A good blow to the back of the head

Financial markets resumed a strong tatan blow last week, which brought the major indexes back to a level not far from year lows. The European STOXX Europe 600 index lost 4% and the American S&P500 index is just over 5%. Risky assets 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 against $67,000 from last November’s high, were once again the most at risk.

Investors may have lost their last shred of innocence last week, too. Because the European Central Bank had to abandon its more or less well-groomed bear costume (I change animals, I’m sick of hawks and pigeons). And US inflation figures show that, ultimately, the decline is not yet. Clearly, Wall Street cares about ECB policy because investors already have their hands full with the Fed. I quote analyst Jeffrey Halley, who summarized the situation overnight:A market that is constantly looking for reasons to lower its expectations of a Federal Reserve hike (so it can buy the stock) saw its hopes dashed on Friday.“.

The evolution of sentiment about the US central bank pretty well illustrates the level of peace of mind that markets have reached. I’ll try to summarize this for you in a simplified form in four steps, using bullet points with elegance that has the value of clarity, even if they conflict with the literary classicism I’ve tried to develop in these columns:

  • Last year, financiers joked that the Fed’s rhetoric on transitional inflation was a bit old, but they put up with it and markets soared.
  • Seeing that the situation on the inflation side had worsened but the economy was in full swing, they thought the central bank could regain control with well-meaning speeches and a few technical adjustments.
  • Well, as things went REALLY wrong and spells were no longer enough, we had to integrate a more painful policy. This is the panic phase that characterizes the beginning of the year and exacerbated by the Russian invasion of Ukraine.
  • Recently, investors thought they had a viable scenario for a more or less soft economic landing with an aggressive Fed, but initial successes in tackling inflation. The kind that can make people say”The Fed was very aggressive in the beginning but it worked, so it will be able to ease the pressure by the end of the year. How about buying stocks?“.

Caramba has failed again! The problem, which became visible with the May consumer prices announcement in the US on Friday, is that the increase continues even as the bottlenecks in production are absorbed. Hence the return of extremely negative sentiment, reinforced by the lexical domain of the economic recession last week. I even got a Bloomberg alert this weekend that traders are considering the odds of a 75-point rate hike by the Fed in July. I would like to remind you that at the beginning of the year the norm was to raise rates by a quarter point, and even then it was best to avoid raising rates.

There was turmoil everywhere this Monday morning, especially in bond yields, which were tumultuous for the 2- and 5-year maturities. Bazaar is also on Asian indices, which lost a lot of ground in Tokyo and Hong Kong, or cryptocurrencies that erased their recent lows. In this context of risk aversion, the US dollar has suddenly strengthened against the euro, although it hasn’t been this high against the yen since the turn of the millennium.

Things are accelerating and the institutions now seem to have completely lost the thread of the narrative, which is not very reassuring. But extremes are often wiped out by other extremes, and perhaps we are in this second phase. After all, if you were told in June 2020 that two years from now US retail sales would rise 67%, unemployment would fall by 17 million, and inflation would rise from 0.1% to 8.3%, oil would be worth 12% per barrel, as one US bank pointed out on Friday. You would have thought it was crazy that it would go from to $120 and the pandemic would be followed by war and famine…

I had planned to finish this this morning but when I reread it I realized that the column of the day was making you want to hang yourself, so I’m adding a few lines to start the week better. The current period has been the most complex to manage in the stock market since 2008. This makes it possible to single out self-proclaimed financial geniuses who only follow the liquidity of real investors and can spot opportunities for the media. while maintaining an acceptable level of risk. This is a good time to look at the fundamentals of any solid investment.

European stock markets will pull back at the open this morning. Oh, I forgot, no major stats today but all eyes are on Wednesday’s June Fed meeting. Even if investors have somewhat lost faith in their central banks, they run the risk of holding on to Captain Powell’s speech, not finding another Captain for complex situations. The CAC40 fell 1.5% to 6093 points shortly after the opening.

Economic events of the day

There will be no significant indicators today. The entire macro log is here.

Euro depreciates again at 1.0491 USD. One ounce of gold is trading at 1864 USD. Oil is in the $120 region, with North Sea Brent at $120.30/barrel and US WTI light crude at $118.97. The yield on US 10-year debt rose to 3.18%, while the yield on 5-year debt rose to 3.33%. Bitcoin stands at $25,500.

