The overall mood improved on the equity markets in the past few days, on hopes of central bank rate cuts. This week, the cost of money fell from 5 to 4.75% in Canada and from 4.50 to 4.25% in the eurozone. Investors are hoping that the US central bank will also start cutting rates in the near future. The accumulation of weak economic data in the USA has strengthened the hypothesis of monetary easing in September. The prevailing bet is that the Fed will move its main rate from the “5.50 to 5.25%” range to the “5.25 to 5%” range. This would be equivalent to easing by a quarter-point, as the Bank of Canada and the European Central Bank did earlier in the week. May's US employment data, released this morning, will help refine investors’ scenarios.

The market was hopeful: all the latest stats show that the job market is less buoyant than it used to be. It's even less dashing than the financiers thought, because previous statistics keep being revised downwards. The Fed relies on numerous indicators to determine its monetary policy, but inflation and the labor market are the two most important, since their stability is part of the central bank's mandate.

And the verdict came today at 8:30 am ET. US nonfarm payrolls rose by 272,000 in May, while the consensus of economists expected a 185,000 gain, pointing to a more resilient job market than expected. However, the unemployment rate reached 4.0%, while it was expected to remain at 3.9%. The average hourly earnings progressed by 0.4% while 0.3% was expected, following a 0.2% gain the previous month. This data could dampen bets the central bank will lower borrowing costs at least once this year. However, Wall Street reacted little to the report. Futures on Wall Street were mixed before the job report and stayed this way after. The same thing is true for Europe's main indices. But it's still early days...

Yesterday, the European Central Bank lowered its key rates by a quarter of a point, unsurprisingly. I'm just making a clarification on the subject because the media got confused about the date of the ECB's last easing. Some said September 2019 and others March 2016. Both dates are correct, but we're not talking about the same thing. The ECB's main key rate is the refinancing rate. It was last cut in September 2016, when the central bank reduced it from 0.05% to 0%. On the other hand, the ECB, then steered by Mario Draghi, made another cut later, in September 2019, but on the deposit rate, which went from -0.4% to -0.5%. This decision was designed to force banks to lend money to businesses and individuals, by increasing the cost of keeping reserves tied up.

One thing is certain: it has been a long time since the ECB cut rates. What is less clear is whether this trend will continue. Christine Lagarde was careful not to give a precise indication of the bank's intentions for future meetings. And for good reason: economic visibility remains poor, and inflation forecasts to 2025 have been raised slightly. By sending out a median message, the ECB retains the option of remaining in a wait-and-see stance if inflation shows signs of picking up, or conversely of continuing to ease policy if the economic issue takes precedence over the price issue. Observers have thus dubbed this decision a hawkish cut, which I could translate as “we'll do you a favor as planned, but we'll still turn a blind eye”. 

European equities took note of the announcement, closing with gains close to those seen before the decision. In the United States, indices digested the previous day's records, particularly the Nasdaq 100, which retreated by 0.07% after a 2% jump on Wednesday.

In other news, Chinese authorities published better-than-expected export figures for May, but weak import data. In India, the central bank left its key rate unchanged at 6.5%.

The final session of the week is split across Asia-Pacific. Japan, mainland China and Hong Kong were slightly down, while Australia gained 0.5% and South Korea and India were up 1%. Not much of a trend, then. 

Today's economic highlights:

Industrial production in Germany and the US May employment data are on the agenda. 

The dollar is worth EUR 0.9177 and GBP 0.7809. The ounce of gold rose to USD 2337. Oil is recovering slowly, with North Sea Brent at USD 80.29 a barrel and US light crude WTI at USD 76.05. The yield on 10-year US debt stabilizes at around 4.3%. Bitcoin flirts with USD 71,700.

In corporate news:

  • Gamestop shares erased their gains and fell 9.6% in pre-market trading, after gaining 33.7% earlier on Friday, as the video game distributor reported a better-than-expected drop in first-quarter sales. Influencer Keith Gill, nicknamed “Roaring Kitty”, had previously announced that he would host a live show this Friday, after declaring a $116 million position in the group.
  • Hertz plans to sell at least $700 million in secured debt and issue convertible bonds to shore up its balance sheet, Bloomberg reported on Thursday, citing people familiar with the matter. The stock plunged 12.6% after the news broke, closing down around 5%.

Analyst recommendations:

  • Gen Digital Inc.: Morgan Stanley downgrades to equal weight from overweight with a target price reduced from USD 28 to USD 27.
  • Halozyme Therapeutics, Inc.: Piper Sandler & Co downgrades to neutral from overweight with a price target raised from USD 48 to USD 51.
  • Hewlett Packard Enterprise Company: Baptista Research downgrades to hold from underperform with a price target raised from USD 16.80 to USD 20.80.
  • Huntsman Corporation: JP Morgan upgrades to overweight from underweight with a target price raised from USD 22 to USD 27.
  • Lyft, Inc.: Loop Capital Markets upgrades to buy from hold with a target price of USD 20.
  • Tenet Healthcare Corporation: Wolfe Research maintains its outperform rating and raises the target price from USD 122 to USD 156.
  • Vail Resorts, Inc.: Morgan Stanley maintains its market weight recommendation and reduces the target price from USD 229 to USD 179.
  • Aercap Holdings N.V.: Morgan Stanley initiates an Equal Weight recommendation with a target price of USD 103.
  • Amazon.com, Inc.: Huatai Research initiates an Accumulate recommendation with a target price of USD 197.86.
  • Charles River Laboratories International, Inc.: Mizuho Securities initiates a neutral recommendation with a target price of USD 235.
  • Csx Corporation: Wells Fargo initiates an equalweight recommendation with a target price of USD 35.
  • Fedex Corporation: Wells Fargo initiates an equalweight recommendation with a target price of USD 275.
  • International Flavors & Fragrances Inc.: Oppenheimer initiates an Outperform recommendation with a target price of USD 116.
  • United Rentals, Inc.: JP Morgan initiates an overweight recommendation with a target price of USD 780.
  • Xpo, Inc.: Wells Fargo initiates an overweight recommendation with a target price of USD 125.
  • Unilever Plc: Redburn Atlantic upgrades to buy from neutral with a price target raised from GBX 4000 to GBX 5100.