Today on Wall Street: Markets at a pivot point

09/21/2021 | 09:40am

Equity markets narrowly escaped panic selling yesterday, but not a severe correction. As the transition period for monetary policies has started, the Chinese economic slowdown and the notorious China Evergrande affair have pushed up the risk premium. Investors now seem to be waiting for a gesture from Beijing regarding both the risk of bankruptcy of the property developer and the revival of activity.

Wall Street recorded yesterday its biggest drop since last May because of the China Evergrande crisis. But the US indices avoided the correction by finishing in the ascendant phase and not at the bottom of the hole. The S&P500 gave back 1.7% at the bell, after falling to -2.9%. The airline sector in the broad sense soared thanks to Washington's announcement of easing travel restriction for vaccinated European travelers.

Regarding Evergrande, the prognosis is largely vital but nobody knows if the patient will contaminate the whole hospital. Chinese authorities do not want to give in to calls for bailouts too easily, so as not to set a precedent as they try to clean up an overheated construction sector. At the same time, they cannot risk shattering a property market that accounts for nearly three-quarters of the country's middle-class wealth. This situation has increased volatility on stock markets. It seems reasonable to think that Evergrande will go bankrupt so that Beijing can make an example out of this case, but that authorities will do their best to cauterize the wound. In any case, this is the scenario on which a majority of investors are betting. After all, the CCP has not so far deployed one of the expensive plans that the West has implemented to counter the effects of the coronavirus.

Will this episode be taken into account by the U.S. central bank when it communicates its monetary policy stance tomorrow evening? The Fed will probably include it in its risk modeling, but its focus is elsewhere. It should maintain the current course while indicating when it will start reducing its asset purchase program. Those in the know point out that the September communication will be accompanied by new growth and inflation projections.

The mood on financial markets is better this morning. with the announcement that the U.S. eased travel restrictions for vaccinated European and U.K travelers. Pfizer’s announcement that its vaccine was safe and efficient in children also lifted investor sentiment.

The FTSE 100 was up by 1% this morning following these announcements. However, everything could change tomorrow…


Today's economic highlights:

Investors will focus on the August building permits and housing starts in the United States today.

The dollar edged up to EUR 0.8519. Gold is trading at USD 1,771 per ounce, while oil is back up a few cents to USD 74.46 per barrel of Brent and USD 70.65 per barrel of WTI. Bond yields have more or less frozen after being choppy over the weekend, with a Bund at -0.32% and a 10-year T-Bond at 1.32%. Bitcoin suffered severe sell-offs yesterday and hovers around USD 43,000


On markets:

* Uber jumped nearly 7% in pre-market trading after announcing that it could make the first adjusted profit in its history in the current quarter thanks to better-than-expected business. The VTC services group expects to post an adjusted Ebitda in the third quarter between a loss of 25 million dollars (21.3 million euros) and a profit of the same order, and in the fourth quarter a positive Ebitda which could reach 100 million dollars.

Johnson & Johnson - The stock is up 1% in pre-market trading. The pharmaceutical company announced Tuesday that a second dose of its Covid-19 vaccine administered about two months after the first dose achieved 94% efficacy against moderate to severe forms of the disease in a clinical trial involving 30,000 participants.

* US Bancorp - Japan's Mitsubishi UFJ Financial Group (MUFG) has completed the sale of the retail financial services business of its U.S. subsidiary MUFG Union Bank to US Bancorp for approximately $8 billion (€6.8 billion).

* ConocoPhillips will buy Royal Dutch Shell's Permian Basin business in the United States for $9.5 billion (€8.1 billion).

* The Boeing Company estimates that demand for aircraft in the European market should reach 7,100 single-aisle aircraft by 2040, mainly due to the needs of low-cost airlines.

* Activision Blizzard announced Monday evening that it is being investigated by the Securities and Exchange Commission (SEC), the U.S. financial regulator, regarding its working conditions. The publisher of the "Call of Duty" game has already been hit with claims of gender discrimination and sexual harassment.

* JPMorgan Chase launched on Tuesday in Great Britain a bank for individuals via a mobile application, a first for the group outside North America, with the ambition to compete with Lloyds, Barclays, NatWest or HSBC.

* Robinhood Markets is testing new cryptocurrency wallet features that allow users to receive and transfer assets like bitcoin, Bloomberg reported Monday.

* Netflix on Monday launched a free, ad-free package of its video-on-demand service in Kenya for users with an Android-based smartphone. The package includes only about a quarter of the available programs, and the U.S. group hopes to convince customers to upgrade to the paid package after testing the free package.


Analyst recommendations:

  • American Homes 4 Rent : Evercore ISI upgrades to outperform from in line
  • Big Lots:  Piper Sandler cut its recommendation to neutral from overweight. PT up 5.2% to $50
  • Brewin Dolphin: Barclays starts tracking Overweight with a target of GBp 430.
  • Canadian National Railway : Cowen adjusts PT to $119 from $110, maintains Market Perform rating
  • Electronic Arts: Wedbush adjusts PT to $200 from $194, maintains Outperform rating
  • Equity LifeStyle Properties : Evercore ISI downgrades eto in-line rating from outperform, adjusts price target to $85 from $86
  • Equity Residential : Evercore ISI upgrades equity residential to outperform rating from in-line, adjusts price target to $89 from $85
  • M&C Saatchi: Liberum remains long with target raised to GBP 240 from GBP 235.
  • Oshkosh: Jefferies downgrades to hold from buy. PT down 1.7% to $105
  • Prologis: Evercore ISI downgrades to in-line rating from outperform, price target is $135
  • Provident Financial: KBW change its recommendation from Outperform to Market Perform targeting GBP 325
  • Rathbone Brothers: Barclays upgrades to Overweight targeting GBP 2500. 
  • Texas Instruments : Longbow Research downgrades texas instruments to neutral from buy
  • Walt Disney: Daiwa Securities initiated coverage of Walt Disney Co. with a recommendation of buy. PT raised 26% to $225
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