The market shifted focus to Federal Reserve easing hopes, China's economic slowdown, and the ongoing earnings season. This morning saw the release of US retail sales, which remained unchanged at $704.3 billion in June, in line with expectations, after a 0.3% gain in May (revised from 0.1%). Total sales for the April 2024 through June 2024 period were up 2.5% from the same period a year ago.

Former President Donald Trump's appearance at the Republican convention, following a failed assassination attempt on Saturday, has intensified speculation that the incident might boost his re-election chances in November. Betting markets are now giving Trump a more than 70% chance of returning to the White House.

You got to give it to Trump that he’s a fine politician, as demonstrated by his speech yesterday on the first day of the Republican convention. Trump played the appeasement card with a text more focused on unity and less on attacking Joe Biden. On Wall Street, financiers have already begun to arbitrate the most obvious sectors. For example, they have cut back on renewable energy companies, which are notoriously unpopular with the Trump team. Conversely, compartments that benefit from the deregulation policy advocated by the Republican candidate have done well. During the Trump 1 mandate, financial stocks were the most favored. We'll also be keeping a close eye on the consequences of the appointment of JD Vance as Donald Trump's running mate. The 39-year-old senator from Ohio (exactly half the age of his front-runner) has said in the past that he doesn't care about the fate of Ukraine and that China is the biggest threat to the United States.

Fed Chair Jerome Powell's comments on Monday in Washington further fueled disinflation hopes. He delivered a perfectly “goldilocks” speech: not too hot, not too cold, just right. In Finance, we use this image from the universal tale “Goldilocks and the Three Bears” to describe “pro-market” behavior by the US central bank. Powell's comments have raised the probability of a rate cut at the Fed's September meeting to 100%. Futures instruments show that the market is anticipating 68 basis points of rate cuts by the Fed by the end of the year. In plain English, this means that Wall Street is split between two and three 25bp rate cuts. This is a more optimistic view than has been envisaged in recent weeks. Two-year Treasury yields fell to their lowest in over four months at 4.41% on Tuesday, while 10-year yields also dipped below 4.2%.

With big bank earnings rolling in, S&P 500 futures held steady, though Monday's stock market attention was again on the outperformance of small caps. The S&P 500 managed a small gain, while the Russell 2000 jumped nearly 2% and is now up more than 7% in just five sessions. Meanwhile, stock market volatility is creeping higher, with the VIX 'fear index' rising to its highest in three weeks.

European equities are finding it increasingly difficult to keep pace with Wall Street. Over the past three months, Europe's broad index, the STOXX Europe 600, has gained just 2.5%. Meanwhile, the S&P500 has gained 11.3%. Political violence is rife on both sides of the Atlantic, but not with the same consequences. In the U.S., investors know that stocks generally rise regardless of which side the White House tenant is on. In Europe, uncertainty in France, a reversal of the majority in the UK and Euroscepticism are weighing on confidence.

The engine of European performance in normal times, Cyclical Consumer Goods, has lost its mojo. The Chinese middle class no longer has enough prosperity in store to continue absorbing European luxury goods, and the automotive sector is taking a beating. Over the last three months, LVMH has lost 11%, while Apple has gained 35%. BMW is down 15%, while Tesla is up 56%. Yesterday's warnings from Burberry and Swatch are not a good sign.

In the Asia-Pacific region, Tokyo rallied by 0.2% after an extended weekend. On Friday, the Nikkei 225 had fallen heavily. At the end of last week, the Bank of Japan had to spend over $20 billion on operations to support the yen. Hong Kong lost 1.6%, wiping out part of last week's rebound. South Korea, India and Taiwan were slightly up. Australia ended flat. European indices are bearish while futures on Wall Street are in the green.

Today's economic highlights:

German financial sentiment in July is surveyed today by the ZEW index. But investors will be most interested in US retail sales. Business inventories and the NHAB house price index will also be released. The full calendar is here. 

The dollar is worth EUR 0.9187 and GBP 0.7717. The ounce of gold is up to USD 2433. Oil retreats, with North Sea Brent at USD 83.50 a barrel and US light crude WTI at USD 79.63. The yield on 10-year US debt rises to 4.21%. Bitcoin is trading at USD 63,900.

