Last week, financial markets resumed a strong tatan shock, as a result of which the main indexes returned close to their annual lows. The European STOXX Europe 600 lost 4% and the US S&P500 lost just over 5%. Risky assets again proved to be the most at risk, such as the ARK Innovation index fund, which has lost 13% in the last two sessions, or bitcoin, which is currently trading at $26,000 apiece against $67,000 at its highest level in November last year.
Last week, investors may well have lost the remnants of innocence. Because the European Central Bank has been more or less forced to abandon its care bear costume (I change animals, I’m tired of hawks and doves). But because US inflation data shows that, ultimately, there is no recession yet. So obviously Wall Street doesn’t care a damn about the ECB’s politics because investors are already busy with the Fed’s business. I quote analyst Geoffrey Halley, who summed up the situation overnight as follows:the market, which is constantly looking for reasons to moderate expectations of a Federal Reserve hike (so that it can buy stocks), fell short on Friday.“.
The evolution of sentiment towards the US central bank illustrates quite well the level of complacency that the markets have achieved. I’ll try to summarize it for you in a simplified way in four steps, using inelegant list items that have the dignity of clarity even if they go against the literary classicism I’m trying to cultivate in these columns:
- Financiers joked last year that the Fed had gone a little overboard with its transitional inflation rhetoric, but they put up with it and the markets rose.
- Seeing that the inflation situation is worsening, but the economy continues to operate at full speed, they thought that the central bank could regain control with well-meaning speeches and a few technical adjustments.
- Well, since things REALLY went wrong and spells weren’t enough, we had to integrate a more painful policy. This is the phase of panic that characterized the beginning of the year, exacerbated by the Russian invasion of Ukraine.
- Lately, investors have thought they have the right scenario for a more or less soft economic landing with an aggressive Fed, but with initial success in fighting inflation. The kind that could make people say “The Fed was very aggressive at the beginning, but it worked, so by the end of the year it will be able to ease the pressure. How about buying shares?“.
Caramba failed again! The problem, which became apparent on Friday, when US consumer price data for May was released, is that growth continues even as production bottlenecks are removed. Hence the return of extremely negative sentiment last week, reinforced by the lexical field of the economic recession. This weekend, I even got a Bloomberg alert stating that traders were estimating the likelihood of a 75-point Fed hike in July with a one-in-two chance. Let me remind you that at the beginning of the year the norm was to raise rates by a quarter of a point, and even then it was best not to raise rates.
It’s a mess all around this Monday morning, especially on bond yields, which are freaking out, particularly on maturities of 2 and 5 years. The market is also on Asian indices, which are losing ground heavily in Tokyo and Hong Kong, or on cryptocurrencies, which are erasing recent lows. In this context of risk aversion, the US dollar suddenly strengthened against the euro when it has not been this high against the yen since the turn of the millennium.
Events are accelerating and the institutions seem to have completely lost the thread of the narrative, which is not very reassuring. But excesses are often erased by other excesses, and perhaps we are in this second phase. After all, as one U.S. bank pointed out on Friday, if you were told in June 2020 that U.S. retail sales would grow 67% in two years, unemployment would fall by 17 million and inflation would rise from 0.1% to 8.3%, if oil fell from $12 to $120 a barrel and war and famine followed the pandemic, you’d be taken for a lunatic… but that’s what happened.
I was planning on ending this this morning, but after re-reading it, I realize that the column of the day makes you hang out, so I’m adding a few lines to start the week better. The period we are going through is the most difficult to manage in the stock market since 2008. It allows you to separate the self-proclaimed financial geniuses who only watched the liquidity of real investors, able to identify opportunities for the environment. term while maintaining an acceptable level of risk. This is a good time to look at the basics of any sound investment.
European stock markets will retreat at the open this morning. Yes, I forgot, no big stats today, but all eyes are on the June Fed meeting on Wednesday. Even if investors have lost some faith in central banks, they run the risk of being hooked on Captain Powell’s performance, having no other captain for difficult situations. The CAC40 lost 1.5% to 6093 points shortly after the open.
Economic events of the day
Today there will be no important indicators. The entire macro diary is here.
