In the latest survey conducted by Bank of America among a large panel of asset managers, which dates from mid-July, the renewed tension between China and the United States was not among the main threats identified by Investors. What worried them then was, in that order, continued high inflation, a global recession and uncooperative central banks. In reality, these three fears are the bricks of the same macroeconomic construction. Investors then cited a domino effect on the credit market, the Russian-Ukrainian conflict, civil unrest in the United States and a resurgence of covid-19. But no Sino-American friction therefore at the top of the list.
For the past ten years, poor relations between the two countries have been at the forefront of concerns between July 2018 and January 2020, at the height of a trade war embodied by the crescendo of tariff surcharges applied by the Trump administration. (and by the way still in force).
The deterioration of relations between the two powers could return to the landscape in August. The confirmation of Nancy Pelosi’s visit to Taiwan from this evening agitates the diplomatic corps and brings down Asian financial markets. The sequel will feel like deja vu. Peking will display its navy and its military aviation in the most conspicuous way possible, working to come as close as possible to the incident. Taipei will raise its alert levels. And Washington will work to send the message that the United States decides where it sends its representatives and not the CCP. In this area, as in many others involving power struggles, there is no certainty as to the consequences. This is not the first time that the situation has escalated, nor that the interests of China and the United States have not been aligned. But the current geopolitical and economic context shows that it is not too short a memory. The world has realized that armed conflict is still possible and that strategic resources are more precious than ever. I remind you here that Taiwan roughly produces two-thirds of the electronic chips used in the world.
I leave the in-depth analysis to people much more competent than me. But remember that there are too many issues around Taiwan to remain indifferent to what is happening thousands of kilometers away. Moreover, Asian markets, relatively unaffected by the conflict between Ukraine and Russia because it is taking place on the European side, are reacting rather badly to the renewed tension in the Far East. The Nikkei 225 loses 1.4% at the end of the course in Japan, while the Chinese places take a nosedive. We are at -2.4% in Shanghai and -2.7% in Hong Kong at the time of writing. India and Korea are also retreating in a more measured way. Only Australia remains afloat with an ASX200 taking advantage of the strength of its banks to counter the drop in commodity-related companies.
Among the news of the day, the Australian central bank raised this morning (well this morning for us) its main key rate by half a point, in line with what was expected. Company results are a little rarer, but there are still some good signatures. BP Plc, Bouygues, Siemens Gamesa or Royal DSM in Europe. Then Advanced Micro Devices, S&P Global, Caterpillar, PayPal and Starbucks across the Atlantic. Ukraine has announced that despite the resumption of grain exports, it will take time to return to pre-war levels. On the oil market, Brent fell back below the symbolic threshold of 100 USD.
Leading indicators are bearish in Europe and the United States. Without excess, but with a touch of additional anguish compared to a month of July all fire, all flame. Taiwan will take more place in the news for the next few hours and days. Until now, these crisis situations have ended up falling back, because the closely intertwined economic stakes between China and the United States have always ended up gaining the upper hand over the manifestations of power. This could still be the case this time around, but investors will not be spared an increase in volatility in the short term.
Economic highlights of the day
Not much to get your teeth into today, apart from the JOLTS study on job openings in the United States. The whole macro diary here. China reported an official manufacturing PMI back in contraction territory in July at 49 points, below expectations (50.3). The Caixin PMI, which contains more private companies, deteriorated to 50.4 points but remained in the expansion zone. Australia’s central bank raised its key interest rate this morning by 50 basis points to 1.85%, as expected.
The euro recovered slightly to 1.0273 USD. The ounce of gold continues to climb to 1774 USD. Oil fell on the contrary, with Brent from the North Sea at 99.22 USD a barrel and US light crude WTI at 93.30 USD. The yield on US 10-year debt fell to 2.55%. Bitcoin drops below 23,000 USD.
The main changes in recommendations
- ABB: Goldman Sachs remains long with a price target raised from 36 to 40 CHF.
- Aéroports de Paris: HSBC goes from reducing to keeping, aiming for 125 EUR.
- AMS-Osram: Kepler Cheuvreux went from buying to keeping, targeting EUR 8.50.
- Befesa: Berenberg remains long with a target price reduced from 79 to 70 EUR.
- Bucher Industries: Berenberg remains long with a price target raised from 537 to 550 CHF.
- Delivery Hero: JP Morgan goes from neutral to overweight, targeting EUR 65.
