Europe wants to get back into the technology race

Semiconductors have displaced the market's old powerhouses. In Europe as in the United States, chips now set the tone. The indices are following, driven by an increasingly narrow group of stocks. Meanwhile, a luxury empire is marking its 39th anniversary with a hangover.

This morning, I am attempting a market column without naming a certain strait, a dark and viscous commodity, a US president or a breakthrough technology. We could all use the rest.

Equity markets, for their part, keep climbing. Their backbone is no longer what it used to be: luxury in Europe or Big Tech in the United States. It is semiconductors. A few figures to make the point yet again: yesterday's two biggest risers in the STOXX Europe 600 were STMicroelectronics (+15%) and Infineon (+9.5%), Europe's two chip champions. ST said its data-centre revenue would be far higher than expected. That was enough to trigger a fresh round of buying in a stock that had already benefited handsomely from its exposure to the breakthrough technology whose name I am not allowed to write. For Europe, it is excellent news that ST is no longer viewed as the sector's ugly duckling, mired in pointless Franco-Italian wrangling. This stellar performance is lifting the entire sector, perhaps too much so in the case of Sweden's Sivers Semiconductor, which jumped 60% yesterday after having been rattled by a short seller. More broadly, digital sovereignty is benefiting several companies, including Nokia, up 7% yesterday and 160% since 1 January, long a financial backwater. OVH is another example, up 11% yesterday and 126% since the start of the year.

Although the underlying trend has been positive since the beginning of the year, some investors have, in recent days, got carried away ahead of the EU's technology sovereignty plan, due to be unveiled this Wednesday. The initiative is late, but it has become unavoidable in light of a stark reality: much of Europe's critical digital infrastructure depends on American and Chinese technologies, creating an unacceptable reliance. Despite the frothy valuations reached by some companies, hello Soitec, the backdrop is likely to remain supportive for Europe's technology ecosystem.

New records were set on Wall Street yesterday, even though decliners outnumbered advancers. In other words, the US market is still being driven by a limited number of heavyweights. Since the spring rebound began in late March, the Nasdaq 100 has gained 34%, the S&P 500 almost 20% and the equal-weighted S&P 500 10.5%. That is another way of saying that a small pocket of technology stocks is driving the market. This has in fact been true for years, but the technology bloc no longer moves as uniformly as it once did: semiconductors have taken the lead.

In Europe, all the indices pushed higher yesterday, except in Brussels, where the two healthcare stars, UCB and ArgenX, spoilt the mood. The STOXX Europe 600 is now only 1.7% below its 31 March peak, despite weakness in two of its pillars, healthcare and cyclical consumer stocks, notably luxury and autos.

On the subject of cyclical consumer stocks, I learnt that today is LVMH's birthday. The luxury group was created 39 years ago through the merger of champagne and spirits house Moët Hennessy and leather-goods maker Louis Vuitton. Bernard Arnault took advantage of disagreements between the heads of the two businesses to take control shortly afterwards. It is a rather sour anniversary this year, as the shares have lost a quarter of their value in five months. Bernard Arnault, who not so long ago was the world's richest man, has slipped to ninth place in Bloomberg's billionaires ranking, with an estimated fortune of $162bn nonetheless, sandwiched between Steve Ballmer, formerly of Microsoft, and Jensen Huang, GPU-Man. He can take comfort from being the only member of the top 10 not to come from the technology sector. His former runner-up, Elon Musk, could be worth more than $1tn once the SpaceX rocket reaches the public markets. Sic transit gloria mundi.

The day will be shaped by two important US indicators: the ADP employment report and the ISM services index. After the close, Broadcom's results will be in focus. On the macro front, the person whose name I shall not mention today is considering additional tariffs of 10% to 12.5% on imports from 60 economies alleged to benefit from forced labour. They include Britain, Canada, the European Union, Indonesia, Mexico and Taiwan. Exemptions would, however, apply to energy products, rare earths, agricultural goods, pharmaceuticals and aircraft parts. Alleged forced labour is therefore acceptable when inflation is at stake. The USTR has opened a consultation on the matter.

In Asia-Pacific, the technology party is back on. Japan is up 3% and Taiwan 2%. South Korea is closed for a public holiday. Elsewhere, the gap is wide between Australia (+0.9%) on one side and India (-1.3%) and Hong Kong (-1.7%) on the other. Europe is expected to open slightly lower.

Today's economic highlights:

On today's agenda: Australia's GDP growth rates YoY and QoQ; the S&P Global Services PMI in Spain and Italy; In the United States, the MBA 30-Year Mortgage Rate, ADP Employment Change, Fed speeches by Barr, Goolsbee, and Logan, ISM Services PMI, Factory Orders MoM, and EIA Crude Oil and Gasoline Stocks Changes. See the full calendar here.

