Bar Friday's session, financial markets had a turbulent week. This is particularly the case in the US, with inflation at its zenith and fears that the Fed's aggressive tightening of monetary policy will harm economic growth and corporate profitability. Jerome Powell nevertheless tried to reassure investors by ruling out the scenario of a 75 basis point hike at the next two meetings.
Biohaven (+56%): The US pharma company specializing in migraine drugs received a takeover offer from Pfizer for $11.6 billion.
Swedish Match (+31%): Another takeover bid this week, on the Swedish tobacco specialist, bought by Philip Morris for some 16 billion dollars.
Next (+6%): Britain's retailer Next maintained profit forecast after higher quarterly sales
UCB (-14%): The FDA has informed the company that it will not approve the psoriasis treatment bimekizumab as is. The marketing approval will therefore be delayed, which is bad news for the company and its 2022 targets.
Bilfinger (-28%): The industrial supplier sees its stock fall heavily on the week, but part of the contraction is explained by the detachment of a dividend. However, "the 2022 forecasts imply a drop in the consensus", warns UBS, which remains cautious on the file.
Unity Software (-38%): The stock sank on Wednesday, after the announcement of quarterly results in losses and very conservative forecasts. Daiwa Capital reduced its recommendation on the 3D animation specialist from Outperform to Neutral after these poor figures.
Coinbase (-43%): The fall of bitcoin, bad results and a cryptocurrency ecosystem that is wavering weigh heavily on the stock over the week.
International Consolidated Airlines Group (IAG) (-14%): The stock fell after Barclays lowered its price target. The group is facing operational problems at British Airways thwarting the recovery this summer.
Oil hovered between USD 100 and USD 110 for the two global benchmarks, Brent and WTI. Traders took note of a number of data on the state of supply and demand as the International Energy Agency (EIA) and OPEC revised their forecasts as part of their latest monthly report on oil markets.
In broad terms, the EIA expects that the decrease in Russian supply, which could reach 3 million barrels per day (mbd), will be offset by increased production in the United States but also in OPEC. As for demand, its growth has been lowered once again due to a more modest global economic growth. On the OPEC side, the cartel is surprisingly much more optimistic about demand dynamics, which should grow by 3.36 mbpd in 2022 (versus 1.8 mbpd for the EIA).
This is certainly good news for central bankers, as industrial metal prices continue to fall. The mood at the LME remains heavy due to the short-term demand outlook, which remains strongly linked to the health of the Chinese industry. The latter is still being hit hard by Beijing's zero-covid policy. In terms of prices, copper has dropped nearly 7% since January 1 to USD 9,000 per ton.
In precious metals, gold is moving away from the USD 2,000 mark day by day, weighed down by the rising dollar and rising bond yields.
The USDA said this week that U.S. wheat production is expected to contract to 14.5 billion bushels this year (from 15.1 billion last year), a decline mainly due to a reduction in crop area. Amidst the fertilizer shortage, U.S. farmers have shifted to less fertilizer-intensive crops such as soybeans, which are expected to increase from 4.4 billion to 4.6 billion bushels year-over-year. As a result, wheat prices climbed in Chicago to the 1200 cent per bushel line.
Atmosphere: With or without a parachute? Central banks are slowly moving the anti-inflation guerrilla camp, which is causing investors to break out in a cold sweat, as they fear the evaporation of growth that looked untouchable not so long ago. The optimists believe that the efforts will bear fruit without too much damage to economic activity. The majority fear a hard landing. The pessimists talk about stagflation and bring up the charts of previous oil shocks.
Rates: The Fed reiterated its determination to bring inflation under control, but rates paradoxically eased this week. The 10-year US yield went from 3.12% last Friday to 2.92% today. Investors are well aware that the central bank is going to raise rates with determination, but they are (slightly) less afraid that it will brutalize them with a three-quarter point turn in July. In Europe, yields also fell from the previous week as the ECB looks to be setting the stage for an early summer rate hike. The German Bund is at 0.92% and the French OAT at 1.43%, 20 points lower than last Friday.
Currencies: The dollar continues to pressurize all other currencies because of the power of risk aversion. The euro made a foray below $1.03 during the week. Parity is not far off. The greenback also benefited from the decline in commodity currencies. The Dollar Index is flirting with 105 - levels not seen for 20 years.
Cryptocurrencies: The digital assets market has not escaped the stock market purge of recent days. In the wake of global indexes, bitcoin is shedding more than 10% of its capitalization this week and is back to hovering around $30,000 as of this writing. The digital currency could well sign its seventh consecutive week of decline in this macroeconomic context, which does not inherently have bullish catalysts.
Calendar: The European Commission is due to announce its new economic forecasts on Monday at 11am. On Tuesday at 2:30 pm, investors will take note of the US retail sales in April, to see how the sacrosanct American consumer is reacting to inflation. On the same day, Fed boss Jerome Powell will give a speech that will obviously be watched by investors. Finally, on Wednesday, the British statistical institute will publish the April inflation figures.
King of Pain
Jerome Powell (aka King of Pain) might as well be singing the chorus of the Police's legendary song. In his last two speeches, the President of the US Central Bank warned us about the pain of the process underway. The Fed hopes to achieve a soft landing following several rate hikes, limiting the damage on growth. But if the landing is more like a big BOOM (a rougher landing, let's say), a stagflation could set in. This scenario is particularly feared by investors. Is the king of pain really able to pull off off this feat? Isn't the Fed a little late in raising rates? Only time will tell. In any case, this week has shown us that the market is rather dubious about a soft landing, and believes rather in a painful landing.
Things to read this week
Top Economic Forecaster Christophe Barraud - Interview - An overview of supply chain headwinds
What are the elements that are crystallizing the tensions in supply chains?
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Fertilizers: Another crisis is looming
Russia's invasion of Ukraine has resulted in sanctions from Western countries. As a result, raw material exports will be heavily impacted. We often hear about... Read more
PUMP / DUMP #31 : The week's gainers and losers
Today, our list includes Biohaven Pharmaceutical, Swedish match, Olympus, UniCredit, Fortum, Coinbase, Unity Software, Bilfinger, UCB and Roche.
*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.