- HeidelbergCement: Societe Generale goes from holding to selling, targeting EUR 45.
- Heineken: Jefferies remains long with a price target raised from 120 to 125 EUR.
- HSBC: Exane BNP Paribas goes from outperformance to neutral by targeting 750 GBp.
- Jeronimo Martins: Berenberg remains to be kept with a target price raised from 19.40 to 20.80 EUR.
- Kion: Berenberg remains long with a price target reduced from 88 to 68 EUR.
- Lindt: Julius Bär remains long with a price target raised from 12,000 to 12,500 CHF.
- Logitech: Julius Bär remains long with a price target reduced from 75 to 65 CHF.
- Lonza: Julius Bär remains long with a price target reduced from 780 to 740 CHF.
- Medacta: UBS remains long with a price target reduced from 119 to 117 CHF.
- Nestlé: CFRA remains to be kept with a price target raised from 124 to 127 CHF.
- Nexans: Societe Generale goes from buying to keeping, aiming for EUR 100.
- Novartis: Intron Health moves from hold to buy targeting 90 CHF.
- Sika: Credit Suisse remains outperforming with a price target reduced from 414 to 384 CHF.
- Swiss Re: CFRA remains long with a price target reduced from 94 to 85 CHF.
- TotalEnergies: Berenberg remains long with a price target reduced from 66 to 63 EUR.
In France
Company results
- Bonduelle: The objectives have been abandoned due to rising costs.
- Bouygues: The overall 2022 targets are confirmed, with higher forecasts from the telecoms division offsetting downside adjustments elsewhere.
- Vilmorin: The seed company exceeded its turnover target at the end of the financial year ended at the end of June, with an operating margin higher than the latest targets, but a net profit at half mast.
Important (and less important) announcements
- Fiat Chrysler (Stellantis) will pay $300 million to settle a dispute related to “Dieselgate”.
- Alstom sells its Coradia Polyvalent platform, its Reichshoffen production site and its TALENT3 platform to CAF.
- Gaztransport & Technigaz signs a contract for its “smart shipping” solutions with the shipowner Antartica21.
- EU orders 1.25 million doses of Valneva’s Covid vaccine.
- KKR owns 83.4% of Albioma following the takeover bid, which will have a positive outcome.
- Actia finalizes the sale of its Power division to Compagnie Plastic Omnium.
- Groupe SFPI finalizes the acquisition of the Austrian company Wo&Wo.
- Geci draws 50 ORNAN on its dilutive Yorkville line of financing and receives a contribution from a partner’s current account for a total of €0.7 million.
- SMCP, Exclusive Networks, Technicolor… have published their accounts.
In the world
Company results
- Interroll: Profitability is down in H1, but the figures are rather in line with expectations, except on the orders side. Reduced visibility, however, prevents the Swiss company from formulating forecasts for 2022.
- Royal DSM: The Dutch chemist recorded sales growth of 17% in H1.
- Siemens Gamesa: The targets are once again lowered.
- Symrise: The aroma and flavor specialist exceeded expectations in H1. It is targeting €5.5 to €6 billion in annual revenue by 2025.
Important (and less important) announcements
- Estee Lauder would negotiate the takeover of Tom Ford, according to the Wall Street Journal.
- Paris, Rome and Madrid want GAFA to help pay for EU telecom networks.
- Elliott has become the main shareholder of Pinterest, whose title is soaring outside the session.
- Hexagon completes its investment in Austrian gas tank manufacturer Cryoshelter.
- Oracle is preparing a social plan, according to The Information.
- French press titles are suing Apple for its monopoly on Apps.
- Siemens Gamesa plans to cut nearly 2,500 jobs, according to Reuters.
- Saipem has won an offshore E&C contract in Italy worth approximately €300m.
- Moody’s downgrades Credit Suisse’s credit rating to “Baa2” due to difficulties in the recovery of its investment bank.
- Semtech is in advanced negotiations to buy Sierra Wireless.
- CSL receives all regulatory approvals for the acquisition of Vifor Pharma.
- Chinese metals recycler GEM raises $346m on listing in Zurich.
- Main publications of the day: Advanced Micro Devices, S&P Global, Caterpillar, PayPal, Starbucks, BP Plc, Ferrari, Royal DSM, Assicurazioni Generali, Symrise, Siemens Gamesa, Bouygues, Fresenius Medical Care, Reply… The whole agenda here.
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