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Powell we? Powell off!

  • Post category:Economy News
  • Reading time:9 mins read

I sincerely tried to write something half-heartedly without mentioning the term “central bank” this morning, but I have to face the facts: it was a dismal failure. Tell yourself that you still escaped titles like “Powell: it’s not the Fed of underpants” or “Fed Up” (fed up in English).

To simplify the story, I will, if you allow me, use bunnies, because it’s cuter. So the assembly of rabbits hoped that the great chief rabbit was going to pull out of his hat last night (in this world, rabbits don’t pull hats, they pull things out) a comment that would make the Bourse de la Garenne bounce back . But the big chief rabbit explained to them that no, it was not yet the time because the price of carrots has not stabilized yet. Worse, he even told them that they will probably have to accept suffering a little longer than they expected. The assembly of rabbits was very disappointed to learn that it will have to continue to eat clover by the root and the Bourse de la Garenne continued to fall.

Without the rabbits and in a nutshell, it looks like this: the Fed unsurprisingly raised its rates by 75 basis points but Jerome Powell was a little more pessimistic than expected on the efforts to be made even if he thinks that the restrictive monetary policy will not lead to a recession in the United States. Consequences ? First, the dollar continued to crush other currencies. Then, the cursor for the level of the anticipated ceiling rate at the top of the cycle went from 4.5 to 4.6% (against a range of 3 to 3.25% currently, taking into account yesterday’s rise). Finally, the yield on 10-year US debt changed little, remaining around 3.54%, but that of 2-year debt soared to 4.11%. Translation ? The Fed knows that it needs to drain liquidity further to bring price trends back within an acceptable limit. And equity markets don’t like that too much because it pushes back the time when monetary policy will be more favorable to them again.

As a result, Wall Street lost further ground yesterday, with declines of 1.7% for the Dow Jones and the S&P500 and 1.8% for the Nasdaq. In Europe, the most cyclical indices such as the French CAC40 and the German DAX rose yesterday at the close, unlike the more defensive ones such as the Swiss SMI. We cannot say that the Fed has changed its discourse much, but investors have not benefited from the branch to which they hoped to cling.

Change of scenery for a focus on TotalEnergies, one of the only three French CAC40 stocks to post a positive performance in 2022 (with Thales and Orange). The CEO of the group, Patrick Pouyanné, indicated yesterday that the mechanism for taxing the windfall profits of energy companies being considered in Europe will cost his group more than 1 billion euros, or at least prevent it from cashing them. At the same time, the rebate granted by TotalEnergies to French motorists on prices at the pump has generated a shortfall of €171 million since its entry into force on 1er September (TotalEnergies lowers the price of a liter of fuel in its stations by EUR 0.20). But let’s look at the billion euros mentioned above. I had fun looking for what corresponds to 1 billion euros currently in the world. Here are some equivalents:

  • 0.4% of Elon Musk’s estimated fortune.
  • The equivalent of the capitalization of the specialist in geolocation tools TomTom or the French cold logistician Stef.
  • 18.4 tons of gold.
  • 0.16% of France’s 2021 budget.
  • 3.3% of the net profit after tax that analysts expect on average for TotalEnergies in 2022 (i.e. $29.55 billion).

If we return to the stock markets in the early morning at European time, the Asian markets are all moving into the red at the end of the course. The declines are greater than 1% in Australia, Korea and Hong Kong, and more measured in India and Japan. Japan, where the central bank is running counter to the others since it has kept its rates at the floor. It must be said that after having tried in vain to create inflation for years, the rise in prices has finally arrived in the form of an annual increase of 3%, certainly higher than the target of 2% but still clearly below what is visible elsewhere in the world. The Bank of England, which has much more thorny problems to solve, will be on deck at midday. In Europe, the opening of the equity markets will be bearish, especially on the markets which were significantly out of step with the closing of Wall Street. The CAC40 lost 1.6% to 5933 points at the opening.

Economic highlights of the day

A lot of central banks still today: Bank of Japan, then Swiss National Bank (9:30 a.m.) and Bank of England (1:00 p.m.). The whole macro diary here. The Bank of Japan is running counter to its counterparts by remaining ultra-accommodative, with rates at the floor.

The euro retreats to 0.982 USD. The ounce of gold falls below 1660 USD. Oil is recovering slightly from its decline, with Brent from the North Sea at 90.22 USD a barrel and US light crude WTI at 83.29 USD. The yield on the US 10-year debt varies little at 3.55% and that of 2 years accelerates to 4.11%. Bitcoin is trading around $18,700.

