The day after tomorrow

09/24/2021 | 08:13am

After two days of strong gains, Friday's session started in the red. Perhaps because the catalysts of the rebound are not as strong as expected, such as Evergrande, or perhaps because investors are digesting the latest announcements of the US central bank.

Will Evergrande's agony end in a bloodbath or in relative indifference? This major question from earlier this week was swept aside on Wednesday and Thursday by the prospect of the Chinese property developer meeting a debt deadline. But the deadline has now passed and there is no sign of this payment at the time of writing.

Beijing is said to be warning its regional relays to prepare for the group's bankruptcy. How far is Xi Jinping willing to go to reign in the real estate sector? Only he knows. Considering the depth of Evergrande's debt, let’s brace ourselves for many stressful payment deadlines. Western financial institutions exposed to the group are discreetly organizing the exfiltration of their positions to avoid being associated with the debacle.

In America, the Fed's statement on Wednesday night was about as smooth as expected on the surface, but still contained quite a bit of news in terms of inflation, growth and medium-term rate trajectories. In other words, the Federal Reserve painted a more restrictive monetary horizon, which led rates to move. US 10-year debt rose from 1.30% to 1.44%, while Bund yields rose to -0.26%, compared to -0.32% the day before. A reaction that seems rather normal given the announced outlook. We are not yet at the stage where investors are freaking out about the changes in bond yields, but it was worth noting that there was a flutter.

Now that the market has begun to integrate the Fed's adjustments, they will want to know more. U.S. central bankers will be providing them with slots today as several of them participate in fall conferences. Notably the head of the "doves" Jerome Powell and the more austere Esther George and Raphael Bostic, a little later in the afternoon.

Yesterday, the Federal Reserve published staggering statistics on the wealth of American households. It has increased by $32.2 trillion from the low point of the pandemic in March 2020, to reach $159.3 trillion at the end of last June. The consequences of the coronavirus are definitely full of surprises. An increase that is mainly based on financial assets (+21%) but also on other assets such as real estate and personal property including vehicles, jewelry or home equipment. "There is no doubt that the majority of the increase in wealth will have come from high-income and already wealthy households, as they will have been heavily invested in the winning asset classes," says ING chief economist James Knightley, who also believes that these affluent households did not spend their money on entertainment as they usually do, so their "unplanned savings" swelled. But this windfall is just waiting to be spent, which makes the economist confident about the outlook for U.S. consumption, especially since more modest households have also benefited from this pull. The other positive virtue of this increase in wealth is that the "balance sheet" of US households has never been stronger, as their assets have increased and their debts have decreased (details of the commentary here). This is extremely reassuring about the capabilities of the US economy.


Economic highlights of the day:

The Ifo index, is a measure of German business confidence for the month of September. New home sales figures for the United States are also published today.

The dollar is up to EUR 0.8536. The ounce of gold is trading at USD 1752. Oil is steady after taking another step up to USD 77.2 a barrel of Brent and USD 73.20 a barrel of WTI. The yield on 10-year US debt took off at 1.44% yesterday, while the Bund stands at -0.26%. Bitcoin is retreating to USD 41,000.


On markets:

* Nike on Thursday lowered its sales forecast for fiscal 2021-2022 and warned of a risk of shortages during the key holiday season due to tensions in its supply chains, which are driving up its costs. The stock is down 5% in pre-market trading.

* McDonald's announced Thursday a revival of its $15 billion share buyback program, suspended last year, and a 7% increase in the quarterly dividend paid to shareholders on the back of a turnaround in its business.

* The White House on Thursday asked automakers, chipmakers and other industry groups for information on the ongoing semiconductor crisis that is disrupting production in the U.S. auto sector.

* Tesla fell 1 percent to $746.22 in premarket trading, despite reassuring comments from CEO Elon Musk on Friday that new chip factories planned or under construction should help ease the industry's shortage next year.

* Twitter announced Thursday that it would allow its users to tip content creators on its platform in bitcoin and that it would launch a fund to pay some users hosting audio "chat rooms" on Spaces, its live conversation space.

* Alibaba is expected to open on Wall Street down 1.9% at $148.26, its lowest level since May 2019. The Chinese group's investment arm, which is in Beijing's crosshairs, will sell its entire stake in broadcaster Mango Excellent Media less than a year after taking a stake in it.

* Baidu fell 1.6 percent to $157.90 in premarket trading as two sources close to the matter told Reuters that China's competition authority was unlikely to give the green light to Baidu's $3.6 billion takeover of video specialist JOYY.

* Roku- The video streaming box maker fell 2.3% in pre-market trading after Wells Fargo lowered its recommendation on the stock to "weight online" from "overweight" due to increased competition from AMAZON, ALPHABET's main subsidiary Google, and COMCAST.

* Pfizer, BionTech - The U.S. Centers for Disease Control and Prevention (CDC) ruled Friday in favor of giving a booster dose of the two laboratories' COVID-19 vaccine to people 65 years and older, as well as certain adults with risk factors for developing a severe form of the disease. The decision comes after a CDC committee declined the day before to recommend a booster dose of the vaccine for certain occupations deemed at risk, such as teachers.


Analyst recommendations:

  • Autoliv: Morgan Stanley upgrades to equal-weight from underweight. PT down 1.8% to $85
  • BJ's Restaurants: Jefferies raised the recommendation to buy from hold. PT climbs 31% to $55
  • Boohoo: Liberum remains long with target cut from GBp 380 to GBp 360.
  • The Boston Beer Company : Consumer Edge Research adjusts price target to $520 from $499, maintains equalweight rating
  • Centamin: BMO upgrades from Market Perform to Outperform with a target of GBp 140.
  • Centerpoint Energy: KeyBanc Capital Markets upgrades to overweight from sector weight. PT up 13% to $28
  • Coca-Cola : Consumer Edge Research adjusts price target to $66 from $64, maintains overweight rating
  • Constellation Brands : Consumer Edge Research adjusts price target to $280 from $293, maintains overweight rating
  • Eargo : William Blair downgrades to market perform rating from outperform
  • Fevertree: Liberum remains Buy with a reduced target of GBP 2,740 to 2,530.
  • Genus: Investec downgrades to hold from buy. PT up 1.7% to 5,846 pence
  • Judges Scientific: Liberum remains long with target raised from GBp 7000 to GBp 7800.
  • Monster Beverage: Consumer Edge Research adjusts price target to $103 from $100, maintains equalweight rating
  • Molson Coors Beverage: Consumer Edge Research adjusts price target to $53 from $57, maintains equalweight rating
  • Red Robin: Jefferies upgrades to buy from hold. PT up 30% to $31
  • Royal Mail: Berenberg stays Hold with target reduced from GBp 550 to 530.
  • Philip Morris International: Consumer Edge Research adjusts price target to $117 from $126, maintains overweight rating
  • Salesforce: Piper Sandler upgrades to overweight from neutral. PT raised to $365
  • Superdry: Liberum remains Buy with target reduced to GBP 500 from GBP 600.
  • Tilray: Consumer Edge Research adjusts price target for tilray to $13 from $19, maintains equalweight rating
  • Walmart: Wolfe Research adjusts price target to $169 from $160, maintains outperform rating
  • Zalando: Liberum remains Buy with target reduced from GBp 110 to GBp 100.
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