the elephant in the room

I don’t have much positive to report this morning. It’s not the first time this year, but there I hardly have any more jokes to pass the pill. Mind you, maybe that’s a sign that surrender is coming. Capitulation is the time when investors’ nerves relax. It generally occurs after a phase of losses and successive unsuccessful rebounds. In fact, investor confidence indicators have been at daisy levels for several months, more on the root side than the petal side. But, paradoxically, there is a discrepancy between these indicators and the real behavior of financiers, who have a hard time leaving equities aside. This is due to a combination of factors:

  • The bond market is not a valid hiding place as it is experiencing a historic decline. This is in line with the “TINA” concept (“there is no alternative”, there is no better alternative than stocks).
  • The “FOMO” feeling (“fear of missing out”, the anxiety of missing out on something important, in this case a rebound in the stock markets).
  • Robust macroeconomic indicators that mask microeconomic disorders. Typically, singular consumer resilience (which we hardly see lasting), rock-bottom unemployment, or the absence of a major credit market crash (which we hardly see lasting).

This sum of factors allowed the rebound that occurred between mid-June and mid-August. Since then, the soufflé has fallen. During the month of September, what did rich investors do? They shifted their balls into defensive ETFs and stocks in the commodities and healthcare sectors. This is what emerges from a small survey conducted by Bank of America to its private customers. This clientele is currently 62.2% equities, 19.2% bonds and 11.7% cash. The US bank also addresses the issue of capitulation in the same document. From his point of view, the current collapse of bonds will have two consequences, the multiplication of credit “events” (understood as “defaults”) and the damage to investments appreciated by investors such as US technology, private capital and being long in dollars ( on this last point, it remains to be specified). “The real capitulation is for investors to sell what they like and have in their portfolio,” BofA notes. Ah, one last thing to add a note of tactical optimism: the bank adds that it is necessary to watch the moment of the arrival of the negative employment data. From there, the recession will have kicked in and this should benefit more cyclical stocks, in anticipation of the next round of economic recovery.

We leave financial perspective to focus on the news of the day. Starting with the electoral victory of the extreme right in Italy, which should bring Giorgia Meloni to the presidency of the council. We should probably expect more contentious relations with Brussels, which materializes a new collapse of the euro against the dollar. In Russia, parliamentarians close to the government are concerned about “excesses” in the mobilization campaign. Following the extremely aggressive fiscal measures taken in the UK to try to counter the energy-inflationary chaos, the pound sterling fell to 1,035 USD, an unprecedented level for the “cable”, one of the most followed currency pairs. The drop is so steep that rumors are circulating of an emergency rate hike by the Bank of England this week, outside the highly civilized setting of regular meetings. The kind of event that probably won’t relax the mood among financiers who hate improvisation. Finally, oil prices are falling again, which is good news for inflation, but less so for investors’ perception of the economic outlook.

On the agenda for the week there will be a slalom between the (numerous) public speeches by the central bankers who should continue multiplying the warnings about the ravages of inflation. In case we missed the information. There will be four important indicators this week. In the US, durable goods orders and consumer confidence (Tuesday) and PCE inflation for August (Friday). In Europe, attention will be on preliminary September inflation figures due to be released on Friday.

Corporate news in Europe is dominated by the bunch of suitors around M6 Métropole Télévision after the failure of the merger with TF1. Also, it is this week that Volkswagen will take Porsche to the stock market, probably not the wisest choice, but this type of operation can hardly be deprogrammed without risking significant reputational damage. And then, by dint of yelling from the rooftops that Porsche is the prettiest brand out there, Volkswagen no longer has much choice.

Financial markets are still struggling this morning. Asia Pacific follows the western decline on Friday, with extremely sharp declines in Japan (-2.6% for the Nikkei 225) and Korea (-2.8% for the KOSPI) and slightly more measured in India (-1.8 % for the NIFTY) and in Australia (-1.2% for the ASX). The main European indicators are bearish. The CAC40 started down 0.5% but approached equilibrium a few minutes later.

The highlights of the economic day

The Ifo confidence index in German business circles (11am) and the Chicago Fed activity index (2:30pm) are expected. All the macro diary here.

The euro continues its fall to 0.9638 USD. The ounce of gold fell along with 1639 USD. Oil slipped, with North Sea Brent at $85.56 a barrel and US WTI light crude at $78.31. The performance of the american debt at 10 years it tends to 3.74%. The 5-year-old is at 4.04% and the 2-year-old at 4.25%. Bitcoin is holding up around $18,900.