In corporate news:

  • Bank of America saw its earnings decline in the second quarter due to lower interest income on loans and higher provisions against non-performing loans. Nevertheless, the share price rose by 1.1% before the opening.
  • UnitedHealth reported better-than-expected second-quarter earnings on Tuesday, thanks to a strong performance by its healthcare services unit. However, the group raised estimates of the cost of a hack on its technology unit earlier this year and declined by 1.8% before the open.
  • State Street and Morgan Stanley are set to announce their results on Tuesday.
  • Tesla is up 1.6% in pre-market trading, with CEO Elon Musk reportedly planning to commit around $45 million a month to a Donald Trump-friendly political action committee, according to the Wall Street Journal. Markets are betting on a victory for the billionaire in November's US presidential election, which could lead to an expansionist trade policy and looser regulations.
  • Match climbed 8.2% in pre-market trading as activist investor Starboard increased its stake in Tinder's parent company to over 6.5%, while pushing for a possible sale of the group if a turnaround is not possible, the Wall Street Journal reported on Monday.
  • Philip Morris International - Six anti-smoking and health groups have filed a lawsuit with the U.S. Food and Drug Administration (FDA), accusing the tobacco company of making misleading and deceptive statements as it prepares to launch its IQOS heated tobacco product in the United States.
  • Walt Disney - Internal group communications, including those related to advertising campaigns, studio technology, and interview candidates, were leaked online after a hack, the Wall Street Journal reported Monday.

Analyst recommendations:

  • Dollar Tree, Inc.: Piper Sandler & Co downgrades to neutral from overweight with a price target reduced from USD 143 to USD 112.
  • Epam Systems, Inc.: Jefferies upgrades to buy from hold with a price target raised from USD 202 to USD 237.
  • Intuitive Surgical, Inc.: Baptista Research downgrades to underperform from hold with a price target raised from USD 425.70 to USD 431.80.
  • JPMorgan Chase & Co.: Phillip Securities downgrades to accumulate from buy with a price target of USD 231.19.
  • Matador Resources Company: Baptista Research downgrades to hold from outperform with a price target reduced from USD 75.70 to USD 70.30.
  • Newell Brands Inc.: Zacks upgrades to outperform from neutral with a price target of USD 8.
  • Southwestern Energy Company: Baptista Research upgrades to outperform from hold with a price target raised from USD 7.90 to USD 8.20.
  • The Cooper Companies, Inc.: Jefferies upgrades to buy from hold with a price target raised from USD 107 to USD 115.
  • 10X Genomics, Inc.: Stifel maintains its buy recommendation and reduces the target price from USD 53 to USD 25.
  • Broadcom Inc.: Citigroup maintains its buy recommendation with a price target reduced from USD 1750 to USD 175.
  • Chipotle Mexican Grill, Inc.: Piper Sandler & Co maintains a neutral recommendation with a target price reduced from USD 3070 to USD 61.
  • Moody's Corporation: JP Morgan maintains its overweight recommendation and raises the target price from USD 415 to USD 500.
  • New York Community Bancorp, Inc.: Piper Sandler & Co maintains its overweight recommendation and raises the target price from USD 4 to USD 12.
  • Qualcomm, Inc.: Morgan Stanley maintains its equal weight rating and raises the target price from USD 172 to USD 220.
  • Skyworks Solutions, Inc.: Morgan Stanley maintains its equal weight rating and raises the target price from USD 97 to USD 118.
  • SolarEdge Technologies, Inc.: Deutsche Bank maintains its hold recommendation and reduces the target price from USD 55 to USD 40.
  • Sunrun Inc.: JP Morgan maintains its overweight recommendation and raises the target price from USD 14 to USD 19.
  • Synchrony Financial: JMP Securities maintains its market outperform recommendation and raises the target price from USD 49 to USD 60.
  • Teradyne Inc.: Stifel maintains its hold recommendation and raises the target price from USD 100 to USD 150.
  • W.R. Berkley Corporation: Truist Securities maintains its buy recommendation and reduces the target price from USD 93 to USD 62.
  • Airtel Africa Plc: JP Morgan upgrades to overweight from neutral with a target price raised from GBP 1.052 to GBP 1.394.
  • Britvic Plc: HSBC downgrades to hold from buy with a price target raised from GBP 11 to GBP 12.90.
  • Burberry Group Plc: CIC Market Solutions maintains its neutral recommendation with a price target reduced from GBP 12 to GBP 8.