Research Market strategy
By Swissquote Analysts
Published on 08.07.2021
Morning news

Fed Debated How to Begin Pulling Back on Stimulus at June Meeting

Topic of the day

Federal Reserve officials debated last month how and when to start pulling back their extraordinary support for an economy growing much stronger than they expected earlier this year. Minutes of their June 15-16 Fed meeting, released Wednesday, also revealed the degree to which the policy makers revised their economic outlook due to a double-barreled boost from vaccinations and fiscal stimulus as well as bottlenecks and supply shortages. Fed officials are set to ramp up deliberations at their next meeting, July 27-28, over when and how to reduce their $120 billion in monthly purchases of Treasury and mortgage securities. Fed officials expected a temporary burst in inflation as the economy struggles to supply enough goods and services to keep up with demand this year. But the spurt has been stronger and broader based than officials expected. On a 12-month basis, the Fed’s preferred inflation gauge, after excluding volatile food and energy categories, rose 3.1% in April and 3.4% in May, a 29-year high. The key is to avoid the kind of market backlash that occurred in 2013, when then-Chair Ben Bernanke suggested the central bank might soon taper its asset purchases. Investors thought the Fed was accelerating its plans to raise interest rates, sparking a sudden one-percentage-point jump in the 10-year Treasury yield that became known as the “taper tantrum.” Since the officials’ previous meeting, in April, the labor market’s progress had been somewhat slower than anticipated. Employers added 852,000 jobs in April and May combined, leaving total employment 7.6 million jobs shy of pre-pandemic levels. Last week, the Labor Department said employers added another 850,000 jobs in June.

Swiss stocks

The Swiss stock market showed its friendly side in the middle of the week. The SMI benchmark index reached a new all-time high. It gained 1 percent to 12,086 points. Among the 20 SMI stocks, there were 18 price gainers and 2 price losers. A total of 30.48 (previously: 27.78) million shares were traded. The cyclicals, which were still spurned the previous day, were sought after. ABB rose by 1.9 percent, Geberit by 2.4 percent and Holcim by 1 percent. Holcim was also supported by positive analyst opinions on its competitor Heidelbergcement. But Lonza was also again strong in the market, with the share price rising by a further 2 percent. Since the beginning of the year, it has gained almost 20 percent, while the SMI has only gained a good 12 percent. Banking stocks suffered from low interest rates. The previous day, U.S. yields had fallen to their lowest level since February. UBS lost 0.1 percent and Credit Suisse 1.1 percent. The two pharmaceutical heavyweights were up, but behind the SMI, slowing the index somewhat. Novartis rose 0.5 percent and Roche 0.7 percent.

International markets


European stocks edged higher on Wednesday, shaking off losses on Wall Street triggered in part by softer-than-expected economic data. Resource stocks were leading the gainers, along with sportswear maker Puma. Shares of Royal Dutch Shell climbed 3%. The energy giant said Wednesday that it will boost total shareholder distributions to 20%-30% of cash flow from operations beginning with the announcement of second-quarter results, due later this month. Shares of BP and Repsol rose around 2% each. And mining stocks were also higher, with Rio Tinto rising 1.9% and BHP up over 2%. Sportswear makers got a boost, led by a 1.8% rise for shares of Puma, which makes the kits of the Italian national football team, following Italy's success so far at the UEFA Euro 2020 championship. Shares of rival Adidas rose 1.5%. Beer makers were also among the rising stocks, with shares of Anheuser-Busch InBev up 1.3% and Heineken rising 1%. The British Beer & Pub Association is predicting England fans will buy 6.8 million pints on Wednesday during the semifinal later. EDF lifted its earnings target for the year after raising its expectations for nuclear output in France. Shares of the French energy company rose 2%. Some technology stocks were rising after Nasdaq gains on Tuesday, with software giant SAP up 3%.

United States

The New York Stock Exchange closed slightly higher on Wednesday after the release of the minutes of the last Federal Reserve (Fed) meeting, allowing the Nasdaq and the S&P 500 to sign new historical records. The Dow Jones Industrial Average (DJIA) gained 0.3 percent to 34,681.79 points, while the broader S&P 500 index finished up 0.3 percent to 4,358.13 points. The Nasdaq Composite index gained 1.42 points, or 0.01%, to 14,665.06 points. Merck (+0.6%) and OncoSec Medical (+22%) announced Wednesday a cooperation agreement to test a combination of their respective drugs, Keytruda and Tavo, in the treatment of metastatic melanoma. Oil stocks failed to recover from the previous day's decline. The barrel has again lost ground, while the postponement sine die of the meeting of the Organization of the Petroleum Exporting Countries (Opec) and its allies remains variously interpreted by investors. Exxon lost 1.6% and Chevron 1%. Former US President Donald Trump filed a lawsuit, along with other plaintiffs, against Facebook (-0.7%), Twitter (-2.1%) and Google (+0.2%), accusing them of "illegal, unconstitutional censorship“. Some U.S.-listed Chinese companies extended recent losses. Didi Global fell 4.6% to $11.91 and Full Truck Alliance dropped 4.2% to $17.00, after tumbling on Tuesday. Earlier this week, the cybersecurity regulator in Beijing announced probes into prominent technology firms’ data practices.


The pronounced weakness of technology stocks continues to dominate events on the Hong Kong stock exchange. The HSI slumped by 2 percent, clearly representing the rear end of the region. Neighboring stock exchanges are also dominated by losses, but they only reach 0.7 percent in Tokyo, where the Nikkei index stands at 28,151 points. Shares in the travel and transport sector are suffering from the Corona pandemic, which is still not under control. In Seoul, Jeju Air fell by over 7 percent and Hanatour Service by 0.9 percent, while in Tokyo Japan Airlines and West Japan Railway lost up to 2.9 percent.


The yield on the benchmark 10-year U.S. Treasury note settled at 1.321%, its lowest close since Feb. 18, compared with 1.369% on Tuesday.


Berenberg lowers WM Morrison to Hold (Buy) - Target 254 (202) p
Jefferies cuts Alstom target to EUR 52 (55) - Buy
Berenberg raises target Essilorluxottica to EUR 175 (150) - Buy

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