Investors, who have been focusing for months on interest rates and inflation, are now turning their attention to the Middle East. The magnitude of the attack and its repercussion on the world economy and the stock market could be important and we'll only know the full extent of the repercussions in the coming weeks.
The Israeli army has gradually regained control of the situation, but criticism is mounting over the slowness of its response, especially as Hamas was able to take dozens of people hostage, both civilians and soldiers. The region is once again a powder keg. This crisis sent oil soaring over the weekend, along with gold. Both assets had been on a downward slope in previous sessions, suffering from a strong dollar and rising bond yields.
This morning, the situation in Israel caused futures to plunge, with Dow Jones Industrial Average futures down 0.6%, S&P 500 futures 0.7% lower, and Nasdaq futures down 0.9%.
Back to Friday’s session - the U.S. stock market ended with strong gains, after a difficult week that saw investors struggled with the thought of higher rates for longer. The U.S. 10-year debt climbed to 4.88%, before calming down a little and then climbing back to 4.8% over the weekend. In the bond market, there is often truth, and this shows bond investors believe the Fed is still at war with inflation and has no intention of letting its guard down.
Meanwhile, some important deadlines coming up: September's US inflation figures on Thursday, for example, and the first quarterly results from major companies starting on Tuesday. On the first point, investors should find plenty to persuade them that an upturn in interest rates is just around the corner. The latest price statistics point to a further decline. Economists expect this to continue.
On the corporate front, PepsiCo and LVMH will be taking a beating on Tuesday. So far, the big listed players have managed to pull several levers to compensate for the inflation-induced drying-up of consumer wallets. Remarkably so, since the market has been dreading poor results for several quarters now. But falling corporate profits are a bit like a recession: everyone talks about it, but it never comes. This doesn't mean results are flamboyant, but financiers have a relative view of things: they're less interested in the annual variation than in the positioning of figures in relation to market expectations. In any case, PepsiCo needs to restore investor confidence after being heckled last week by analysts alarmed at the effect of new obesity treatments, which reduce the appetite for sweet or fatty foods. As for LVMH, the market has been doubting for some time that the luxury goods sector has the capacity to keep up the pace of its golden decade, especially if Chinese growth falters. The sector's champion has even had to relaunch a vast poster campaign for Dior and Vuitton in Europe to boost sales there. The publication agenda also includes Porsche AG, Delta Air Lines and Publicis, as well as the leading US financials: UnitedHealth, Wells Fargo and BlackRock (Friday). The program will be considerably expanded the following week.
Economic highlights of the day:
The dollar rose to EUR 0.9501 and GBP 0.8218. The ounce of gold has rebounded to USD 1845. Oil is also recovering, with North Sea Brent at USD 87.67 a barrel and US light crude WTI at USD 85.92. The yield on 10-year US debt reached 4.80%. Bitcoin trades at USD 27,500.
In corporate news:
- United Airlines announced on Sunday that it was suspending flights to Tel Aviv due to the conflict between Israel and the Palestinian Hamas, saying it was waiting for conditions to improve before resuming operations. Delta Air Lines and American Airlines also announced the suspension of their direct flights to Tel Aviv.
- Bristol-Myers Squibb announced on Sunday that it had bought cancer drug manufacturer Mirati Therapeutics for $5.8 billion, enabling it to diversify into oncology.
- Tesla sold 74,073 electric vehicles manufactured in China in September, down 10.9% year-on-year, according to data released Sunday by the CPCA (China Passenger Car Association), an industry federation. Tesla shares are down 1.8% in pre-market trading.
- Walt Disney - Trian Fund Management has increased its stake in the U.S. entertainment group and intends to claim several seats on its board, including for its CEO Nelson Peltz, the Wall Street Journal reported on Sunday.
- Ford Motor announced on Friday its intention to cut a further 495 jobs in Ohio and Michigan due to the impact of the strike by employees represented by the United Auto Workers auto union.
- Citigroup announced on Monday the sale to HSBC Holdings of its wealth management activities in China, covering total deposits and investment assets of around $3.6 billion.
