Market Report:
📝 Yesterday, two of the three major companies reporting results disappointed the market.
📉 LVMH reported weaker-than-expected organic revenue growth in the second quarter as key markets like China slowed significantly. Organic revenue at LVMH’s flagship fashion and leather goods unit, which includes brands like Louis Vuitton and Fendi, rose only 1% compared to expectations of over 2% growth. Overall, sales in the Asia-Pacific region, which has been a major driver of luxury growth, declined 14% in the quarter with a notable slowdown in China.
🚗 Tesla reported second quarter earnings that missed analyst expectations, with adjusted EPS coming in at 52 cents versus estimates and revenue reaching a record $25.5 billion but driven mainly by energy storage and regulatory credits as automotive gross margins declined on lower vehicle sales and pricing issues tied to supply chain challenges. CEO Musk confirmed the company was pushing back its event unveiling robotaxi prototypes by two months to October and noted the current auto business was facing struggles, while emphasizing progress on autonomous technology was the real value driver for Tesla’s stock long-term.
🌐 Alphabet reported second quarter revenue that beat expectations, boosted by strong demand for Google’s cloud computing and search advertising services. Google Cloud saw significant growth in profitability as it attracts more AI startup customers, helping offset challenges in the search business from competition. YouTube revenues were also impacted by ad market volatility. While Other Bets continued substantial losses, cloud revenues and margins exceeded estimates. Shares initially fluctuated but ended up 1% after hours on the results.
📊 Europe’s PMIs released today are disappointing. Their readings are below expectations. Of particular concern are the manufacturing PMIs for Germany and the Eurozone, as they are not only below expectations, but also below the 50 benchmark, indicating a clear contraction. In the case of Germany, the manufacturing PMI falls to 42.6, disastrous and even below the previous result of 43.5. Once again we say it loud and clear, the European economy is in trouble and it is only a matter of time before its markets show it.
💸 If in our previous report we warned of the losses associated with bad loans accumulated by large U.S. banking firms. Today, the news coming from Europe seems to worry us. The ECB has decided to cut loan loss provisions on leveraged loans by half, from 13 billion euros to 7 billion euros. The decision comes in the wake of protests from banks in Europe, and of course has been met with criticism from those who are creditors. In the coming days the ECB will publish the results of its investigation into leveraged loans in European banking.
📈 Market View:
📉 The redeployment of capital continues in US equities. Tesla’s poor results yesterday seemed to dampen the market somewhat. The results of alphabet, google, in line with expectations, were published after hours, so they failed to neutralize the present negativity. the result has been further declines in the SP500 which is trading below 5600 points again, moving away from its all-time highs of 5700. The Nasdaq 100 lost 20,000 points and is currently trading at 19580 points. However, the Russell 2000 is back in charge and rises above 2200 points close to 2250 points, here is the redistribution of capital between sectors.
💵 The dollar remains in the 104.50 zone, which acts as resistance in the short term and which it seems that it will try to be overcome. The EURUSD consequently loses 1.0850. The US 2-year bond continues to gain attractiveness and the return falls below 4.50%.
📉 European equities experience some setbacks compared to yesterday’s session, the Dax 40 loses 18,500 points.
🗓️ Remember, tomorrow we will get the US Q2 growth rate. On Friday we will get the US PCE inflation rate. If it turns out to be in line with expectations or lower, the market will continue the bullish course it took a few weeks ago and everything is in line with the Fed’s plan.
🌍 Geopolitics:
📊 The new Reuters poll finds Harris pulling ahead of Trump nationally after assuming the Democratic nomination from Biden. Harris leads Trump 44% to 42% in the national poll, however, carefully remind us that there may be a margin of error, for whatever reason. As happened in the 2016 election against Hillary, the media establishment seems to underweight the population’s vote for Trump.
🤝 Rival Palestinian factions including Hamas and Fatah signed an agreement in Beijing to form an interim unity government that would oversee governance in Gaza and the West Bank following the end of the current war in Gaza, according to China’s foreign minister. However, Israel strongly rejected any role for Hamas in a future Palestinian administration, and analysts said implementing such a deal would face major complications given the deep enmity between the factions and opposition from Western countries to Hamas. The agreement was another sign of China’s growing influence in the Middle East peace process.
