Any rise is good to take for the equity markets at the moment, even when it is difficult to find its origin. The stock markets progressed yesterday, sometimes moderately as in Switzerland or the United Kingdom, a little more strongly in France and Germany and vigorously in the United States. Investors are shopping on the files that have been stirred up in recent weeks, so as not to miss the boat if the situation were to stabilize. It looks like they’ve barely listened to Fed boss Jerome Powell, who seems to be loving the falcon suit he donned a few months ago more and more. Jay the volatile, unless it’s the volatile Jay, even went so far as to say that the central bank will not hesitate to go beyond neutral levels on rates if inflation remains high. Normally, such indications would have caused a wave of caution on equities, but they only, and logically, made the yield of government bonds rebound. This can be seen as a sign that equity investors are beginning to get used to the new monetary deal. Or simply that they needed to breathe a little.
Because the climate remains quite anxiety-provoking, as demonstrated by the latest monthly survey conducted by Bank of America among asset managers who responded between May 6 and May 12 (around 330 professionals managing nearly $1,000 billion). Well, I must emphasize that this very recent period had everything to further increase the depression of the financiers. The Nasdaq fell 5% on the single day of May 5 and chained five more sessions in the red until May 12. Suffice to say that the managers had morale in the socks when they returned the form. I quote a few teachings jumbled up because they offer a good overview of the current convictions of professionals:
- A growing number of managers want managers to strengthen balance sheets and reduce their capital expenditures.
- Managers are breaking away from the most bottled bet of the past decade: buying anything resembling a tech stock. They currently underweight the sector by 12% in their allocations, a record since 2006.
- Managers have never been so pessimistic since 1994 (when BofA’s surveys began) on growth prospects. 77% of them cite the term “stagflation” as best describing their economic expectations for the next 12 months.
- The managers put forward as the main risk of the moment the firmness of the central banks (31%) ahead of the global recession (27%) and inflation (18%). They mix cause and consequence a bit, but it also illustrates the fact that the financial world and the real economy do not necessarily evolve in the same time capsule.
- The managers are heavily overweight defensives (ie utilities and/or healthcare and/or consumer staples), at 43%. We were more around 50% at the peaks of horror in 2020 and 2011, and 90% at the peak of 2008. In fact, they are mainly on health and on basic consumption.
- Managers are overweight cash, healthcare, commodities and energy and underweight bonds, eurozone equities, consumer discretionary and emerging equities. It’s a bit paradoxical because the European markets have finally withstood the shock better so far.
- The most consensual positions are to be a buyer of oil and a seller of US Treasuries.
- The managers believe that the biggest default risk currently in the markets is to be found in speculative technologies.
- Finally, the managers estimate that the “Fed Put” is at 3529 points on the S&P500. The Fed Put is the level considered by professionals to be where the US central bank would be forced to take pro-stock market action to avoid a cataclysm. With the S&P500 at 4088 points at the time of writing, the Fed Put is 13.7% lower (the US index however fell to 3858 points last week when the managers answered the survey).
It was nothing like a Prévert list and I hope I haven’t bored you too much with these figures, but they give a good idea of the level of ambient pessimism and the behaviors associated with it. A chart that appeared this morning in a Bloomberg article shows that the average PER of global technology stocks has just crossed the average PER of consumer staples stocks, i.e. around 20 times the expected results in 12 months. A few weeks ago, technology was rather flirting with the 27/30 zone. The naughtiest will have noted that the results published by Walmart yesterday show that basic consumption is not necessarily a good idea to hide: the title sank by 11%, unheard of since 1987, after having lowered its objectives under pressure from all-out cost increases.
European markets are expected around equilibrium with a slight bullish bias this morning. In Asia Pacific, Japan and Australia gained between 0.5 and 1%. In China, on the other hand, the indices are falling while economic indicators are still mediocre and doubts about the systematic containment policy continue. The CAC40 gained 0.1% to 6439 points shortly after opening.
Economic highlights of the day
The April consumer price index in the EU is due at 11:00 a.m., ahead of the April housing starts and building permits figures in the US at 2:30 p.m. The whole macro diary here. This morning, Japan announced a contraction in its GDP in the first quarter, a more violent slowdown than expected.
The euro climbs back to 1.0532 USD. The ounce of gold falls to 1808 USD. Oil is firm, with North Sea Brent at $112.34 a barrel and US WTI light crude at $111.32. The yield on US 10-year debt rose to 2.96%. Bitcoin is trading around 30,500 USD.
