Yesterday's stock market session was marked by a series of unrelated events that left a negative overall impression. It started with a sharp drop in oil prices, as Brent crude closed below USD 70 a barrel for the first time in three years. Then, BMW issued a major warning, adding to the struggles of an already hard-hit automotive sector. JPMorgan Chase and Ally Financial, two US financial institutions, indicated that analysts’ expectations for Q3 were overly optimistic. Each of these events caused significant market damage.

In the oil sector, crude fell by 3%, with declines ranging from 1.5% to over 3% for Chevron, Exxon, TotalEnergies, and BP Plc.

For financials, it was a difficult session for JPMorgan Chase (-5.2%), Goldman Sachs (-4.4%), and Ally Financial (-17%). European banks with significant US exposure, such as Deutsche Bank (-5%) and Barclays (-3.6%), also struggled.

The automotive sector faced sharp declines, with BMW down 11%, Continental falling by 10.5%, Mercedes losing 5%, and Volkswagen and Renault both down by 3%. Stellantis, somewhat surprisingly, held steady, though this may be explained by the heavy losses its stock has endured since the start of the year.

Despite these warnings, the S&P500 and Nasdaq managed to recover in the US, thanks to a surge in the technology sector. The Nasdaq 100 even climbed 0.9%, cutting last week’s losses. In Europe, the situation was mixed, with the CAC40 and SMI limiting declines, while the DAX fell 1%, mainly due to automotive sector pressures.

Though these events seem disconnected, they share a common origin: the fear of a sharp economic slowdown. Oil prices are falling as Chinese demand continues to weaken, with crude imports down 7% year-on-year in August, and concerns are growing about US momentum. The automotive sector is struggling for similar reasons, exacerbated by supply gluts and the rollback on electric vehicle commitments. In finance, worries about a slowdown and deteriorating consumer debt repayment ability are creating additional pressure.

One US commentator noted that we are back in a regime where “bad news is bad news,” unlike recent quarters when poor economic data was seen as a sign that the Fed might cut rates. This shift could indicate that the bond market will resume its protective role. All eyes are now on next week’s Fed meeting, where a 25-basis-point rate cut—the first in the current cycle—is expected. However, the real focus will be on Jerome Powell’s comments regarding the pace of future cuts, as the Fed seeks to prove it is not behind the curve in its policy easing.

This morning’s release of US inflation data for August will further fuel speculation. Economists predict that annual inflation fell from 2.9% to 2.5% between July and August. Core inflation is expected to stay around 3.2%, but its monthly trend (+0.2%) aligns with the Fed’s 2% annual inflation target. Ironically, there have been discussions recently about the risk of inflation being... too low.

Meanwhile, the news cycle was dominated by the televised debate between Kamala Harris and Donald Trump, 55 days before the presidential election. The debate was as intense as expected, and while opinions differed, early indicators suggest the Vice-President outperformed the former president. Notably, Taylor Swift expressed her support for Harris after the debate—a nod to her growing political influence. Harris also proposed a second debate to Trump.

This morning, Asian markets remain heavy, with red dominating. Japan's Nikkei 225 is down 1.7%, marking its sixth consecutive session of losses. China continues to struggle as well, with the Hang Seng turning negative in 2024 after peaking with a 15.5% gain in late May. South Korea dropped 1%, and Australia declined by 0.5%. India’s SENSEX was a rare bright spot, rising 0.2%. European indicators point to a bearish start, dragged down by US futures deep in the red.

Today's economic highlights

The day began with UK monthly GDP (2:00am) and continues with US August inflation (8:30am) and DOE crude inventories (10:30m). Full agenda here.

The dollar is worth EUR 0.9074 and GBP 0.7640. The ounce of gold remains firm at USD 2,510. Oil is up, with North Sea Brent at USD 70.54 a barrel and US light crude WTI at USD 66.73. The yield on 10-year US debt is at 3.62%. Bitcoin is trading at USD 56,550.

In corporate news:

  • Amazon - the cloud computing branch of the internet giant announced on Wednesday plans to spend 8 billion pounds in the UK over the next five years to build, operate, and maintain data centers.
  • APA - the American oil and gas producer announced on Tuesday the sale of non-essential assets in the Permian Basin to an undisclosed buyer for approximately $950 million.
  • Gamestop - reported on Tuesday revenue of $798.3 million for the quarter ending August 3, down from $1.16 billion a year earlier and a consensus of $895.7 million. The group also filed an offer for a maximum of 20 million shares, causing the stock to drop by 10.5% in pre-market trading.
  • Microsoft - organized a summit on Tuesday to discuss measures to improve cybersecurity systems after a faulty software update from CrowdStrike caused a global IT outage in July.
  • Visa - plans to increase tenfold the number of companies accepting digital payments in Pakistan over the next three years, said Leila Serhan, the group's general manager for Pakistan, North Africa, and the Middle East, in a statement to Reuters.

Analyst recommendations:

  • Accenture: Baird maintains its neutral recommendation with a price target raised from 345 to USD 350.
  • Ally Financial: Morgan Stanley maintains its overweight rating and reduces the target price from USD 49 to USD 45.
  • Antofagasta: JP Morgan maintains its underweight recommendation and reduces the target price from 17.30 to GBP 17.20.
  • APA Corporation: Gerdes Energy Research LLC maintains its buy recommendation and reduces the target price from USD 55 to USD 53.
  • AT&T: Citigroup maintains its buy recommendation with a price target raised from USD 21 to USD 24.
  • Boston Properties: Scotiabank maintains its sector outperform recommendation with a price target raised from 76 to USD 82.
  • Campbell Soup Company: JP Morgan maintains its overweight recommendation and raises the target price from 55 to USD 57.
  • Charter Communications: Citi downgrades to neutral from sell with a target price of USD 350.
  • Citigroup: Goldman Sachs maintains its buy recommendation and reduces the target price from 75 to USD 71.
  • Compass Group: JP Morgan maintains its overweight recommendation and raises the target price from 26 to GBP 28.
  • Danaher Corporation: Deutsche Bank maintains its buy recommendation and raises the target price from USD 270 to USD 285.
  • Dell Technologies: Daiwa Securities maintains its outperform recommendation and reduces the target price from USD 150 to USD 125.
  • Docusign: Daiwa Securities maintains its outperform recommendation and raises the target price from USD 60 to USD 65.
  • Elastic N.V.: Guggenheim initiates a Buy recommendation with a target price of USD 100.
  • Evercore: Goldman Sachs upgrades to buy from neutral with a price target raised from USD 246 to USD 276.
  • Exxon Mobil: Gerdes Energy Research LLC upgrades to buy from neutral with a target price raised from USD 130 to USD 134.
  • Jack Henry & Associates: Zacks maintains a neutral recommendation with a price target raised from 178 to USD 180.
  • Molina Healthcare: Zacks maintains a neutral recommendation with a price target reduced from USD 367 to USD 349.
  • Morgan Stanley: Goldman Sachs downgrades to neutral from buy with a price target reduced from USD 122 to USD 105.
  • Phoenix Group Holdings: Peel Hunt maintains its add recommendation and reduces the target price from GBX 690 to GBX 650.
  • Williams-Sonoma: Jefferies upgrades to buy from hold with a target price raised from USD 148 to USD 156.