Wall Street saves the furniture

Wall Street saves the furniture

Wall Street yesterday made an American-style comeback at the end of its streak, closing a session that had started very badly. The three main local indices have thus put an end to the bleeding of recent days. The S&P500 and the Dow Jones gained just under 0.5%, while the Nasdaq 100’s gain was symbolic: +0.02%. In Europe, things hadn’t been going so well a bit earlier, as indices spent their fifth consecutive session in the red. I should note that the US rally was quite messy, with oil and tech stocks falling, whereas the two segments had been quite antagonistic of late, and a return to affection for health. I see a small jump towards quality. “it was a big nonsense“, Grandma Lucette would have commented, whom I sometimes invoke in these columns to bring a little common sense, whom I will not call “peasant” so as not to take a good beating.

In the series of things that haven’t happened in a long time, we can now include the first bond bear market “in a generation,” notes Bloomberg (Mamie Lucette agrees). A bear market is when a financial product begins to lose more than 20% of its previous highs. This happens quite often in stocks (I think 7 times since 1980 and 19 times in 140 years). But it is much rarer in 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 20% from its peak dating back to 2021. This drop is quite easy to explain: it is caused by the most aggressive monetary policies deployed for several decades to counteract inflation that will also be recorded in the annals. I remind you that the price of bonds falls when their yield increases, as is currently the case.

This situation undermines the classic pattern whereby 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% variable income, 40% fixed income), supposedly to cushion periods like the ones we are experiencing, is registering poor returns: it lost 19.4% at the end of August, according to the Bank of America, compared to -16.8% for the S&P500. This adds to the oddities of the year and will require some adjustments in risk diversification approaches. Grandma Lucette has a big smile on her face and proudly shows me her little red Caisse d’Epargne Livret A notebook, the one with the big squirrel on it.

In any case, this situation provides water 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 Fed rates to 20% to kill inflation. “He was a handsome man but he always smoked cigars in public, he was vulgar.remembers Grandma Lucette.

In the markets, investors today are mainly waiting for the publication at 2:30 p.m. of the employment figures for August in the United States. Why ? Refine forecasts on the bellicosity of the US central bank. They are looking for the tipping point that will make it possible to consider stopping rate hikes, or even reducing 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 interpreting them on the spot is often a complex exercise. There will also be a G7 summit which should discuss “capping” Russian oil, though it’s a bit hard to see how this could materialize (well, I’m having a hard time). Meanwhile, China still seems to be dealing with the rigidity of its zero covid strategy, which is leading to more restrictions in major industrial hubs such as Shenzhen, Chengdu and Dalian.

In Asia Pacific, the weekly balance is negative, while the last session of the week ends in a moderate drop. In Tokyo, the Topix fell 0.3% while in Sydney, the ASX fell -0.18%. Hong Kong and mainland China are moving pale red. In contrast, India and Korea scored some points. The main European indicators allow us to predict a rebound, because the indices of the old continent closed depressed, unlike Wall Street. Therefore, there will be a technical update. The CAC40 gained 0.5% to 6,066 points shortly after the open.

The highlights of the economic day

The monthly US employment figures (2:30pm) and durable goods orders (4pm) are therefore the highlights of the session. All the macro diary here.

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

The main changes in the recommendations.

  • Air Liquide: Goldman Sachs moves from buy to neutral, targeting EUR 124.
  • Arkema: Goldman Sachs moves from buy to neutral, targeting EUR96.
  • Assystem: Stifel starts monitoring purchases targeting 50 EUR.
  • Bâloise: Berenberg remains with a reduced target of 170.80 to 158.20 CHF.
  • Barratt: HSBC switches from buy to hold, targeting 430 GBp.
  • Bellway: HSBC goes from buy to stay, targeting 2,370 GBp.
  • Berkeley: HSBC moves from hold to cut, targeting 3,220 GBp.
  • CHR. Hansen: Goldman Sachs goes long from neutral, targeting DKK 570.
  • Givaudan: Goldman Sachs goes from neutral to sell, targeting CHF 3,100.
  • Henkel: Goldman Sachs goes from neutral to sell, targeting EUR62.
  • Hermès International: Sealand starts tracking the purchase.
  • Nordex: Citigroup passes neutral by targeting EUR12.
  • Pernod Ricard: Jefferies remains long with a high target of EUR224 to EUR230.
  • Khaki: HSBC switches from buy to hold, targeting 1,530 GBp.
  • Proximus: Morgan Stanley resumes monitoring the underweight, targeting EUR14.
  • Redrow: HSBC switches from buy to hold with 600GBp target.
  • Siemens: Berenberg remains long with a reduced target of EUR176 to EUR175.
  • Taylor Wimpey: HSBC goes from buy to hold, targeting 120 GBp.
  • Thales: Berenberg remains on the buy side with a high target of EUR144-151.

In France

Important (and less important) announcements

  • Ukraine asks TotalEnergies to waive the 2022 dividend to be paid by the Russian Novatek, in which it owns 19.4% of the capital.
  • Engie director Catherine MacGregor was reassuring about the gas situation in France this winter.
  • Saint-Gobain begins negotiations to sell its Crystals and Detectors business.
  • Canal + (Vivendi) and TF1 fight again in content distribution.
  • Vinci signs an €80 million contract in Hong Kong.
  • Arkema completes the acquisition of Polímeros Especiales in Mexico.
  • Atos drops out of the STOXX Europe 600.
  • Gaztransport & Technigaz will build the tanks for 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 EUR 1 per share.
  • Abivax raised €49.2 million from professional investors, at €8.36 per share. Financial viability extends through 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 in the Algerian market.
  • Don’t Nod releases 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% in discount trading after strong quarters.
  • Broadcom gains 2% after the close after its quarterly results.
  • UK launches in-depth investigation into Microsoft’s acquisition of Activision.
  • Hard-pressed Credit Suisse wants to launch a wealth management business in China next year, according to Reuters.
  • Laxman Narasimhan, who stepped down from Reckitt’s chairmanship, is expected to take the reins of Starbucks.
  • UK CMA validates NortonLifeLock’s acquisition of Avast.
  • Equinor completes the withdrawal from Russia.
  • Shell sells a 51.8% stake in Aera Energy to IKAV for about $2 billion. Furthermore, 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 Grail purchase.
  • The Swiss Stock Exchange opens an investigation against Igea Pharma.
  • Main publications of the day: Fast Retailing, Nordnet, Ashmore, Compagnie Financière Tradition… The complete agenda here.

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