Analyst recommendations:
- 3m co: Wells Fargo maintains its equalweight recommendation with a price target reduced from USD 115 to USD 93.
- Amgen inc: Oppenheimer maintains its outperform rating and raises the target price from USD 280 to USD 290.
- Assura plc: Numis maintains its hold recommendation with a price target reduced from GBX 58 to GBX 50.
- Aston martin: Kepler Cheuvreux downgrades its recommendation to reduce and lowers the target price from GBX 335 to GBX 200.
- Bodycote plc: Numis downgrades to hold from add with a price target reduced from GBX 730 to GBX 700.
- Canadian pacific: Goldman Sachs maintains its buy recommendation with a price target reduced from CAD 119 to CAD 117.
- Carrier glob: Wells Fargo maintains its equalweight recommendation and reduces the target price from USD 60 to USD 55.
- Csx corp: Goldman Sachs maintains its buy recommendation and reduces the target price from USD 39 to USD 37.
- Dover corp: Wells Fargo maintains its equalweight recommendation with a price target reduced from USD 152 to USD 140.
- Eaton corp: Wells Fargo maintains its equalweight recommendation and reduces the target price from USD 228 to USD 210.
- Eli lilly: Wells Fargo maintains its overweight rating and raises the target price from USD 615 to USD 650.
- Emerson elec: Wells Fargo maintains its overweight rating and reduces the target price from USD 110 to USD 105.
- Ferguson plc: Goldman Sachs maintains its buy recommendation and raises the target price from GBX 14150 to GBX 16050.
- Fortive corp: Wells Fargo maintains its equalweight recommendation with a price target reduced from USD 79 to USD 75.
- Games workshop: Goodbody maintains its buy recommendation with a price target raised from GBP 122 to GBP 126.
- Honeywell int: Wells Fargo maintains its equalweight recommendation with a price target reduced from USD 205 to USD 190.
- Illinois tool wo: Wells Fargo maintains its equalweight recommendation with a price target reduced from USD 250 to USD 235.
- Impax asset mana: Singer Capital Markets downgrades to hold from sell with a price target reduced from GBX 645 to GBX 480.
- Ingersoll-rand: Wells Fargo maintains its overweight rating and reduces the target price from USD 76 to USD 70.
- Johnson controls: Citi maintains its neutral recommendation with a price target reduced from USD 68 to USD 58.
- Norfolk southern: Goldman Sachs maintains its buy recommendation with a price target reduced from USD 267 to USD 257.
- Otis worldwi: Wells Fargo maintains its equalweight recommendation with a price target reduced from USD 92 to USD 82.
- Parker-Hannifin: Wells Fargo maintains its overweight rating and reduces the target price from USD 465 to USD 425.
- Pepsico: Wells Fargo maintains its equalweight recommendation with a price target reduced from USD 196 to USD 170.
- Rhi magnesita: Numis downgrades to hold from reduce with a price target raised from GBX 2500 to GBX 2750.
- Rockwell automat: Wells Fargo maintains its equalweight recommendation with a price target reduced from USD 317 to USD 291.
- Royal caribbean: Wells Fargo maintains its overweight recommendation with a price target reduced from USD 127 to USD 123.
- Charles Schwab: Piper Sandler & Co maintains its overweight recommendation and reduces the target price from USD 86 to USD 75.
- Stanley black &: Wells Fargo maintains its equalweight recommendation with a price target reduced from USD 102 to USD 82.
- Tesla: Wells Fargo maintains its equalweight recommendation with a target price reduced from USD 265 to USD 260.
- Ti fluid systems: Numis downgrades to hold from reduce with a target price raised from GBX 120 to GBX 130.
- Trane technologi: Wells Fargo maintains its underweight recommendation with a price target reduced from USD 195 to USD 190.
- Union pac: Goldman Sachs maintains its buy recommendation and reduces the target price from USD 240 to USD 230.
- Xylem inc: Citi maintains its neutral recommendation with a price target reduced from USD 125 to USD 101.
- Zscaler: Barclays upgrades to overweight from equalweight with a price target raised from USD 176 to USD 190.