confirmed recent trends (up from 51.9 to 52 and down from 56.3 to 55.1 respectively).

Climate

Indonesia’s Minister of Energy and Mineral Resources has announced that the country (population 270m; the world’s 16th largest economy with GDP of c. $1.1trn; leading exporter of thermal coal) will no longer be approving any new coal-fired power stations from today. Indonesia, which aims to achieve a 27% reduction in CO2 between 2010 and 2030, is also planning incentives for renewables, installed capacity of which is set to triple to 24 GW between now and 2030, as well as a carbon tax.

Markets

It ended up being a fairly quiet week. Equities posted modest gains (with the MSCI World up 0.6% and the MSCI Emerging Markets up 1.6%), while 10-year sovereign yields fell a few basis points. Oil continued to rise (up 3.3%), while copper fell 3%. The dollar held steady (with the dollar index up 0.1%), as did gold (down 0.1%). To be monitored this week: SME confidence (NFIB index), CPI and consumer confidence (Univ. of Michigan) in the US; Sentix and ZEW confidence indicators, Q1 GDP and ECB meeting in the eurozone; and trade balance, consumer and producer price indices, currency reserves, money supply and credit in China.

Swiss Market

To be monitored this week: SECO May unemployment, FSO May inflation, SNB end May currency reserves and FSO April/winter season overnight hotel stays. The following companies are also due to report figures/results: Flughafen Zürich (May traffic statistics) and New Value (2020/21 results). Belimo (NR) has released a positive profit warning on its interim results, up 10% YoY.

Equities

ANGLO AMERICAN (EU Satellites) completed its spin-off of Thungela Resources Ltd, encompassing its South African thermal coal assets. Shareholders received one Thungela share for every ten Anglo shares held. We recommend selling Thungela shares.
COMET (Swiss Convictions): rising memory prices boosted revenue for chip maker Nanya Technology and memory module manufacturer ADATA Technology in May 2021, according to DigiTimes. Comet should also benefit.
FACEBOOK (Core Holdings): the European Union and the United Kingdom have both opened antitrust investigations into Facebook’s use of advertising data on its Marketplace. As well as facing the possibility of hefty fines, Facebook could be forced to change its business model.
INDITEX (Core Holdings) is due to report its Q1 2021 results this Wednesday. Despite lockdown restrictions, they are expected to show a sharp rise in sales (up 50-60% to €5bn), robust margins and a rebound in EBIT to €540m (vs. a Q1 2020 loss of €200m excluding provisions). Better still, store reopenings have been gathering pace in May and June. The resumption of in-store shopping and continued momentum in e-commerce should give the clothing market a shot in the arm.

Bonds

In the US, modestly disappointing payroll numbers (with 559k new jobs added, vs. 675k expected) triggered a sharp decline in yields, which closed lower for the third week running (with 10-year yields down 4 bps). In credit, news that the Fed was planning to unwind its portfolio of corporate bonds purchased in the secondary market (c. $13.8bn) had no impact. HY spreads narrowed in both Europe and the US (down 8 bps and 5 bps respectively) and all credit indices posted gains, with the European HY index leading the way (up 0.31%).

Sentiment of traders

Stock market
Last Friday’s US job numbers indicated that the economic recovery is proceeding more slowly than expected, and hence inflationary risk is also lower than expected, enabling indices to end the week on a positive note. Inflation will be on the agenda again this week, with the US CPI due out and an ECB meeting scheduled for this Thursday. We remain positive.
Currencies
US job numbers came in short of expectations, helping calm inflationary fears to some extent. This meant USD was unable to hold firm and has begun to fall again: EUR/USD 1.2170; USD/CHF 0.9000. Forex dealers will be keeping a close eye on this Thursday’s ECB meeting and what Christine Lagarde has to say. CHF has clawed back c. 60 bps against EUR, taking EUR/CHF to 1.0940 this morning. Our ranges: EUR/CHF 1.0900-1.1050; USD/CHF 0.89-0.91; GBP/USD: 1.4018-1.4340.

Today’s graph

Performances

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