I start this morning with a kind of decryption of the current market sentiment, to explain the recent movements. Since March 2020 and the low point of the pandemic crisis, there have been roughly two phases for Western equity markets. A frantic rise which took place from March 23, 2020 to January 4, 2022 (with a few bumps over the October / November 2020 period) and a more troubled period for three months almost to the day. The turmoil of early 2022 can be explained by two events as distinct as their consequences are intertwined. On the one hand, the persistence of inflation out of control, which requires a monetary response. On the other hand, the invasion of Ukraine by Russia, which changes the order of things that had prevailed since the end of the cold war. All taking place in a context of undeniable economic dynamism, otherwise the situation would have quickly been folded: stagflation – this cocktail of inflation and economic slump – would have quickly insinuated itself everywhere and shareholders would laugh less .
Since the start of the year, therefore, investors have oscillated between phases of spleen and excitement. They’re feeling down when they realize prices are skyrocketing and the free money tap is turning off. But they get excited about the price cuts because-even-the-market-was-a-little-expensive-my-poor-madam-and-a-little-breath-allows-you-to-buy-at- best-account. Over the past three weeks, the optimists have prevailed over the pessimists, to the point of erasing the losses accumulated post-Russian-Ukrainian conflict. But sentiment seems to have wavered again since yesterday. It started with the prospect of another round of sanctions on Russia, with Europeans looking set to do violence to Russian fossil fuels. And this was accentuated with the declarations of two American central bankers during the day.
Ether George, who heads the Kansas City Fed, said the Federal Reserve could raise rates by 50 basis points at its scheduled meeting in early May. She added that the conditions are in place for an accelerated withdrawal of economic support measures. A little later, the vice-president of the Fed, Lael Brainard, held the same speech on the bottom, in a version more watered down on the form. Curving inflation with rate hikes is a classic economic process that does not unduly upset equity markets in normal times, except when the move is deemed too abrupt or investors feel the central bank does not know not quite where she puts her feet. In this case, inflation is so high by recent standards and the Fed has been so slow to react that the outlook is cloudy. Sharply rising rates and forced reduction of the liquidity bazooka are synonymous with more difficult and more expensive access to money. Everyone has known for weeks that this is how it will happen, but the reactions are exacerbated when the deadlines approach.
The bond market reacted strongly yesterday to the statements of the two bankers. 10-year rates jumped 20 points to 2.63%. They are lower than the 5-year rates (2.79%) and continue their crossover with the two-year rates (2.6%). Clear signs of the uncertainty in which the financiers are plunged, who know that monetary austerity will increase, but who doubt the consequences. In my humble opinion, the American economic strength will be more scrutinized than ever in the weeks to come and it has no interest in faltering too much, because it is this which constitutes the main anchor point for the markets, especially since China is once again giving signs of weakness. The awakening of the former Middle Kingdom was indeed a powerful relay of optimism for investors. But that was before the Omicron wave swept over the country, where containment measures were increasing, with economic consequences already visible. This is the case in logistics, the world didn’t really need that, and in activity indicators. S&P released this morning a Caixin services PMI of 42 points for the month of March in China. If you’re unfamiliar with PMIs, it’s one of the world’s most widely used indicators for gauging economic momentum. A reading below 50 points signifies a contraction. The Caixin services PMI was at 50.2 in February. In March, it reached its lowest level since February 2020. The Chinese awakening may be a little delayed.
That’s where we are this morning. The pendulum is back in the doubt zone with leading indicators that are slightly bearish for the European and American equity markets around 8:00 am. Asian places are losing ground, more than 1.5% in Japan and rather 0.5% in Australia. Chinese stock markets, closed yesterday, resumed decline. The big macroeconomic event of the day is once again monetary with the publication of the minutes of the last Fed meeting. But it will be at 8:00 p.m. Paris time, so well outside the European session. The CAC40 started the session down 0.3% to 6624 points.
Economic highlights of the day
February German factory orders (8:00 am) and minutes from the last Fed meeting (8:00 pm) are on the agenda today. The whole macro diary here. In China, the Caixin services PMI plunged to 42 points in March (an index below 50 signals an economic contraction).
The euro retreats again to 1.0897 USD. The ounce of gold is hesitating around 1922 USD. Oil rose slightly after its ebb the previous day, with Brent from the North Sea at 106.3 USD and US light crude WTI at 101.80 USD. The yield on US debt is trending at 2.61% over 10 years, below the 30 and 5 year maturities. Bitcoin drops to 45,100 USD each.
The main changes in recommendations
- Acciona: AlphaValue goes from reducing to accumulating by targeting EUR 203.
- Aéroports de Paris: Goldman Sachs goes from neutral to sell, targeting EUR 110.
- Banca Popolare di Sondrio: Jefferies starts the hold call targeting EUR 3.80.
- Delivery Hero: Berenberg remains long with a price target raised from 75 to 88 EUR.
- Diageo: Jefferies remains long with a target raised from 4100 to 4400 GBp.
- Fraport: Goldman Sachs goes from neutral to long, targeting EUR 64.
- Global Fashion Group: Berenberg remains long with a price target reduced from 12 to 7 EUR.
- Hochschild Mining: Berenberg goes from hold to buy targeting 160 GBp.
- Klépierre: JP Morgan goes from neutral to underweight, targeting EUR 21.
- Netcompany: ABG resumes buying monitoring, targeting 685 DKK.
- Orange Belgium: HSBC goes from buying to keeping, aiming for 21 EUR.
- Polymetal: Berenberg goes from buy to hold aiming for 300 GBp.
- Randstad: HSBC goes from holding to buying, targeting EUR 70.
- Repsol: Jefferies goes from holding to buying, targeting EUR 15.
- Rio Tinto: Berenberg remains long with a price target raised from 5700 to 6700 GBp.
- Standard Chartered: Jefferies remains long with a price target raised from 855 to 972 GBp.
- Ströer: HSBC goes from buying to keeping, aiming for 70 EUR.
- TotalEnergies: Jefferies goes from buying to holding, aiming for 50 EUR.
In France
Important (and less important) announcements
- Saint-Gobain sells its distribution business in Poland.
- Thales continues to modernize the Montreal metro.
- Alstom signs a large order of €650m with SJ.
- Danone is preparing a corporate campaign with BETC, according to La Lettre A.
- Electricité de France completes a capital increase of €3.16 billion to €6.35 per share, including €2.7 billion contributed by the French State.
- The Dutch Minister of Finance castigates the salary of the CEO of Air France-KLM.
- Gaztransport & Technigaz obtains an order from the Jiangnan shipyard for the design of the tanks of two large-capacity LNG carriers.
- UTA Edenred partners with ChargePoint.
- Envea will deliver 15 mobile air quality monitoring stations for the state of Maharashtra.
- Amoeba postpones the issuance of its 5and slice of OCA Nice & Green.
- Gaussin and Qatar Airways Cargo are successfully conducting trials with the ADMT Full ELC carrier.
- Neovacs draws new tranches of OCABSA EHGOS.
- Sidetrade, Augros, CS Group, Eurobio, Vogo and Barbara Bui have published their accounts.
In the world
Important announcements (and others)
Readings