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Wall Street saves the furniture

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

Wall Street made an American-style comeback yesterday at the end of its run, closing up a session that had started very badly. The three main local indices have thus put an end to the haemorrhage of the last few days. The S&P500 and the Dow Jones gained just under 0.5%, while the Nasdaq 100’s gain was all symbolic: +0.02%. In Europe, things had gone less well a little earlier, since the indices spent a fifth consecutive session in the red. I must point out that the American rebound was quite disorderly, with a drop in oil and technology stocks, whereas the two segments had been rather antagonistic lately, and a return of affection for health. I see a small leap towards quality. “It was big nonsense“, would have commented Grandma Lucette, whom I sometimes invoke in these columns to bring a little common sense, whom I will not call a “peasant” to avoid taking a good beating.

In the series of things that have not happened for a long time, we can now include the first bear market in bonds “in a generation”, points out Bloomberg (Mamie Lucette agrees). A bear market is when a financial product begins to lose more than 20% from its previous highs. This happens quite regularly on stocks (7 times since 1980 I believe, and 19 times in 140 years). But it is much rarer on bonds from well-rated issuers. However, the Bloomberg Global Aggregate Total Return index, which includes both government bonds and quality corporate bonds, has just fallen by 20% since its highest which dates back to 2021. This drop is quite easy to explain: it is caused by the most aggressive monetary policies deployed for several decades to counter inflation which, too, will be recorded in the annals. I remind you that the price of bonds declines when their yield increases, which is currently the case.

This situation undermines the classic pattern according to which an investor can hide in the bond market when the stock market is bad. In 2022, the two are recovering together. So much so that the classic 60/40 portfolio (60% equities, 40% bonds), supposed to cushion periods like the ones we are experiencing, is posting poor performances: it lost 19.4% at the end of August, according to the Bank of America model, against -16.8% in the S&P500. This adds to the oddities of the year and will require some adjustments in approaches to risk diversification. Grandma Lucette has a big smile proudly showing me the little red notebook from her Caisse d’Epargne Livret A, the one with the big squirrel on it.

In any case, this situation provides grist for the mill of those who draw a parallel with the second half of the 1960s, when bonds had slipped. Fifteen years later, Paul Volcker was forced to raise the Fed’s rates to 20% to annihilate inflation. “He was a handsome man but he always smoked cigars in public, it was vulgar“, remembers Grandma Lucette.

On the markets, investors are mainly waiting today for the publication at 2:30 p.m. of the August employment figures in the United States. Why ? To refine the forecasts on the bellicosity of the American central bank. They are looking for the tipping point that will make it possible to consider stopping rate hikes, or even ebbing them. The options market shows that financiers still expect the Fed to cut rates by 25 basis points in 2023. A bold bet. As Grandma Lucette would say, “the long-awaited Fed rate cut in the 1970s“.

The employment figures will therefore be the big “game changer” of the day, even if their interpretation on the spot is often a complex exercise. There will also be a G7 summit which should discuss the “cap” of Russian oil, even if it is a little difficult to see how this could materialize (well, I have difficulty). Meanwhile, China still appears to be grappling with the rigidity of its zero covid strategy, which is driving further restrictions in major industrial hubs like Shenzhen, Chengdu and Dalian.

In Asia Pacific, the weekly balance sheet is negative, while the last session of the week ends in moderate decline. In Tokyo, the Topix lost 0.3% while in Sydney, the ASX was down -0.18%. Hong Kong and mainland China are moving in pale red. Conversely, India and Korea grabbed a few points. The leading European indicators make it possible to predict a rebound, because the indices of the old continent were depressed at the close, unlike Wall Street. There will therefore be a technical catch-up. The CAC40 gained 0.5% to 6066 points shortly after opening.

Economic highlights of the day

Monthly figures for US employment (2:30 p.m.) and durable goods orders (4:00 p.m.) are therefore the highlights of the session. The whole macro diary here.

The euro fell back below parity at USD 0.9964. The ounce of gold broke the symbolic threshold of 1700 USD. Oil continued to slide but is rebounding this morning, with North Sea Brent at $94.20 a barrel and US Light Crude WTI at $88.50. The 10-year US debt continues to climb to 3.25%, while the 2-year reached 3.50%. Bitcoin is hovering around $20,200.