The main changes in recommendations

  • ABC Arbitrage: Kepler Cheuvreux remains long with a target reduced from 8.50 to 8 EUR.
  • About You: Deutsche Bank goes from buy to hold targeting EUR 9.
  • Accor: JP Morgan goes from neutral to underweight by targeting EUR 21.
  • ArgenX: Bryan Garnier starts monitoring for purchase by targeting EUR 440.
  • Cegedim: Societe Generale goes from buying to keeping, targeting EUR 21.30.
  • Ceres Power: RBC starts sector performance tracking by targeting 600 GBp.
  • Chargers: Berenberg remains on the buy side with a price target reduced from 31 to 16 EUR.
  • Compass: AlphaValue shifts from selling to accumulating targeting 2054 GBp.
  • Dianomi: Liberum remains long with a price target reduced from 460 to 300 GBp.
  • Enagas: Societe Generale goes from holding to buying, aiming for EUR 18.50.
  • FirstGroup: JP Morgan resumes overweight tracking by targeting 155 GBp.
  • Fortum: Oddo BHF goes from neutral to outperformance by targeting EUR 18.50.
  • Glencore: JP Morgan remains overweight with a price target raised from 5,900 to 6,400 GBp.
  • McPhy: RBC starts outperformance tracking.
  • Moncler: Jefferies remains long with a target price raised from 50 to 52 EUR.
  • Nextedia: GreenSome Finance remains long with a target raised from 1.20 to 1.34 EUR.
  • Orpea: AlphaValue goes from buying to reducing, targeting EUR 13.
  • Partners Group: Credit Suisse remains outperforming with a target reduced from 1275 to 1175 CHF.
  • Reworld: GreenSome Finance remains long with a target reduced from 11.35 to 11.21 EUR.
  • Ubisoft: Stifel goes from buying to keeping, aiming for 35 EUR.

In France

Important (and less important) announcements

  • Veolia announces an agreement to sell Vigie’s UK waste business to Suez, which has exercised its option to recover the assets at Macquarie’s expense. The group has also planned to make its services self-sufficient in energy in France.
  • The British CMA gives the green light to the takeover of GCP by Saint-Gobain.
  • Vinci is committed to an energy sobriety approach.
  • JCDecaux wins a 10-year contract with ViaQuatro for the operation of advertising space on line 4 of the São Paulo metro.
  • Nexans connects Orsted Eversource’s offshore wind project to supply electricity to Connecticut and Rhode Island.
  • Franprix (Casino) and the Zouari family extend their partnership.
  • Deezer loses subscribers, but confirms its revenue target for 2022.
  • Metabolic Explorer is taking temporary measures to reduce its production in Amiens and reports that it has cover systems for its energy supply.
  • Death of Pierre Guénant, the president of AdVini.
  • Voltalia is launching the construction of 50.6 MW of solar capacity in Portugal.
  • Inventiva and Sino Biopharm sign a license and collaboration agreement to develop and commercialize lanifibranor in China.
  • Nanobiotix establishes the recommended dose for the registration study evaluating the combination of NBTXR3 + anti-pd-1 in patients with metastatic head and neck cancer resistant to immunotherapy.
  • FDA requests changes to DBV Technologies’ VITESSE clinical study with Viaskin Peanut in children 4-7 years of age with peanut allergy. This is bad news that will delay the process.
  • Henkel and Prodways collaborate to offer Loctite resins on ProMaker LD printers for the manufacture of industrial parts.
  • Europlasma draws a new installment on its convertible.
  • Jacques Bogart and Slimane join forces for a first range of hair products.
  • Hopium chooses Normandy for its first industrial site.
  • Global Bioenergies puts an end to the Rewofuel program, which it calls a “success”.
  • Biosynex acquires Italian Bigix Pharma.
  • Lhyfe, Hexaom, Synergie, Graines Voltz, Hopscotch, Compagnie Lebon, Sensorion, Buy-Loer, Reworld, Infotel, Kalray, Guerbet, Bio-UV and Nextedia have published their accounts.

In the world

Important (and less important) announcements

  • Credit Suisse is considering splitting its investment bank into three, according to the FT.
  • Novartis today presents its medium-term plan.
  • Meta Platforms wants to cut costs by 10% in the coming months, according to the Wall Street Journal. In addition, the group was ordered to pay $174.5 million to Voxer for patent infringement.
  • Holcim finalizes the acquisition of the Belgian Cantillana.
  • JD Sports Fashion remains cautious after falling profits.
  • DKSH acquires the American Terra Firma.
  • Cofinimmo will expand its healthcare real estate portfolio in Galicia and Tenerife.
  • The Bank of Italy has given the green light to the takeover of Atlanta by the Benetton family and the American fund Blackstone.
  • Main publications of the day: CostCo, Accenture, Fedex, FactSet, JD Sports Fashion, Alten… The whole agenda here.