The main changes in recommendations
- Ahold Delhaize: JP Morgan goes from neutral to overweight, targeting EUR 32.50.
- Barry Callebaut: Baader Helvea goes from accumulating to reducing by aiming for 2300 CHF.
- Crédit Agricole: Berenberg remains to be kept with a price target reduced from 12.30 to 11.50 EUR.
- Forsee Power: Berenberg goes from buying to holding, targeting EUR 4.50.
- LDLC Group: Kepler Cheuvreux starts monitoring the purchase by targeting 50 EUR.
- Hornbach: Kepler Cheuvreux remains long with a target reduced from 145 to 140 EUR.
- Inventiva: Jefferies remains long with a target price reduced from 19.50 to 18 EUR.
- ITM Power: Bernstein starts tracking at outperformance.
- Land Securities: Jefferies goes from underperforming to holding, targeting 690 GBp.
- Logitech: UBS goes from neutral to buy, targeting 73 CHF.
- Nel ASA: Bernstein starts tracking at outperformance.
- Rational AG: HSBC goes from holding to buying, targeting EUR 670.
- Reckitt: RBC goes from sector performance to outperformance by targeting 7,000 GBp.
- Recordati: Jefferies remains to be kept with a target price reduced from 43.20 to 39 EUR.
- Repsol: HSBC goes from holding to buying, targeting EUR 16.70.
- Royal Boskalis: AlphaValue goes from reducing to accumulating by targeting EUR 38.90.
- Sonova: JP Morgan reduces its target price from 399 to 346 CHF.
- Vidrala: Exane BNP Paribas goes from neutral to outperformance by targeting EUR 83.
- Zalando: Baader Helvea goes from buying to accumulating aiming for 41 EUR.
In France
Publication of results:
- Elior: the group anticipates organic revenue growth of at least 16% in 2021-2022 and EBITA around break-even in adjusted data. It will come out of the “preferred meals” industry in the United States. The 2023/2024 margin target has been revised downwards.
- Euronext: organic growth reached 6% in Q1. Costs will be lower than expected this year.
Important (and less important) announcements
- Frédéric Oudéa, Chief Executive Officer in office since 2008 at Société Générale, will not seek the renewal of his term of office in June 2023.
- A consortium including Alstom has won the green line project for the Tel-Aviv metro, for €2.6 billion, including €858 million for the group.
- L’Oréal is launching a third employee shareholding operation.
- Stellantis sees India as a profitable growth market for automotive.
- Bouygues issues €2 billion in bonds.
- Air France-KLM and CMA CGM are joining forces in air freight, with the maritime transport group entering the capital of the airline.
- The state of Electricité de France’s nuclear fleet continues to cause concern.
- The failed reorganization of Atos cost 300 M€, according to La Lettre A.
- Valeo completes its share buyback program.
- Elis places €300 million in bonds under the EMTN program.
- New drawdown on Pharnext’s dilutive OCEANE-BSA line.
- Boostheat extends its dilutive financing line with Iris Capital.
- published their accounts.
In the world
Publication of results:
- Aviva: the group considers itself on the right track to achieve its objectives.
- Burberry: The results are up, but the situation in China is worrying.
- Mitchells & Butlers: Pub owner warns rising costs will weigh.
Important announcements (and others)
- New vehicle registrations fell 20% in April, due to supply problems.
- Siemens Energy could delist Siemens Gamesa quickly, according to Bloomberg.
- Unicredit and Commerzbank would have discussed merging in early 2022, before giving up, according to the Financial Times.
- After the earnings warning, Walmart fell 11.4% at the close, a steep annual plunge since 1987.
- Netflix lays off to cope with slowing growth.
- JPMorgan Chase shareholders only support 31% of Chairman Jamie Dimon’s compensation. Intel shareholders had done the same the previous week.
- Facebook (Meta Platforms) celebrates 10 years of trading.
- SIG Group raises €204 million.
- Sika opens a new factory in Bolivia.
- Vetropack is cutting jobs in Ukraine.
- Main results publications of the day: Tencent, Cisco, Lowe’s, Target, Analog Devices, Experian, Aviva, Hal Trust, ABN Amro, Elia, Burberry, Rockwool, Vallourec… The whole agenda here.
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