1. What will the FED do?

Markets have priced about a 38% chance that the Federal Reserve hikes by 25 basis points on Wednesday.
"The roughly 15% rise in oil since last week’s CPI release has helped to take the market from pricing a hike in July as a remote possibility to a meaningful risk," Goldman Sachs economists said in a recent note.
"The Fed is in position to deliver the largest “surprise” in recent memory."
Higher interest rates are also a significant headwind for AI companies that are now increasingly reliant on debt markets for funding.

2. Asian stock rout deepens.

Shares of SK Hynix fell 9% as investors digested earnings that showed the chipmaker increased quarterly operating profit more than sixfold but missed lofty expectations.
"With the FOMC meeting sandwiched between major U.S. tech earnings this week, and expectations for AI capex already elevated, investors appear to be taking some risk off the table ahead of a critical test for both AI spending expectations and market liquidity,"
Earnings from the "Magnificent Seven" members Microsoft and Meta later in the day will be a key test of the AI trade, particularly after Alphabet and Tesla spooked investors last week with negative cash flow reports.

3. Running out of cash to fund their AI ambitions?

Signs that Wall Street's biggest companies such as Alphabet and Tesla are running out of cash to fund their ambitions have made markets nervous, while China showcases cheaper AI models and deepens its presence in the competitive semiconductor industry.
"The market is concerned about the level of spending that's been going on from the hyperscalers”.

4. JPMorgan puts healthcare on high conviction thematic pick.

“Healthcare offers a rare combination of durable growth, Technology-like profitability, attractive valuation and diversification benefits at a time when many investors remain heavily concentrated in the AI theme. For much of the past three years, investor capital has been singularly focused on AI and AI-adjacent themes, leaving one of the market’s largest and most durable growth sectors increasingly overlooked. The US Healthcare sector has experienced one of its deepest periods of underperformance in decades.
With valuations still favorable and earnings growth poised to accelerate materially in 2027, we believe the sector is approaching an inflection point.”
We are buyers of Astrazeneca, Sanofi and Abbott labs.

5. Orange raises guidance again.

The Group top-line was +1.8% above analyst forecasts – a broad-based beat, driven by Middle East & Africa, France & Spain.
Free cashflow was +47% ahead of consensus.
This is before considering likely forecast upgrades, cost synergies associated with the French telecom sector restructuring from 4 to 3 players.
“H1 confirms that Orange is now a solid dividend-generating machine," AlphaValue says.
The broker says Orange offers a 4.8% dividend yield and "deserves a higher valuation, particularly in comparison to BT and Vodafone."
We are buyers with the stock 10% below the high in May.

We will be back next week…