Wall Street bounces back

12/06/2021 | 12:01pm

Everything today is still revolving around the new Omicron variant and its characteristics. We had left last week on bad omens, but we start again this Monday with more optimistic reports. Preliminary data from South Africa suggests that Omicron is indeed highly contagious, but with milder symptoms than its predecessors. On CNN, the White House special advisor for the health crisis said that, as things stand, the variant "does not present a high degree of severity".

Western stock markets are bouncing back. The story that has been told since yesterday is better than the one that has been pouring out of the media for the last ten days. This is how financial markets go: from delayed start-up to overreaction. But let’s not forget that holidays are postponed, Christmas markets are cancelled, and restaurants are going out of business. Carriers and accommodation providers are once again in turmoil. The strong overall growth does not prevent some sectors from being down again.  

The most important "macro" statistic in the coming days is on Friday, with US inflation figures for November. Economists expect prices to continue to accelerate, by 0.7% between October and November. This would be a little weaker than the previous month (+0.9%), but it would still be very high, especially compiled in annual variation: +6.7%. If prices continue to slip, investors may think that the Fed will have to tighten monetary policy three times next year, whereas they are currently counting on two. For the record, equity markets do not like the prospect of a rate hike, because it means less liquidity. The week, we also have the official introduction of the new coalition government in Germany and the debates on the US debt ceiling. There will be relatively few indicators, before a particularly intense week 50, which will notably see the Fed (Wednesday 15) and the ECB (Thursday 16) hold their final 2021 monetary policy meetings.

Finally, a few words on cryptocurrencies. The weekend was turbulent with spectacular falls, before a fragile rebound. Bitcoin, which was trading near USD 59,000 a week ago, is trading below USD 49,000 this morning. On Saturday, it even fell to around USD 41,100, a drop of almost 30% in a week. Most other cryptos have gone the same way. Let’s not go any further into this territory, for lack of a rational explanation.

 

Economic highlights of the day:

German factory orders for October are the main indicator of the day.

The dollar/euro pair is trading at EUR 0.8868. The ounce of gold remains inert at USD 1778. Oil is stabilizing at USD 71.9 per barrel of Brent and USD 68.33 per barrel of WTI. The yield on 10-year US debt falls to 1.38%, while the French OAT moves back into slightly negative territory over the same duration. Bitcoin was severely shaken over the weekend to return to around USD 49,000.

 

On markets:

* Alibaba - The Chinese giant announced on Monday a reorganization of its international and domestic online commerce businesses into two entities named "International digital commerce" and "China digital commerce", as well as the replacement of its CFO Maggie Wu by her deputy Toby Xu starting in April. Alibaba shares are up 2% in pre-market trading.

* KKR - As Telecom Italia's board of directors prepares to consider a €10.8 billion takeover proposal by U.S. fund KKR, Vivendi, TIM's largest shareholder, said Sunday it was ready to discuss with Rome a takeover of the Italian operator's fixed-line network.

* Kohl’s - U.S. investment fund Engine Capital LP, which owns about 1% of Kohl's, has asked the retailer to consider a sale of the group or a spin-off of its e-commerce business, the Wall Street Journal reported Sunday. Kohl's stock is up 3 percent in pre-market trading.

* GCP Applied Technologies - Saint-Gobain announced Monday that it has signed an agreement to acquire GCP Applied Technologies for an enterprise value of about $2.3 billion. GCP shares jumped 15% to $31 in pre-market trading.

* Lockheed Martin advances 0.76% in pre-market trading after a report Sunday from a Finnish newspaper that its F-35 is on the list of five aircraft models proposed to Finland as a new fighter jet alongside Saab AB's Gripen, Boeing's Super-Hornet, Britain's Eurofighter and Dassault Aviation's French Rafale.

* NVidia - The European Commission announced Monday that it has temporarily suspended its investigation into Nvidia's proposed acquisition of British chipmaker ARM pending further information.

* General Electric - Flynas Airlines signed a $4 billion agreement with CFM, a joint venture of Safran and General Electric, to service its LEAP-1A engines, a statement said Saturday.

* Lucid Group - The Securities and Exchange Commission requested documents from Lucid Group as part of its investigation into the automaker's merger with a SPAC (special purpose vehicle), sending the stock down about 15 percent in premarket trading.

* Goldman Sachs - The U.S. bank and the International Finance Forum (IFF), a Beijing-based think tank, announced Saturday that they have established a green finance working group to facilitate climate dialogue between multinational executives and researchers at leading institutions.

* Buzzfeed is set to make its stock market debut on the Nasdaq this Monday after merging with an SPAC (investment vehicle).

 

Analyst recommendations:

  • Abrdn: Morgan Stanley cut from Overweight to Underweight on GBp 266.
  • Apple: KeyBanc Capital Markets reinstated coverage of Apple with a recommendation of overweight. PT up 18% to $191
  • The Boston Beer Company: Cowen raised the recommendation on Boston Beer Co. Class A to market perform from underperform. PT gains 8.6% to $500
  • Centrica: Jefferies remains a Hold with a price target raised from GBp 58 to GBp 72.
  • Edwards Life: Piper Sandler raised the recommendation to overweight from neutral. PT lifted 22% to $56
  • Goldman Sachs: Morgan Stanley raised the recommendation to equal-weight from underweight. PT raised 25% to $479
  • Hibbett: Baird upgrades to outperform from neutral. PT jumps 45% to $100
  • Insmed: J.P. Morgan initiated coverage. with a recommendation of overweight. PT set to $45
  • Kistos: Berenberg starts tracking as Buy, targeting GBP 495.
  • Persimmon: Barclays downgrades from Overweight to Underweight with a target of GBP 2,500.
  • The PNC Financial Services Group: Morgan Stanley cut the recommendation to underweight from equal-weight. PT up 5.7% to $209
  • Steven Madden: Piper Sandlerdowngrades to overweight from neutral. PT up 22% to $56
  • SVB Financial: Morgan Stanley raised the recommendation to overweight from equal-weight. PT up 46% to $985
  • Synthomer: Morgan Stanley downgrades from Overweight to Underweight, targeting GBP 400.
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