The main changes in the recommendations.

  • Airbus: Jefferies remains long with a reduced target of €145 to €140.
  • Anheuser-Busch Inbev: Jefferies switches from buy to hold targeting EUR55.
  • BAE Systems: Jefferies remains long with a lofty target of 960-1000 GBp.
  • BP Plc: JP Morgan moves from overweight to neutral by targeting 520 GBp.
  • Carlsberg: Jefferies moves from holding to buying, targeting DKK 1,110.
  • Computacenter: Citigroup goes from neutral to buy, targeting 2450 GBp.
  • Faurecia: JP Morgan lowers its target price from EUR40 to EUR34.
  • Givaudan: Morgan Stanley moves from online weight to overweight with CHF 3,400 target.
  • Medacta: Credit Suisse continues to outperform with a lowered price target from CHF120 to CHF105.
  • Novartis: UBS remains neutral with a price target reduced from CHF 86 to CHF 80.
  • Rieter: Credit Suisse remains neutral with a target reduced from CHF 121 to CHF 100.
  • Securitas: AlphaValue remains long with a reduced target of SEK 159 to 137.
  • Soprano: Inderes goes from selling to reducing, targeting EUR0.82.
  • Symrise: Morgan Stanley moves from neutral to underweight targeting EUR91.
  • Thales: Jefferies remains long with a target reduced from €145 to €135.
  • TotalEnergies: JP Morgan moves from neutral to overweight targeting EUR62.
  • Unilever: Berenberg flips from hold to buy, targeting EUR55.50.
  • Valeo: JP Morgan lowers its target price from EUR25 to EUR20.
  • Varta: Goldman Sachs moves from long to neutral, targeting EUR50. JP Morgan moves from overweight to neutral targeting EUR45.

In France

Important (and less important) announcements

  • TotalEnergies is making a significant $1.5 billion investment in gas in Qatar.
  • Airbus CEO reaffirms his confidence in the production target for 2025
  • Eurofins sells its “Digital Evidence” business to Stirling Square for €220m.
  • Alstom wins a €116 million contract in Italy.
  • A consortium led by Stéphane Courbit would offer EUR 20 per share of M6 Métropole Télévision to RTL Group with a view to a takeover, according to Bloomberg. Daniel Kretinsky would also be in the running, as would MFE-MediaforEurope.
  • Ramsay Générale de Santé has taken note of the termination of takeover talks between its owner Ramsay Health Care and the KKR-led consortium.
  • Valneva will only go ahead with the development of a second-generation COVID-19 vaccine if ongoing funding negotiations are successful.
  • Biosynex launches a friendly takeover bid at EUR 2.30 per share for Theradiag.
  • Towards a takeover bid at EUR 0.19 for Atari shares, presented by Irata, which has no intention of withdrawing the listing file. The operation has the support of the General Manager and the board of directors.
  • Capelli is preparing an urban redevelopment project for the new CPAM headquarters in Bordeaux.
  • Vergnet signs dilutive financing of OCABSA with Negma.
  • Egide raises 1 million euros through a bond placement with Vatel Capital. At the same time, the group requested the financial sponsor of the Egide USA and Santier subsidiaries to postpone the maturities by 3 months while negotiating with Gibraltar Capital.
  • Augros, Soditech and Lysogene have published their accounts.

In the world

Important (and less important) announcements

  • Volkswagen floats Porsche on the stock market on Thursday.
  • Italy and Intel choose Veneto as the preferred region for a new chip factory.
  • PG&E will replace Citrix in the S&P500. EQT Corp will replace Duke Realty.
  • Glencore fined $486 million for its US market manipulation scheme.
  • Credit Suisse management has issued an internal memorandum in an attempt to reassure its employees following the recent rumours.
  • RWE signs an alliance with ADNOC for the supply of LNG.
  • Vodafone plans to sell its stake in Vantage Towers.
  • The outgoing chief financial officer of the Burberry group will take up the same role at GSK.
  • Justin Boxford named Global Brand President of The Estée Lauder.
  • AstraZeneca will discontinue the cholesterol drug Ionis after failing to meet the efficacy threshold in the phase II study.
  • TPG closes its SPAC TPG Pace Beneficial Finance Corp and reimburses investors for lack of attractive investments.
  • Givaudan joins LanzaTech to manufacture fragrance ingredients from renewable carbon.
  • Main publications of the day: Quadient, Leclanché… All the agenda here.


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