Weekly market update : A hope's feeling

06/24/2022 | 05:00pm
Despite the fears of recession that have affected the financial markets in recent weeks, the major indexes are trying to get back into the green this Friday, with the bond market easing considerably and oil prices falling. The recent monetary tightening by central banks had raised serious concerns, but some cheap purchases are allowing the main indexes to record positive weekly performances. However, volatility is expected to continue with the start of the second quarter earnings season.
Weekly variations*
DOW JONES INDUST...
31500.68  +5.39%
Chart DOW JONES INDUST...
NASDAQ 100
12105.85  +7.45%
Chart NASDAQ 100
FTSE 100
7208.81  +2.74%
Chart FTSE 100
GOLD
1826.62$  -0.64%
Chart GOLD
WTI
107.50$  -2.68%
Chart WTI
EURO / US DOLLAR
1.06$  +0.61%
Chart EURO / US DOLLAR
This week's gainers and losers

Top gainers:

  • Roblox (+35.38%) benefited from a large purchase movement as investors were eager to take advantage of the stock's decline from near all-time lows.
  • Chewy (+31.72%), the pet products specialist, surprised the market with an unexpected quarterly profit of $18.5 million and encouraging annual forecasts, above expectations.
  • Zendesk (+33.1%), the software specialist dedicated to customer service, will be acquired by a group of companies led by Hellman & Friedman and Permira. The amount of the transaction is not known but its valuation is around 7 billion dollars.
  • Snowflake (+23.49%) the cloud data platform provider opens this week higher after a surge in technology. JP Morgan upgrades the company from neutral to overweight on Thursday and boosts the stock.
  • JD Sports fashion (+11.79%), the London-listed sportswear retailer, unveiled an annual profit that more than doubled to £655 million from £324 million the year before.

 

Biggest losers:

  • DaVita (-12.9%) lost its dialysis coverage dispute with an Ohio hospital in the Supreme Court. The group accused the hospital of treating dialysis providers as out-of-network and refund them at the lower rate.
  • Freeport-McMoran (-12.6%) the American mining group is paying, like its counterparts in the sector, the disaffection of investors for raw materials this week.
  • Darling Ingredients (-8.22%) after global consumption fell. Production has been impacted and the stock price is falling.
  • Mosaic company (-7.75%) the US nutrient producer saw its operating volumes decline despite higher potash and phosphate sales.
  • Devon Energy Corp (-4.69%), the specialist in oil exploration and production, saw its share price fall drastically after the drop in commodity prices.
Chart Commodities
Commodities

Oil: Second week of decline for oil prices, which remain under pressure due to headwinds on the macroeconomic front. Fears are growing thanks to Fed policy, which could push the U.S. economy into recession to contain inflation. In a short term, the energy market remains under tight, that the International Energy Agency expects to intensify as a result of Russia's shrinking supply. Prices have dropped with North Sea Brent at USD 113 per barrel and US WTI light crude at USD 108.

Metals: Another downward sequence for the industrial metals segment, which is affected by concerns about base metal demand. Copper is now trading around USD 8,500 per ton, a far cry from its peak of USD 10,700 in March 2022. This price drop affects zinc, although inventories have been contracted again according to LME data, a sign that the sector remains tight. In precious metals, recession fears have not allowed gold to take its revenge. The price of the golden metal remains challenged by positive real yields in the bond markets, which weigh on the barbaric relic, without offering any yields.

Agricultural Commodities: They did not escape the general price decline this week. Improved wheat growing conditions in the US, highlighted by the USDA in its latest weekly report, overshadowed the stalled negotiations in Ukraine regarding the return of Ukrainian supply to international markets via the Black Sea. Recent Russian bombings targeting Ukrainian ports, such as Mykolayiv, do not bode well for further talks. Wheat is thus trading lower in Chicago at 950 cents per bushel. Corn prices stabilize at 752 cents per bushel. Finally, let's note the fall of cotton prices by almost 15% this week, to USD1.22 per pound. 

