Aurelia Butler

Hello and welcome to the working week.Nato members will gather in Vilnius on Tuesday as the military alliance faces a crunch moment. The big question is whether Turkey will approve Sweden’s accession. Nato secretary-general Jens Stoltenberg said last week that it was “within reach”. US president Joe Biden will be flying in, hoping to pile on the diplomatic pressure to reach a deal.In the UK, chancellor Jeremy Hunt and Bank of England governor Andrew Bailey will address business leaders at the annual Mansion House dinner. The economic challenges facing the UK will be thrown into stark relief when the Office for Budget Responsibility publishes its annual report on fiscal risks and the long-term sustainability of the nation’s public finances.The first indication of the hit to US banking from the financial turmoil this year will come with earnings reports this week: Citigroup, JPMorgan Chase and Wells Fargo all report on Friday. They are set to take a hit on loans, while investment banking will probably also be a drag.Inflation figures are due from the US and China, while the UK will report labour data, a monthly gross domestic product update and retail sales. The US has the NFIB and Michigan Sentiment surveys, while Japan provides a machinery orders update.The Federal Reserve publishes its Beige Book on business activity, while Opec and the International Energy Agency both put out monthly oil market reports.The Bank of Canada is expected to raise rates a further 25 basis points to 6 per cent, while the Bank of Korea is due to stick at 3.5 per cent. Various corporate earnings reports are expected, including British Land, Wetherspoons, Uniqlo owner Fast Retailing and Barratt Developments.The sporting summer continues with the Wimbledon finals next weekend. Have a good week.What do you think? Email me at [email protected] or, if you have received this note in your inbox, hit reply.Economic and company reportsHere is a more complete list of what to expect.MondaySir Adrian Montague becomes chair of Thames Water, succeeding Ian Marchant.China: June consumer price index (CPI) and producer price index (PPI) inflation figuresJapan: May trade balance dataResults: Knights FY, TSMC June sales updateTuesdayGermany: final June CPI and harmonised index of consumer prices (HICP) inflation rate data, plus ZEW economic sentiment surveyUK: July labour market figuresResults: British Land trading update and AGM, Galliford Try trading updateWednesdayCanada: interest rate setting announcementIndia, Russia, Spain, US: June CPI inflation rate figuresJapan: monthly machine orders dataUK: Bank of England publishes the results of the annual stress test of the UK banking system alongside the Financial Stability ReportUS: Federal Reserve Beige BookResults: Grafton trading update, JD Wetherspoon trading update, PageGroup Q2 trading update, Tata Consultancy Services Q1, Ten Entertainment Group H1 trading update, Tullow Oil trading statementThursdayInternational Energy Agency and Opec monthly oil market reportsEU: European Central Bank publishes accounts of its June meeting monetary policy discussions.France: final June CPI and HICP inflation rate dataSouth Korea: interest rate decisionUK: Bank of England Credit Conditions Survey, and Office for Budget Responsibility publishes its annual fiscal risks and sustainability reportUS: final June PPI inflation rate dataResults: Aker BP H1, Barratt Developments trading update, DCC Q1 trading statement, Delta Air Lines Q2, Experian Q1 trading update, Fast Retailing Q3, The Gym Group trading update, Hays Q4 trading update, John Wood Group H1 trading update, PepsiCo Q2, Trustpilot H1 trading update, Watches of Switzerland FYFridayFrance: Bastille Day; financial markets closedUS: University of Michigan economic sentiment dataResults: Burberry Q1 trading update, Citigroup Q2, JPMorgan Chase Q2, Liontrust Asset Management Q3 trading update, State Street Q2, UnitedHealth Group Q2, Wells Fargo Q2World eventsHere is a rundown of other events and milestones this week. MondayUK, annual Mansion House dinner with speeches by chancellor Jeremy Hunt and Bank of England governor Andrew BaileyUS president Joe Biden to meet King Charles III at Buckingham Palace and UK prime minister Rishi Sunak at Downing StreetTuesdayLithuania: Nato summit begins in Vilnius. Attendees include US president Joe BidenWednesdaySouth Korea: trial begins of former Samsung chip executive Choi Jin-seok accused of corporate espionage, stealing sensitive information to help his client set up a chip factory in ChinaUK: parliamentary select committee to grill water industry bosses as fears grow over the financial viability of the country’s privatised water suppliersThursdayBelgium: EU-Japan Summit begins in Brussels, attended by European Council president Charles Michel, European Commission president Ursula von der Leyen and Japanese prime minister Fumio KishidaFinland: US president Joe Biden visits Helsinki for a US-Nordic Leaders’ SummitUK: NHS England releases figures for May and June, along with quarterly waiting time stats for A&E attendances and emergency admissionsFridayEU: Economic and Financial Affairs Council meetingFrance: President Emmanuel Macron attends the annual Bastille Day military parade on the Champs-Élysées in ParisWeekendUK: Wimbledon women’s and men’s singles final More

