I was talking the other day with a friend who is as keen on financial markets as he is on geopolitics. We have come to talk about the biggest risk to stocks. At his request, I launched into a fairly scholarly catalog of threats, with heavy emphasis on monetary policies. After letting me finish my little spiel, he just gave me a “you’re wrong“, before continuing “all the risks that you described to me are well understood: the market apprehends them more or less well, but overall, it knows how to manage them“. The Risk with a capital “R” of the moment is an invasion of Ukraine by Russia, because no one knows the real consequences, and especially not the financial markets.
Of course, I should surely have spoken about this anecdote last week, which would have allowed me to shine a little before the others. On Friday, Wall Street suddenly became aware of the seriousness of the situation in eastern Europe. This awakening came to weigh down an already heavy climate, to the point of sinking the Nasdaq 100 by 3% and the S&P500 by nearly 2%. Europe had already turned red earlier in the day, still shaken by the new skid of inflation in the United States. In fact, my friend acknowledged that there are other risk factors to consider as well, price spikes more than any other. But what he wanted to explain to me was that an invasion of Ukraine by Russia would be an event of another nature, which would have consequences much more difficult to predict than those of a simple cycle economic, even if it was particularly complex.
For the time being, the chancelleries are busy, but it all looks like a dialogue of the deaf. If you have a few minutes, read Anne Applebaum’s excellent article in The Atlantic on the vacuity and mistakes of Western diplomacy in the face of Vladimir Putin.
This new layer of concern, or rather the somewhat late awakening of the financial markets vis-à-vis the situation in Eastern Europe, is leading to a sharp rebound in volatility, symbolized by the VIX index, which is rising sharply. While geopolitics and macroeconomics are worrying, the corporate level tends to be reassuring, at least for the time being, since we know that the global turmoil ends up catching up with the real economy. Concretely, the results of the publications of the 72% of the American companies of the S&P500 index which presented their figures looks like this:
- First, the number of companies exceeding earnings per share estimates is higher than the five-year average, but the proportion of overshoots is consistent with the five-year average. In less abstruse language, company results are good (ie they are as usual above the always a little too cautious forecasts of analysts) but there are no more exuberant overruns as we have seen in previous quarters .
- More interestingly, the multiple of valuation of shares by earnings, the famous PER, stands at 19.8 times the expected results in one year. This remains above the 5-year average (18.6) and 10-year average (16.7), but it represents a substantial reduction from the 21.3 times level posted at the end of 2021. The decline in share prices and slightly higher earnings forecasts explain this reduction in multiples. In Europe, I don’t have the figures for the moment but the general trend is also favorable, with less significant deviations from expectations. The old continent is also more moderately valued: AlphaValue’s coverage universe, which includes more than 400 European stocks, shows an average 2022 PER of 15.6 times.
Results promising or not, the European leading indicators are well anchored in the red this morning. Tokyo lost 2.2% and Chinese places are down more than 1%.
Economic highlights of the day
Not much to get your teeth into, apart from December’s industrial production in Europe (11:00 a.m.). It is however necessary to note two speeches of central bankers. American James Bullard, who had said everything and its opposite since the beginning of the month (5:00 p.m.) and European Christine Lagarde, whose task last week was to try to backpedal after her offensive comments on rate hikes ( 5:15 p.m.).
The euro / dollar pair is moving to 1.13466 USD, while the ounce of gold takes the upward slope to 1853 USD. Big rise in oil over the weekend, with a barrel of Brent at 95.60 USD and a barrel of WTI close to 94.50 USD. The yield on US debt fell to 1.95% over the weekend, after rising more than 2% over 10 years. Bitcoin retreats to $41,800.
The main changes in recommendations
- AMG Advanced Metallurgical Group: Jefferies starts long tracking targeting EUR 42.
- Aveva: Morgan Stanley moves from overweight to weighted online by targeting 3250 GBp.
- Bakkafrost: Fearnley goes from sell to hold, aiming for NOK 720.
- Barclays: KWB goes from outperformance to market performance by targeting 215 GBp.
- Delivery Hero: HSBC goes from buying to keeping, aiming for 46 EUR.
- Electricité de France: AlphaValue goes from accumulating to reducing, targeting EUR 8.50.
- Grieg Seafood: Fearnley goes from hold to buy, aiming for NOK 121.
- Italgas: Citigroup goes from selling to neutral.
- H. Lundbeck: Berenberg remains long with a reduced target price of 219 to 211 DKK.
- Komax: Research Partners raises its target price from 300 to 325 CHF.
- Legrand: AlphaValue goes from reducing to accumulating, targeting EUR 97.40.
- Norway Royal Salmon: Fearnley goes from buy to hold aiming for 250 NOK.
- Prudential Plc: Goldman Sachs is starting to track long, targeting 1761 GBp.
- Rheinmetall: Berenberg remains long with a price target raised from 110 to 115 EUR.
- Schibsted: two neutral longs aiming for NOK 300.
- Snam: Citigroup goes from selling to neutral.
- Steico: Berenberg goes from holding to buying, aiming for 123 EUR.
- Terna: Citigroup goes from neutral to buy.
In France
Important (and less important) announcements
- Crédit Agricole will focus on internal growth in Italy.
- An agreement between the Italian government and Stellantis on the automaker’s battery factory project in Termoli, in the south of the country, will be signed very soon, according to the transalpine government.
- Tikehau launches its first sustainable private placement in the United States, for $180 million.
- SES creates a joint venture with Jio Platforms to develop networks in India.
- AB Science reacts after the public session of February 11, 2022 of the Enforcement Commission of the Autorité des Marchés Financiers.
- Electricité de Strasbourg, have published their accounts and/or forecasts.
In the world
Important announcements (and others)
- Cisco has reportedly offered to buy Splunk for more than $20 billion, according to the WSJ.
- Clariant has opened an accounting investigation due to suspicions of irregularities for the year 2020 and the first half of 2021, after information from internal whistleblowers. The publication of the results is postponed.
- ConocoPhillips plans to sell $1bn of assets in the Permian zone.
- Intel is launching a blockchain chip to tap into the cryptocurrency boom.
- Lockheed Martin terminates $4.4 billion agreement to acquire Aerojet Rocketdyne.
- Pfizer’s anti-Covid pill authorized in China.
- D’Ieteren enters into exclusive negotiations to acquire Parts Holding Europe.
- Saudi oil giant Aramco has transferred 4% of its shares to the country’s Public Investment Fund (PIF).
- Advanced Micro Devices shares fell 10% on Friday after the chief financial officer announced a stock sale.
- BHP Group, The Charles Schwab, Capgemini, Tokio Marine, Michelin, Rakuten, Temenos, Interpump… The whole agenda here.
Readings
- Uber and its economic model, a big lie well helped by the media? (Pluralistic, in English).
- The British are facing a sharp decline in their purchasing power (Le Monde).
- The story of a takeover orchestrated by Gilles Schnepp at Danone (La Lettre A).
- Obviously, Western diplomacy has understood nothing of Russia (The Atlantic, in English).
- Cities are afraid of the development of “dark stores” (La Croix).
- A pandemic, not so bad when you’re a super-rich (The Atlantic, in English).
- Immigrant work, French hypocrisy (Le Monde).
- A meeting with Sergei Naryshkin, Putin’s spymaster in Ukraine (The Spectator, in English).
- Reindustrialize, but for what? (The Conversation).
- Should we change our relationship to land ownership to adapt to climate change? (Project Syndicate, in English).