Waiting for the dust to settle

One only has to look at the head of a European index chart between 2:30 and 5:30 p.m. yesterday to realize that the trading session was a bit dodgy. It looked a bit like a W drawn by a 3 year old. In the following lines, I try to explain the reasons for this mess by putting the pencil in the hands of an adult. Well I think.

Nothing is ever certain in finance and the previous day’s session provided a good illustration of this. Investors were waiting for inflation figures in January in the United States to refine their strategies, with two dominant scenarios and probably a little simplistic. Finally it is a little easy to say it after the fact, but it comes down to this. Either inflation continues to fall without too many downsides, and the celebration of the rise can continue. Either inflation continues to bite a little too hard and equity markets take the hit. That’s for the theory. In practice, we instead had inflation figures that were a little more worrying than expected and a rise in the equity markets. Finally rather disparate paths, but despite everything a gain of 0.7% on the side of the Nasdaq, the index most sensitive to the trajectory of monetary policy, therefore to the indications provided by inflation. The Nasdaq yo-yoed a lot but ended almost at its session highs. It should be noted that it was not imitated by the Dow Jones (-0.46%) and that the S&P500 failed at the gates of the rise (-0.03%). Same confusion in Europe with small increases in Paris, London and Zurich and sluggish drops in Frankfurt, Stockholm and Brussels.

Consumer prices bounced back as expected in the United States between December and January, driven by seasonal factors in particular. At this stage, the financiers seem to consider that it is an accident of course without too many consequences on the way to a decline in the rise in prices. In a sense, the stat hasn’t invalidated the mainstream narrative that the Fed is near the end of its rate hike cycle. But it probably gave a little more substance to the theory that rates will stay at the top for longer than the markets are currently figuring. However, this does not necessarily upset investors, who are more afraid of uncertainty about the path of rates than the rates themselves… especially when they are approaching the peak.

The bond market, which is more subtle than the equity market when it comes to embarking on monetary forecasts, tightened a little yesterday on the announcement of US inflation, but not excessively. The yield on US 10-year debt rose to 3.74%, which is almost a non-event. “Anyway, this market can’t go down any further,” Patrick said yesterday in the newsroom. He is our veteran at Zonebourse. “The one who placed orders by hand and who did technical analysis on graph paper”, says our boss when it comes to presenting him. If the strength of the markets were to be measured by the tan of Patrick – who has returned from three weeks with his family settled in the Antipodes of France – I would say that the good weather is still in order. In fact, the leading indicators are still a little paler than Patrick, because investors still have some doubts about the consequences of the statistics published yesterday. As is often the case in finance, the dust has to settle a little for the real trends to emerge.

In other news, Joe Biden has, as rumors have it, named Fed Vice Chair Lael Brainard as his top economic adviser. She therefore left the central bank. The litany of corporate results continues with since yesterday evening the figures of Carrefour, Vinci, Airbnb, Kering, Nexans, Heineken, Barclays, Ahold Delhaize and quite a few other listed companies. The session will also be marked by a new series of macroeconomic indicators in the United States, which will make it possible to refine the reading of inflation the day before. It will be necessary to follow in particular the retail sales of January at 2:30 p.m. In China, the central bank left its one-year rate unchanged while injecting liquidity to meet increased financing demands. Strangely, the Chinese recovery has somewhat disappeared from the radar for a few days when it was a driving force for the awakening of the equity markets.

In Asia Pacific this morning, we are more cautious than in the United States. The Nikkei 225 lost 0.4% in Japan, while the Korean KOSPI fell quite heavily by 1.5%. Even the placid Australian ASX200 index is down more than 1%. China is also looking gloomy, especially the Hang Seng which is returning 1.5% and which has now lost more than 10% compared to its January peaks. Regularly against the tide, India grabs a few points. As mentioned above, European leading indicators point to a weak start to the session. The American “futures” are, for the moment, also tinged with a fairly bright red.

Economic highlights of the day

In Europe, industrial production for December will be released at 11:00. In the United States, the Empire Manufacturing index for February and the retail sales for January will be announced at 2:30 p.m., before the industrial production for January at 3:15 p.m. At 4:00 p.m., the NAHB index of February house prices and business stocks. The whole agenda here.

The euro is back down to 1.0712 USD. The ounce of gold is trading at 1846 USD. Oil is losing ground, with North Sea Brent at $84.70 a barrel and US WTI light crude at $78.46. The performance of the american debt over 10 years rises to 3.74%. Bitcoin goes back to $22,100.

The main changes in recommendations

ABB: Julius Bär remains long with a price target raised from 32 to 36 CHF.

Bénéteau: Berenberg remains on the buy side with a price target raised from 21 to 22 EUR.

Brenntag: Citigroup goes from neutral to buy, targeting EUR 96.

Carrefour: Jefferies remains on the buy side with a price target raised from 19 to 21 EUR.

Cellnex: Jefferies remains long with a price target raised from 40 to 52 EUR.

Clariant: UBS remains long with a price target reduced from 18 to 17.50 CHF.

Coca-Cola HBC: Jefferies remains long with a price target raised from 2,500 to 2,800 GBp.

Kuehne + Nagel: UBS goes from buying to neutral, aiming for CHF 238.

Michelin: HSBC goes from buying to keeping, targeting EUR 29.50.

Mobimo: Julius Bär goes from buying to keeping, aiming for 250 CHF.

Swiss Prime Site: Julius Bär remains to be held with a reduced target price of 95 to 90 CHF.

ThyssenKrupp: JP Morgan goes from underweight to neutral by targeting EUR 5.90.

In France

Company results (comments are given on the spot and do not prejudge the evolution of securities)

Bic: 19.3% increase in adjusted EPS in 2022. Growth is expected between 5 and 7% and the margin should increase this year.

Carrefour: expects further profit growth this year.

Kering: Gucci suffered again in Q4 with a stronger than expected revenue contraction, but 2023 is off to a better start.

Nexans: the group publishes record results in 2022, and is more cautious for 2023.

Vicat: targets 2023 Ebitda at least equivalent to that recorded in 2021

Vinci: the increase in investments will weigh on free cash flow in 2023.

Important (and less important) announcements

Louis Vuitton (LVMH) appoints Pharrell Williams as menswear designer. In addition, the group could raise its prices by up to 20% in China.

Airbus plans to increase the production rate of the A350 and A330neo.

Ipsen, Université de Montréal and IRICoR extend their partnership in oncology with the signing of an exclusive licensing agreement and two new programs in the research phase.

OSE Engineering (Gaztransport & Technigaz) participates in the HyMot consortium for the development of a hydrogen engine for light commercial vehicles.

JCDecaux extends its partnership with Kempegowda International Airport in Bangalore.

They have also published / they are on the agenda: La Française des Jeux, Plastivaloire, Gecina, Haulotte, Klépierre, Société Foncière Lyonnaise, Nexans, Verallia, Ipsos, Carmila, Vicat, Tarkett, Bastide, Poxel…

In the world

Company results (comments are given on the spot and do not prejudge the evolution of securities)