AIX-EN-PROVENCE, France (Reuters) – An unusually long lag in the time interest rate hikes are taking to feed through to the economy has left corporate leaders guessing whether to prepare for a hard or soft landing.Although central banks in the United States and Europe have raised interest rates at the fastest pace in decades in an effort to tame inflation, most economies have so far escaped the painful recessions triggered by previous tightening cycles.For corporate leaders at a weekend economics conference in the southern French town of Aix-en-Provence, that delay has left them questioning when and how much higher borrowing costs will affect them, especially if central banks keep hiking.”There’s no real consensus at the moment about the increase in interest rates among economic actors,” Jeremie Delecourt, chief operating officer at French private equity fund Ardian, told Reuters.”The fact everyone is asking the question is interesting, there are those who are optimistic and others who are pessimistic,” he added.In the euro zone, the peak is near after a combined 4 percentage points rise in the past year, ECB policymaker and French central bank governor Francois Villeroy de Galhau said on a panel at the conference.But he also said that rates would be left high for as long as necessary to ensure that inflation is headed back to the European Central Bank’s 2% target by 2025.The ECB raised interest rates to their highest level in 22 years last month and promised another hike this month, with possibly another in September.Jean-Louis Girodolle, head Lazard (NYSE:LAZ) in France, told a panel that there was a danger central banks would fight inflation with the same zeal they fought deflation and go too far.”The scenario that I fear is that we get the landing wrong, the opposite of ‘whatever it takes’, the of investment bank head said, referring to former ECB president Mario Draghi’s 2012 pledge to steer the euro zone through its debt crisis. ‘GOING TO BITE’The full impact of rate hikes is taking more time than usual because many households and companies entered the new era of higher borrowing costs with solid cash levels, the result of strong savings during the pandemic.Additionally, labour markets are strong on both sides of the Atlantic and corporate profits have so far held up, while housing markets are generally cooling but not in a tailspin.”The transmission (of monetary policy) is coming late, but it’s going to bite, I would say towards the end of this year,” said Aylin Somersan Coqui, head of German export credit insurer Allianz (ETR:ALVG) Trade.The pinch from higher borrowing costs would come just as corporate profits and the broader economy starts to falter, while elections in many countries next year would make it hard for governments to help struggling firms, she added.”I see quite a bit of optimism in the short term, but I see a lot of downside risks if there is a policy mistake, especially from the central banks,” she added.Though corporate defaults are on the rise in many countries they remain below pre-pandemic levels as many firms’ debt is in cheap, fixed-rate loans taken out when rates were ultra low.While refinancing at much higher levels in the coming months could be a challenge for the weakest balance sheets, the increase in borrowing costs would come gradually for most firms, said Daniel Barneix, head of AFTE association for French corporate treasurers.”We can expect debt levels to be adjusted on a case by case basis without triggering a systemic crisis,” said Barneix, who is also deputy finance director at French building materials group Saint-Gobain.Although inflation is receding in most countries after last year’s supply-chain and energy price shocks, interest rate hawks say that its better to err on the side of going too high rather than not tackling high inflation.”You should really avoid being dovish because then there is a big risk that inflation will come back and it will be really hard and long-lasting,” Veronika Grimm, one of the German government’s chief economic experts, told Reuters. More

NEW YORK (Reuters) -As second-quarter earnings approach, investors are looking at beaten-down sectors which might gain ground regardless of whether the U.S. economy falls into recession this year. While the benchmark S&P 500 has gained nearly 15% year-to-date driven by a handful of megacap growth and technology names, some sectors have lagged, including the S&P 500 healthcare, which is down 4.7%. The financials sector is down 2%, while energy is nearly 9% lower. These unloved sectors are growing attractive to investors increasingly torn over whether a long-feared U.S. recession will ever materialize.Global fund managers increased their allocations to healthcare and banks by about 5 percentage points in June, while cutting holdings of popular recession plays such as cash and consumer staples companies, BofA Global said.Large asset managers such as BlackRock (NYSE:BLK) and Wells Fargo (NYSE:WFC) highlighted healthcare as a favored sector in their recent outlooks for the rest of the year. Some large banks have improved their U.S. economic outlooks, with Goldman Sachs (NYSE:GS) cutting the chance of a recession within the next 12 months to 25% from 35%. The Commerce Department, meanwhile, increased its estimate for first-quarter Gross Domestic Product growth to an 2% annualized rate from its initial 1.3% estimate.Quincy Krosby, chief global strategist for LPL Financial (NASDAQ:LPLA) noted a “tug of war” in the market over the likelihood of a recession. “But until we hear from companies that they are cutting their labor force, then we think that we will not have a dire earnings season and some of these lagging sectors will become more favorable,” she said.The U.S. economy added the fewest jobs in 2-1/2 years in June, but persistently strong wage growth pointed to still-tight labor market conditions, new data on Friday showed, all but ensuring the Federal Reserve will resume raising interest rates later this month.That will likely