The main changes in the recommendations

  • Adevinta: Jefferies stayed long with a low target price of 115 to 105 NOK.
  • Aker BP: Berenberg is going from sales to retention by targeting 390 NOK.
  • Auto Trader: Jefferies stays long with a low target price of 870 to 790 GBp.
  • British American Tobacco: Jefferies is long-running with a target raised from 3,900 GBp to 4,200 GBp.
  • Demand: Morgan Stanley continues to monitor heavily online, targeting DKK 319.
  • ENI: Berenberg held long with a target raised from 16 to 17.50 EUR.
  • Equinor: Berenberg continues to hold with an increased target from 335 to 380 NOK.
  • Hemnet: Jefferies continues to be held at a discounted target price of 150 to 130 SEK.
  • Maisons du Monde: Societe Generale goes from buying to holding, targeting 12.40 euros.
  • Orange: Bernstein goes from neutral to over-performer, targeting 13 EUR.
  • Repsol: Berenberg continues to hold with a target price raised from 15.50 to 16.50 EUR.
  • Rheinmetall: Goldman Sachs continues its acquisition pursuit, targeting 298 Euros.
  • Rolls-Royce: Morgan Stanley goes from weight to overweight online by targeting 118 GBp.
  • Saab: Goldman Sachs continues its sales tracking targeting 352 SEK.
  • Schibsted: Jefferies stayed long with the target price lowered from 305 to 285 NOK.
  • Scout24: Jefferies stayed long with a price target reduced from 80 to 71 EUR.
  • Thales: Goldman Sachs continues to pursue its acquisition targeting 146 Euros.
  • TotalEnergies: Berenberg stayed long with a price target raised from 58 to 66 EUR.
  • Vesuvius: Jefferies stayed long with a price target reduced from 705 to 535 GBp.
  • Voestalpine: Jefferies continues to hold with a target price raised from 27.50 to 29 EUR.

in france

Important (and less important) announcements

  • Qatar has awarded TotalEnergies 25% of a new national company to increase the country’s total liquefied natural gas export capacity.
  • S&P upgraded Thales’ rating from ‘BBB+’ to ‘A-‘, outlook stable. The group is also introducing a new AI-based tactical training and simulation system.
  • Sanofi and GSK are seeing good results with the next generation booster vaccine candidate based on the Beta variant antigen against Covid.
  • Saint-Gobain canceled 8.9 million of its own shares.
  • Atos may split its operations as part of a major reorganization, as many rumors suggest.
  • Pizzorno Environnement Group won the Lille domestic waste collection contract for €161 million over 7 years.
  • Orpea signed a settlement protocol with its main banking partners.
  • Groupe Gorge has opened its new marine drone assembly facility in Ostend, Belgium.
  • Sercel (CGG) equips a new ship in South Korea with a complete marine seismic collection system for 3D seismic research.
  • Valneva’s covid vaccine is in the hot seat if Europe doesn’t guarantee minimum orders.
  • Hopium has signed a €50 million diluent equity financing line with LDA Capital.
  • Medesis Pharma enrolls first patients in phase II study.
  • Delta Drone shoots a new slice of ORNAN for 1 million Euros.
  • Enogia established a joint venture with ADEME Investissement.

In the world

Important (and less important) announcements

  • Shares of American beauty brand Revlon tumbled 53% on Friday amid bankruptcy fears.
  • According to the Financial Times, the British financial police are putting Credit Suisse under surveillance.
  • The US SEC is investigating Goldman Sachs on ESG funds.
  • BlackRock offers nearly half of its customers with index products the option to vote at general meetings.
  • Tesla will split its stake in three to make it more accessible and improve the stock’s liquidity.
  • Netflix is ​​kicking off the second season of Squid Game.
  • Started the Countryside sale.
  • A massive fire engulfed a large recycling facility in central England owned by Smurfit Kappa.
  • Google is paying $118 million to settle a class action lawsuit alleging gender discrimination.
  • Novartis presents positive data with Kymriah in leukemia.
  • Pinterest has completed the acquisition of shopping platform The Yes.
  • Italy may nationalize the PJSC Lukoil refinery in Sicily.
  • Main releases of the day: Oracle, L’occitane, DFDS… The whole agenda is here.