Yesterday we were treated to a moment that was a little complicated to interpret, when the US inflation figures for March were published. For the record, the evolution of prices is a major determinant of monetary policy in the United States, especially when central bankers have to deal with an inflationary situation that those under 20 cannot know. In this case, the price increase was about as impressive as expected between February and March, and even more on an annual basis, but it is the underlying component (we say “core” in the United States) , that is to say purged of the most volatile elements, which marked a change.
To be a little less abstruse, the overall price increase reached 8.5% over one year in the United States, including 1.2% growth in one month. But excluding energy and food, the annual increase is “limited” to 6.5% and the monthly evolution to 0.3%. Skeptics noted that it was the used vehicle market that finally held back, along with education costs. The rest is still overheating.
On the stock market level yesterday, investors initially focused on this “core” inflation, which was weaker than expected. When the figures were announced at 2:30 p.m., the European indices almost instantly erased their losses. What is their reasoning? Well, the peak of inflation is past or very close, the Fed won’t have to put too much pressure on the brake pedal and the risk tends to be reduced. It’s going a bit too fast, but that’s the idea. The Vice President of the US Central Bank, Lael Brainard, actually found the figures encouraging after their release. But she also recalled that one month does not make a trend and the need for the Fed to practice a more restrictive monetary policy. More generally, economists take note but point out that the moderation of the rise in prices will take a long time.
In the end, Wall Street ended in decline, after starting the session with a bang. A small drop, around 0.3% for the three indices, but a drop nonetheless. It looks like risk appetite has slowed down a bit in recent weeks though, as every micro-good news was greeted by an orgy of bullish indices not too long ago. I wouldn’t go so far as to say the market misplaced its FOMO, but something still happened. Once again, the bond market seems to have had the most rational approach. The yield on ten-year US debt, which had exceeded 2.8% the day before, returned to around 2.7%, a sign that the market has priced in a slightly less aggressive price rise and therefore changes in key rates.
A few words of geopolitics this morning. On the Ukrainian front, we can speak of calm before the storm. If the consensus scenario is true, Moscow is preparing its weapons for an assault in the south of the country. Meanwhile, Joe Biden accuses Russia of genocide and mobilizes American industrialists to strengthen the Ukrainian arsenal. Vladimir Putin, for his part, stressed that the peace talks are at a standstill and that his country’s determination is intact. Statements that helped push up the price per barrel, with WTI returning to 100 USD.
The macroeconomic agenda still includes price developments: consumer prices in the United Kingdom and producer prices in the United States. Pending tomorrow the decision of the European Central Bank on its rates. On the company side, the results of the largest American bank JPMorgan Chase and the main global asset manager BlackRock will be published at midday. This morning in Europe, it is the British distributor Tesco or the chocolate king Barry Callebaut who are sticking to it. Last night, LVMH once again proved its ability to adapt by increasing its sales by 23% on 1er trimester. I almost wrote “LVMH, the biggest capitalization in Europe”, but the company lost its title to Nestlé because of its slide at the start of the year.
I will end with two anecdotes concerning automobile bosses. This rascal of Elon Musk has been questioned by ex-shareholders of Twitter who think that they would not have sold their shares if the boss of Tesla had declared his investment in the social network less late. For his part, Luca de Meo, who heads Renault (a manufacturer which currently weighs 157 times less than Tesla on the stock market, outch) confirmed a rumor that had been circulating for a few days: the diamond brand is considering a separate listing of the group’s activities in the electric. A way to awaken the attraction of investors for a file that has been at the bottom of the hole for a while.
The leading indicators are positioned very slightly lower in Europe at the time of writing these lines, but the American “futures” are rather well anchored in the green and the Asian markets are rebounding.
Economic highlights of the day
March UK Inflation (8:00 am), February European Industrial Production (11:00 am) and March US Producer Price Index (2:30 pm) are the three highlights of the day. The whole macro diary here. This morning, Japan reported machinery orders falling 9.8% in February (consensus -1.5%) and the New Zealand central bank raised its key rates more than expected.
The euro is losing ground at 1.0835 USD. The ounce of gold returns to trend at 1969 USD. Oil is rising with Brent from the North Sea at 104.5 USD a barrel and US light crude WTI at 100.7 USD. The yield on US 10-year debt fell from the previous day, to 2.74%. Bitcoin is hovering around USD 40,000 each.
The main changes in recommendations
- Adidas: Baader Helvea goes from accumulating to reducing by aiming for 190 EUR.
- Adyen: AlphaValue remains to be accumulated with a target raised from 2003 to 2031 EUR.
- Allianz: Jefferies remains long with a target reduced from EUR 265 to EUR 260.
- Aurubis: Baader Helvea goes from buying to accumulating aiming for 110 EUR.
- Crédit Agricole: Morgan Stanley moves from online weighting to underweighting, targeting EUR 11.50.
- Derwent: JP Morgan goes from neutral to overweight by targeting 4200 GBp.
- Glanbia: Berenberg remains long with a price target reduced from 16 to 14.50 EUR.
- Great Portland Estates: JP Morgan goes from neutral to overweight, targeting 900 GBp.
- Hammerson: JP Morgan goes from neutral to underweight by targeting 2860 GBp.
- ITM Power: RBC goes from sector performance to outperformance by targeting 500 GBp.
- Land Securities: JP Morgan goes from overweight to neutral, targeting 900 GBp.
- Polytec: Baader Helvea goes from buying to reducing, targeting EUR 6.70.
- Roche: Morgan Stanley remains weighted in line with a reduced price target of 400 to 395 CHF.
- Sartorius AG: Berenberg goes from holding to buying, targeting EUR 490.
- Solaria Energia: Citigroup goes from neutral to sell, targeting EUR 17.20.
- Topdanmark: Berenberg remains to be kept with a target price raised from 375 to 394 DKK.
- Verbund: AlphaValue remains short with a price target raised from 59.30 to 77.30 EUR.
In France
Important (and less important) announcements
- LVMH posted organic growth of 23% in Q1, driven by fashion and distribution, with a more complicated quarter for wines & spirits.
- Stellantis will consolidate its Chinese automotive financial services under a new business model.
- Renault is considering a possible separate listing of assets related to electric vehicles.
- Air Liquide sold its Industrial Merchant activities in the United Arab Emirates.
- Gaztransport & Technigaz will design the tanks of two LNG carriers for DSME.
- SRP Groupe acquires The Bradery.
- Audacia and Starburst join forces to finance DeepTech in Aeronautics, Space and Defense.
- Chargeurs will buy back up to €8 million in shares.
- Cast, Bilendi, Ekinops and Omer-Decugis have published their accounts.
In the world
Important announcements (and others)
- Former shareholders of Twitter are filing an appeal against Musk, guilty according to them of having delayed declaring his positions in the social network.
- At the next GA, ISS recommends rejecting the discharge from the directors of Credit Suisse, a recommendation already made by Glass Lewis.
- Phillips 66 appoints Mark Lashier as CEO.
- ISS says Wells Fargo’s pay reforms are insufficient to warrant support for CEO pay.
- Baloise targeted by a cyberattack.
- Noble and Maersk Drilling are getting new competitive clearances to wed, but are awaiting a UK antitrust verdict.
- Shionogi loses more than 10% after announcing that her covid pill has negative effects on fetal development.
- MCH Group will increase its capital with the support of its two main shareholders.
- Main results publications: JPMorgan Chase, BlackRock, Infosys, Fastenal, Tesco, Delta Air Lines, Barry Callebaut, Fraport, Galp Energia, Vetoquinol… The full agenda here.
Readings