The main changes in recommendations

  • Air Liquide: Goldman Sachs goes from buying to neutral, targeting EUR 124.
  • Arkema: Goldman Sachs goes from buying to neutral, targeting EUR 96.
  • Assystem: Stifel starts monitoring purchases by targeting EUR 50.
  • Bâloise: Berenberg remains to be kept with a reduced target of 170.80 to 158.20 CHF.
  • Barratt: HSBC switches from buy to hold, aiming for 430 GBp.
  • Bellway: HSBC goes from buying to keeping, aiming for 2370 GBp.
  • Berkeley: HSBC goes from keeping to reducing, aiming for 3220 GBp.
  • CHR. Hansen: Goldman Sachs goes from neutral to long, targeting 570 DKK.
  • Givaudan: Goldman Sachs goes from neutral to sell, targeting CHF 3,100.
  • Henkel: Goldman Sachs goes from neutral to sell, targeting EUR 62.
  • Hermès International: Sealand starts tracking on purchase.
  • Nordex: Citigroup goes from neutral long by targeting EUR 12.
  • Pernod Ricard: Jefferies remains long with a target raised from EUR 224 to EUR 230.
  • Persimmon: HSBC switches from buy to hold, aiming for 1530 GBp.
  • Proximus: Morgan Stanley resumes tracking to underweight, targeting EUR 14.
  • Redrow: HSBC switches from buy to hold aiming for 600 GBp.
  • Siemens: Berenberg remains long with a target reduced from 176 to 175 EUR.
  • Taylor Wimpey: HSBC goes from buy to hold, aiming for 120 GBp.
  • Thales: Berenberg remains on the buy side with a target raised from 144 to 151 EUR.

In France

Important (and less important) announcements

  • Ukraine is asking TotalEnergies to waive the 2022 dividend to be paid by the Russian Novatek, in which it holds 19.4% of the capital.
  • The director of Engie, Catherine MacGregor, was reassuring about the situation for gas in France this winter.
  • Saint-Gobain enters into negotiations to sell its Crystals and Detectors business.
  • Canal + (Vivendi) and TF1 are falling out again on the distribution of content.
  • Vinci signs an 80 M€ contract in Hong Kong.
  • Arkema finalizes the acquisition of Polimeros Especiales in Mexico.
  • Atos leaves the STOXX Europe 600.
  • Gaztransport & Technigaz will build the tanks of four LNG carriers on behalf of an Asian shipowner.
  • Wendel launches a capital increase reserved for its employees.
  • David Dayan buys Thierry Petit’s shares in SRP Group at 1 EUR per share.
  • Abivax raised €49.2m from professional investors, at €8.36 per share. Financial viability is extended to the end of the first quarter of 2023.
  • Europlasma signs an agreement with the Algerian company SO.GE.B.ZRITA, specialized in asbestos removal, to operate on the Algerian market.
  • Don’t Nod launches its latest narrative game, “Gerda: A Flame in Winter”, on Nintendo Switch and PC.
  • Reworld launches into insurance.
  • Dekuple takes control of Brainsonic.
  • Stef and Winfarm have published their accounts.

In the world

Important (and less important) announcements

  • Nokia and Nordea chase Koné and Philips from the Euro Stoxx 50.
  • Lululemon jumped 10% off-trading after good quarters.
  • Broadcom gains 2% post-closing after its quarterly results.
  • UK launches in-depth investigation into Microsoft’s takeover of Activision.
  • Struggling Credit Suisse wants to launch a wealth management business in China next year, according to Reuters.
  • Laxman Narasimhan, who left Reckitt’s presidency, is expected to take the reins of Starbucks.
  • The British CMA validates the takeover of Avast by NortonLifeLock.
  • Equinor completes withdrawal from Russia.
  • Shell sells a 51.8% stake in Aera Energy to IKAV for around $2 billion. In addition, Reuters understands that the CEO is preparing to leave the company next year.
  • Twitter is rolling out the long-awaited edit button.
  • SGS acquires the American Penumbra Security.
  • Illumina wins lawsuit against US FTC over purchase of Grail.
  • The Swiss Stock Exchange is opening an investigation against Igea Pharma.
  • Main publications of the day: Fast Retailing, Nordnet, Ashmore, Compagnie Financière Tradition… The full agenda here.