The euro is again losing ground at $1.0491. An ounce of gold is trading at $1,864. Oil remains in the $120 zone, with North Sea Brent oil at $120.30 a barrel and US WTI light crude at $118.97. The yield on 10-year US debt accelerated to 3.18%, and on 5-year debt to 3.33%. Bitcoin stops at $25,500.
Major changes in recommendations
- Adevinta: Jefferies remains long with a reduced target price of NOK 115 to NOK 105.
- Aker BP: Berenberg moves from sell to hold, aiming for NOK 390.
- Auto Trader: Jefferies remains long with a reduced target price of 870p to 790p.
- British American Tobacco: Jefferies remains long from 3900p to 4200p.
- Call: Morgan Stanley resumes weighted online tracking targeting DKK 319.
- ENI: Berenberg remains long with an increase in target from 16 to 17.50 euros.
- Equinor: Berenberg remains in effect and the target has been increased from 335 NOK to 380 NOK.
- Hemnet: Jefferies shares remain in place with a reduced target price of SEK 150 to SEK 130.
- Maisons du Monde: Societe Generale is moving from buying to keeping, aiming for €12.40.
- Orange: Bernstein is moving from neutral to better, aiming for €13.
- Repsol: Berenberg remains in place, target price raised from 15.50 to 16.50 euros.
- Rheinmetall: Goldman Sachs resumes monitoring of purchases with a target of 298 euros.
- Rolls-Royce: Morgan Stanley moves from online weight to overweight, aiming for 118 GBp.
- Saab: Goldman Sachs resumes sales tracking with a target of 352 SEK.
- Shibstead: Jefferies remains long, target price cut from NOK 305 to NOK 285.
- Scout24: Jefferies remains long, target price reduced from €80 to €71.
- Thales: Goldman Sachs resumes buying monitoring with a target of 146 euros.
- TotalEnergies: Berenberg remains long, target price increased from 58 to 66 euros.
- Vesuvius: Jefferies remains long, target price cut from 705p to 535p.
- Voestalpine: Jeffreys remains in place, target price raised from €27.50 to €29.
Important (and less important) announcements
- Qatar has provided TotalEnergies with a 25% stake in the new national company to increase the country’s total LNG export capacity.
- S&P upgraded Thales from BBB+ to A-, outlook stable. The group is also introducing a new AI-based tactical training and simulation system.
- Sanofi and GSK have made good progress with their next-generation booster vaccine candidate based on the beta antigen against covid.
- Saint-Gobain cancels 8.9 million of its own shares.
- According to some rumors, Atos may split its activities as part of a major reorganization.
- Pizzorno Environnement Group has won a contract for the removal of household waste in Lille in the amount of 161 million euros over 7 years.
- Orpea signs a reconciliation protocol with its main banking partners.
- Groupe Gorgé opens a new marine drone assembly plant in Ostend, Belgium.
- Sercel (CGG) is equipping a new vessel in South Korea with a complete offshore seismic system for 3D seismic surveys.
- Valneva’s covid vaccine is in the hot seat if Europe doesn’t guarantee minimum orders.
- Hopium signs a €50m dilutive financing deal with LDA Capital.
- Medesis Pharma is enrolling first patients in a Phase II study.
- Delta Drone raises a new €1 million tranche of ORNAN.
- Enogia has entered into a joint venture with ADEME Investissement.
In the world
Important (and less important) announcements
- Shares in US cosmetics brand Revlon tumbled 53% on Friday amid bankruptcy fears.
- According to the Financial Times, a British financial policeman has put Credit Suisse under surveillance.
- The US Securities and Exchange Commission is investigating Goldman Sachs for ESG funds.
- BlackRock offers the ability to vote at general meetings to almost half of its customers who own index products.
- Tesla will split its stake into three to make it more affordable and increase share liquidity.
- Netflix is launching the second season of Squid Game.
- Countryside is running a sale.
- A major fire has engulfed a major waste treatment plant in central England owned by Smurfit Kappa.
- Google is paying $118 million to settle a class action lawsuit over gender discrimination.
- Novartis presents positive data on the use of Cymria in leukemia.
- Pinterest has completed its acquisition of The Yes trading platform.
- Italy may nationalize Lukoil’s oil refinery in Sicily.
- Main publications of the day: Oracle, L’Occitane, DFDS… The whole agenda is here.