• GBP / USD: US$1.35
• Gold: US$4,464.69
• Crude Oil (BRENT): US$97.5
• United States 10 years: 4.47%
• BITCOIN: US$67,162.6

In corporate news:

• BP plc explores sale of UK North Sea assets to Ithaca Energy for ~£2B after talks, according to the FT.
• SSE launches a hybrid capital securities offering.
• Johnson Matthey CEO Liam Condon purchases shares in the company.
• Bayer rules out any restructuring plans despite the threat of litigation.
• The CEO of Nestlé expects margins to improve thanks to lower coffee and cocoa prices.
• BASF has received approval from the European Commission to sell its Paints division to Carlyle.
• Prosus has been granted an extension until October 11 to sell its stake in Delivery Hero following Uber's offer.
• Enel is considering an agreement with the Brazilian regulator regarding its contract in São Paulo.
• EQT sets a fundraising target of $6 billion for its new fund.
• Subsea 7 wins a contract for a Murphy Exploration & Production project in the Gulf of Mexico
• Avolta will issue €400 million in bonds to refinance its debt.
• Saab wins a $22 million order from the U.S. Army for vehicle simulation kits.
• Microsoft unveils its in-house AI to eventually break free from OpenAI
• Palo Alto Networks raises its targets thanks to AI-related cybersecurity demand, but the stock is down 3.2% in after-hours trading.
• Chevron is seeking tax incentives in Argentina with a $13.8 billion investment plan.
• Shopify is expanding its $3 billion share buyback program.
• Support from Broadcom helps contain borrowing costs as part of Anthropic's $36 billion financing.
• A subsidiary of RTX has secured a $515.8 million contract with the U.S. Navy.
• Texas Instruments has appointed Julie Knecht, an internal candidate, as Chief Financial Officer.
• Agilent receives FDA approval to expand its cancer screening test on the Dako Omnis platform.
• Cigna stops reimbursing GLP-1 treatments for obesity for its own employees.
• Meta scales back its mouse-tracking project in the face of internal pushback.
• Arch Capital prices a $2 billion bond offering.
• Applied Aerospace & Defense raises $650 million in its U.S. IPO.
• SpaceX plans to offer 555.6 million shares at $135 each as part of a $75 billion IPO, which would be the largest ever, according to Reuters.
• SK Hynix aims to double its memory chip production within five years.
• MediaTek is ramping up hiring to support its expansion into AI.
• Today's key earnings reports: Ninety One Group, B&M European Value Retail, discoverIE Group, NewRiver REIT, Ramsdens Holdings. Broadcom, Costco Wholesale, CrowdStrike Holdings, Medtronic, Inditex, Voestalpine AG, Avanza Bank Holding AB.

See more news from UK listed companies here

Analyst Recommendations:

• Chemring Group Plc: RBC Capital maintains its outperform rating and reduces the target price from GBX 600 to GBX 580.
• Gb Group Plc: Barclays maintains its overweight recommendation and reduces the target price from GBP 3.10 to GBP 2.75.
• Mondi Plc: Jefferies maintains its buy recommendation and reduces the target price from GBX 1130 to GBX 1100.
• Anglo American Plc: Deutsche Bank maintains its buy recommendation and raises the target price from GBX 3800 to GBX 4500.
• Cranswick Plc: BNP Paribas upgrades to outperform from neutral and raises the target price from GBP 56.40 to GBP 67.50.
• The British Land Company Plc: UBS maintains its neutral recommendation and reduces the target price from GBX 440 to GBX 430.
• Gb Group Plc: Jefferies maintains its buy recommendation and reduces the target price from GBX 320 to GBX 270.
• British American Tobacco P.l.c.: AlphaValue/Baader Europe maintains its reduce recommendation and raises the target price from GBX 4297 to GBX 4345.
• Abn Amro Bank N.v.: Grupo Santander maintains its outperform recommendation and raises the target price from EUR 35.50 to EUR 41.
• Essilorluxottica: Rothschild & Co Redburn maintains its buy recommendation and reduces the target price from EUR 310 to EUR 260.
• Merck Kgaa: HSBC maintains its buy recommendation and raises the target price from EUR 135 to EUR 160.
• Compagnie Financiere Richemont Sa: Morgan Stanley maintains its overweight recommendation and reduces the target price from ZAR 416,832 to ZAR 412,200.
• Asml Holding N.v.: Morgan Stanley maintains its overweight recommendation and raises the target price from EUR 1400 to EUR 1660.