continue to weigh on stocks overall as borrowing costs increase. Overall, earnings in the S&P 500 are expected to fall 5.7% in the second quarter, largely due to declining margins, Refintiv data showed.Despite that dim picture, “cheap” valuations and stable healthcare earnings make the sector increasingly attractive to invest in if the economy does slow in the second half, said Sameer Samana, senior global market strategist for Wells Fargo Investment Institute.The healthcare sector trades at a forward price-to-earnings ratio of 17.6, well below the 20.1 ratio of the broad S&P 500. “We think the Fed will do whatever it takes to get inflation back down close to 2%, and that’s why we think we will see a Fed-induced recession” in the coming months, he said. HEALTHCARE, FINANCIALSMedical devices and diagnostics are still benefiting from a backlog of delayed care during the coronavirus pandemic, and demand could continue to grow regardless of the direction of the economy, said Max Wasserman, a portfolio manager at Miramar Capital. He is bullish on companies such as Abbott Laboratories (NYSE:ABT), which is down nearly 3% year to date.”As things continue reopening we expect to see more data that confirms that people are coming back into the healthcare system,” he said. Financials will likely continue to benefit from the Fed rate-hiking and the belief that worst of this year’s regional banking crisis has passed, said Tom Ognar, a portfolio manager at Allspring Global Investments. He is focusing on companies such as LPL Financial Holdings Inc and Morgan Stanley (NYSE:MS) in the wealth management sector that appear to have more secular growth opportunities than the big banks, he said.Big banks start reporting second-quarter results next week.”If rates stay higher for longer and the Fed has to battle inflation for longer that will only mean that these companies will earn more for longer and buy back more stock,” he said. A market shift away from the handful of megacap technology and growth stocks that have powered the rally in the S&P 500 is not a given, cautioned John Quealy, chief investment officer at Trillium Asset Management. “The cash flow profiles of some of those (megacap) companies are tremendously attractive, especially if we fall into a recessionary environment.”Overall, the Russell 1000 Growth Index is up 27.5% year to date, compared with a 2.9% gain in the financials and healthcare-heavy Russell 1000 Value.Yet a continued rally in megacaps will likely stretch their valuations further, prompting some investors to rotate toward healthcare and financials, LPL Financial’s Krosby said.”Everything is at a discount.” More

JERUSALEM (Reuters) -Israeli Prime Minister Benjamin Netanyahu signalled impatience on Sunday with resurgent demonstrations against his plan to overhaul the justice system, summoning his attorney-general for a cabinet grilling about police counter-measures.On Monday, Netanyahu’s religious-nationalist coalition is due to bring for its first ratification reading a bill that would limit “reasonableness” as a standard of judicial review – and which critics argue would open the door for abuses of power.Critics say such reforms curb court independence. Netanyahu – who is on trial on graft charges he denies – says the aim is to restore balance among branches of government.Compromise talks between the government and opposition stalled last month. Street protests that had subsided are flaring anew.Protesters plan to converge on Israel’s main airport as parliament debates the “reasonableness” bill. A major mall chain announced a one-day shutdown if Monday’s vote passes. In televised remarks before the cabinet session, Netanyahu said it was “unthinkable” that the government would abridge the right to demonstrate or support any violence against protesters.But he argued such freedom should not be extended to “violations of the law that harm the basic rights of millions of citizens and are taking place on an almost daily basis,” citing disruptions at Ben Gurion Airport, calls for disobedience within the military, main road closures and the heckling of elected officials. He said Attorney-General Gali Baharav-Miara must “give an accounting” at Sunday’s cabinet. As the meeting began, Israeli media carried leaked quotes of some ministers calling for her to quit.Baharav-Miara, according to a person briefed on the session, said she hoped the government was not asking her to say a more aggressive crackdown was needed even if it was inconsistent with the judgement of police commanders on the ground and prosecutors.”I hope the government does not expect the law-enforcement apparatus to maintain ‘quotas’ of arrests or indictments of protesters,” she was quoted as saying.Announcing the plan to shut all 24 of its malls on Tuesday, Big Shopping Centers called the “reasonableness” bill, if it passes its first reading, a “serious step on the way to clearly illegal governmental corruption, and another step on the way to dictatorship”.”Such legislation would be a fatal blow to Israel’s business and economic certainty and would directly and immediately endanger our existence as a leading company in Israel,” it added in an open letter.Shares of Big fell 3.1%. Cabinet minister Itamar Ben-Gvir said he would boycott Big unless it retracted what he deemed its politicised “bullying”.The furore has dented the economy. TheMarker financial news site on Sunday estimated economic losses of some 150 billion shekels ($41 billion), citing weaker shares and the shekel, and higher inflation as a result of a more than 5% drop in the shekel versus the dollar that has helped fuel inflation and the cost of living.($1 = 3.6951 shekels) More