China added to the list of investors' fears

05/16/2022 | 10:39am

Wall Street's main indexes opened lower today, weighed down by fears over an economic slowdown in China. Visibility remains poor on the state of the global economy in the quarters to come, and the Chinese statistics released yesterday only added more worries.

This comes after US markets recorded their sixth consecutive week of decline, which is a rare occurrence, since we have to go back to the disastrous year 2008 to come across such an episode. The background is always the same: the US central bank is engaged in a relentless program to fight inflation by raising interest rates, which could lead to a recession.

The pattern is quite classic for the nervous period we are currently experiencing: we're seeing powerful buying movements by investors hoping to position themselves on a low point.

Sentiment deteriorated further with the release of weak retail sales in China, which have collapsed due to the so-called "zero-covid" policy. They dropped 11.1 % year on year, compared with expectations of a 6.6 % in a Bloomberg consensus. Retail sales fell in March, down 3.5 per cent year on year.

Industrial production is floundering for the same reasons. China's economic woes are bad news for the rest of the world for many reasons, but mostly because they are weakening one of the engines of global growth and fueling the shortages that have been plaguing the world for over two years.

In addition, India decided to ban wheat exports to prevent domestic prices from soaring. The country is the world's second largest wheat producer behind China, but it is a very small exporter because its huge domestic market absorbs almost all of its production. Delhi wants to prevent its producers from seeking more attractive prices abroad. The market for agricultural commodities continues to tighten. The price of the GSCI basket (wheat, corn, soybeans, coffee, sugar, cocoa and cotton) is up 35% since the beginning of the year, mainly because of wheat.


Economic highlights of the day:

The Empire State index is the main indicator of the day.

The dollar is trading at EUR 0.9608. Despite tensions, the ounce of gold continues its decline to USD 1810. Oil is still well anchored in its current range, with North Sea Brent at USD 110.57 per barrel and US WTI light crude at USD 109.20, with a narrowing spread. The yield on 10-year US debt is still stuck at 2.89%. Bitcoin is trading around USD 30,000, down after last week's big rebound.


On markets:

* McDonald's announced Monday that it will permanently leave Russia, where it has operated for 30 years, because of the war in Ukraine.

* Twitter - Elon Musk, who has suspended the process of buying Twitter, announced Saturday that the group's legal team is accusing him of violating a confidentiality agreement by revealing that the social network uses a sample of 100 followers to determine the number of fake accounts on the platform. The Twitter share, which has already chained six consecutive sessions of decline, was still losing 3.5% in pre-trade.

* Tesla is delaying by at least a week its plan to bring production at its Shanghai plant back to the level it was at before the Chinese city's COVID-19 containment, an internal document seen by Reuters shows.

* JetBlue Airways launched a hostile takeover bid for rival Spirit Airlines on Monday at $30 a share after the low-cost airline rebuffed its advances two weeks ago, preferring the existing deal for a merger with Frontier Airlines. In pre-Wall Street trading, Spirit stock was up 17.6 percent and JetBlue was up 2.7 percent.

* Ford sold seven million shares of electric car maker Rivian Automotive for about $188.2 million, or $26.88 per share, according to a stock exchange filing made public Friday. In pre-market trading, Rivian was down 2.1 percent.

* Carlyle announced Monday that it had reached an agreement with Mantech International to acquire the defense group for $3.93 billion in cash. In pre-market trading, ManTech gained 11%.

* Steel group Nucor announced that it has acquired garage door manufacturer C.H.I. Overhead Doors from the KKR fund in a deal valued at $3 billion.

* Pfizer and BioNTech announced Friday that they have agreed to defer shipments of their COVID-19 vaccines for three months to the European Union, which is gearing up for a potential fall recall campaign.


Analyst recommendations:

  • Alibaba: J.P. Morgan upgrades ADRs to overweight from underweight. PT rises 48% to $130.
  • Aviva: Goldman Sachs downgrades from buy to neutral targeting GBp 500.
  • Barclays: Jefferies remains Buy with a price target raised from GBp 269 to GBp 316.
  • Dada Nexus: JPMorgan raises to overweight from neutral, price target to $10 from $7.50
  • Duke Realty: BMO Capital Markets upgrades to outperform from market perform. PT up 21% to $65.
  • Hyatt: Berenberg upgrades to hold from sell. PT up 1.7% to $85.
  • J.P. Morgan upgrades ADRs to neutral from underweight. PT up 13% to $58.
  • Inter Parfums: Citi raised the recommendation to buy. PT up 36% to $99.
  • Kainos: Berenberg downgrades from buy to hold with a target of GBp 1200.
  • Marathon Petroleum: Goldman Sachs downgrades to neutral from buy. PT up 6.4% to $102.
  • Netflix - Wedbush raised its recommendation to "outperform" from "neutral.
  • Nielsen Holdings: BMO Capital Markets downgrades to market perform from outperform. PT up 11% to $28.
  • Phoenix Group: Goldman Sachs upgrades from neutral to buy targeting GBp 857.
  • Renishaw: Berenberg remains Buy with a price target reduced from GBp 6600 to GBp 5100.
  • RH: Morgan Stanley initiated coverage with a recommendation of equal-weight. PT set to $400, implies a 38% increase from last price.
  • Twilio: Baird downgrades to neutral from outperform. PT up 8.3% to $120.
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