Chart Commodities
Macroeconomics

Atmosphere: Two rooms, two atmospheres. Macroeconomic statistics are not necessarily in line with the clear rebound of stock market indexes this week. The Flash PMI indicators, the barometer of corporate purchasing managers, are in clear decline between May and June in Germany, France and the United States especially. This week, investors have stopped panicking at every offensive statement from central banks. They have regained the taste of risk, on hopes of cheap buybacks mixed with bets on a less punishing rate hike trajectory than expected. A fragile stock market rebound that gained strength throughout the week.

Interest rates: The yield on U.S. government bonds continued to fall, returning to around 3.10%. In other words, investors believe that the Fed will not have to raise rates as high as they feared ten days ago. An optimistic reading is because the central bank is winning its battle against inflation. A more cynical view might be that the upcoming recession will force the Fed to take its foot off the brake anyway. Traders are more nervous, the 5-year yield is still a little higher than the 10-year. In Europe, the German Bund has eased to 1.48% compared to last week, although it is in a bit of a recovery phase at the end of the week. The French OAT is paying 2.02% and the Italian signature is at 3.48%, a spread that is up 200 points with Germany.

Currencies: The EUR/USD pair is hardly moving at USD 1.0551. The Swiss franc continued to rise against the euro, reaching CHF 1.0075 for EUR 1. This was due to the aftermath of the Swiss National Bank's somewhat unexpected double rate hike the week before. Last week, UBS expected a return to parity within a few weeks. "The SNB has a more convincing tightening strategy than the ECB," the bank said. Both currencies continue to slide against the ruble, which is about 30% above its levels of the beginning of the year against them. Vladimir Putin's gamble to force Westerners to pay their energy bills in rubles is paying off for now.

Cryptocurrencies: For its part, bitcoin is just about even on a week, around $21,000 at the time of writing. After losing nearly 35% of its capitalization since the beginning of June, the digital currency is back gravitating to a price area that represents the peak of the 2017 bull market. In a macroeconomic environment that remains unfavorable for risky assets, crypto-investors may still be in for a scare before they see bitcoin reverse its downward trend. 

Calendar: Top central bankers are attending an ECB event in Portugal on Wednesday. A discussion will even mix Christine Lagarde, Andrew Baley and Jerome Powell that day at 3:30 pm. The US consumer confidence index will be published on Tuesday and German inflation for June on Wednesday (to see how the ECB will be eating us up in the coming weeks). On Thursday, we'll be looking at PCE inflation in the United States, an indicator that the Fed closely follows in order to conduct its monetary policy.

Historical Chart
A hope's feeling
The markets look like they will bounce back from their stabilization at the beginning of the week. The context has not changed, but some of the fears about the possible upcoming recession seem to have been partially incorporated into prices. As a reminder, the Fed has to fight inflation by raising its key rates. If rates are raises too high and the slowdown persists, it could lead to a decline in growth and therefore a possible recession. Some are even talking about stagflation, a buzzword that the markets have historically feared and that we have not heard since the 1970s. The current conditions call for investors to remain cautious in their choice of investment. They should pay particular attention to the quality of the companies in their portfolios, focusing on profitable companies with solid free cash flow, low financing needs, low debt, structural pricing power, and a certain recurrence of results over time, while showing little correlation with economic cycles. In any case, this is our conviction at MarketScreener for the weeks and months to come. After all, a recession is not the end of the world. Long-term investors are not so worried about the current market downturns and will take advantage of the opportunity to accumulate cheaply.
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*The weekly movements of indexes and stocks displayed on the dashboard are related to the period ranging from the open on Monday to the sending time of this newsletter on Friday.
The weekly movements of commodities, precious metals and currencies displayed on the dashboard are related to a 7-day rolling period from Friday to Friday, until the sending time of this newsletter. These assets continue to quote on weekends.
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