JPM | Industrial Spec Sales - Sunday Machinations: Not very calm - but could there still be a storm?

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JPM | Industrial Spec Sales - Sunday Machinations: Not very calm - but could there still be a storm?

njoy your summer holiday you don't want to be carrying a load of risk. When we get to September

and go into conference season we will likely hear ongoing positive messaging (from most sectors) and we're also going to be

hearing more about capex plans into 2027 which should reassure on another year of good growth. The debate at the moment,

though, is whether this year is peak growth. The answer will depend on how much broadening of the cycle we get. The optimist in

me looks at global PMI's just edging back above 50 which implies further improvement to come. The risk, I think, is higher rates

choking off the recovery and on that topic there was a little ray of hope from the ECB’s Nagel where comments this week seemed

less hawkish than those made last week.

It’s been a tough week for the A&D sector. A combination of momentum pressure and renewed Middle East hostilities taking

the civil stocks lower. Defence also came under pressure despite the NATO summit which seemed to reinforce both the fact that

European spend is on a growing path for the next decade and also that European countries are seeking to buy more European

weaponry. Perhaps it was the absence of a commitment to a summit next year or simply the fact that people had bought into the

event and were always going to see regardless of the outcome. Defence at the moment feels like a rates trade but we are at levels

where the market is starting to imply fairly anaemic growth rates. We are seeing more long only and long term capital interest in

the sector.

It’s tough to disaggregate the impact of renewed hostilities and the impact of the market rotation in terms of performance

elsewhere in industrials.