Closing Report 12.11.2021

INFLATION : Highest rise in three decades

AMERICAN MARKETS MID-DAY

At the start of the week, the S&P 500 index came close to a new record at 4,702.5 with a rise of 0.11%, Nasdaq composite gained 0.2%, and Dow Jones industrial average less than 0.1%. The price index is still at its highest level for five years. According to analysts, it’s a strong earnings season. Refinitiv reports that 81% of S&P 500 companies have reported results that have topped analyst forecasts. Tesla did not start the week well with a 2.8% drop in share price following a Twitter announcement by Elon Musk promising to sell 10% of his Tesla shares.

On Tuesday, bitcoin reached a new record high of $68,525.84, up 3.6% from the previous day’s closing price. General Electric shares rose 7% after the company announced that it would split into three publicly traded units with one for aviation, one for healthcare, and another one for energy. PayPal, however, is suffering a hard price with a 9% drop following the announcement of lower-than-expected results from Wall-street, while Tesla’s share price fell by 12% following Elon Musk’s announcements the previous day.

After eight record-breaking closing sessions, the S&P 500 fell 0.9% on Wednesday following the release of inflation data showing it at its highest level in 30 years (6.2% in one year).

Due to concerns about climate change and rising fuel prices affected by inflation, shares in companies producing electric vehicles rose sharply on Thursday. This was particularly the case for Rivian Automotive, which was up 7.7% before the market opened on Thursday. On Thursday, inflation fears were felt in the stock market. After falling on Wednesday following eight consecutive sessions of gains, the S&P 500 ended the session up 0.1%, while the Dow Jones Industrial Average fell 0.4%.

Following an announcement of declining subscriber growth, Walt Disney fell 7.1%, its biggest drop since June 2020 by registering only 2.1 million new customers while Netflix achieved more than double.

The S&P 500 ended the week with a gain of 0.6%, a return to the upside that is still held back by the release of inflation data on Wednesday. The persistence of higher-than-expected inflation has traders convinced that borrowing costs will rise by June 2022.

EUROPEAN MARKETS CLOSING

Earlier this week, the CAC 40 had a rather quiet day and remains at its highest level for 5 years with a slight increase compared to last Friday’s closing price +0.09% standing at 7,408.47 points driven mainly by the luxury sector.

Bouygues shares fell by 5% at the close of trading on Monday following its deal to buy Equans, whose purchase price is considered too expensive by investors. However, this operation should enable Bouygues to become the world’s number two in multi-technical services behind Vinci.

On Tuesday, the CAC 40 missed a ninth closing session with a decline of 0.06%. The luxury goods sector also suffered a slight decline due to increased risks in China under the Common Welfare Policy. Thus, Goldman Sachs downgraded its opinion on Hermes which fell by 1.77%, and Moncler 3.26%, except for Kering which gained 2.66%.

On Wednesday, investors were most concerned about the impact of the US inflation figures on price movements. The Cac 40 remained stable and barely managed to gain 0.03%.

The rise in electricity and gas prices is having a positive effect on the financial health of the Engie group, which on Wednesday raised its growth forecasts by targeting a net profit of between 3 and 3.2 billion euros. In addition, the sale of its subsidiary Equans to Bouygues, which should take place in the second half of 2022, will reduce its net economic debt by 7 billion euros and allow the group to redirect its investments towards renewable energy and decentralized infrastructure.

On Thursday, the weak performance of the CAC 40 (+0.2%) at the close is explained primarily by the public holiday for the anniversary of the 1918 Armistice and Veteran Day in the United States. However, two stocks stood out on this day. Firstly, the ArcelorMittal group gained 4.08% following the announcement of its excellent results for the quarter, i.e. almost +20.1%. Secondly, Engie shares gained 2.29% following its announcement of the previous day on the revision of its net result.

Despite the inflationary situation in the United States, the CAC40 ended Friday up (+0.45%), notably driven by the luxury sector, with new records for LVMH (+2.48%) and L’Oreal (+1.57). The Renault share also performed well this week with +5.58% over the week and 4.39% on Friday, being among the best performers of the index this week.

ASIAN PACIFIC MARKETS CLOSING

The Nikkei 225 start the week with a drop of 0.75% at the close on Tuesday evening and consequently has dragged down returns from developing nations.

To help offset this slide, Mobius revealed in a Bloomberg interview that he has allocated almost half of his emerging-markets fund to India and Taiwan, believing that “India is on a 50-year rally”.

China’s producer price index rose by a record 13.5% in mid-week due to a sharp increase in energy costs. Wednesday, the indicators are red for the Nikkei 225, which fell by 0.6% and the Shanghai Composite Index by 0.4%, while at the same time the Hang Seng index rose 0.7%.

Despite the real estate debt crisis with the Evergreen case and regulatory pressure from the government, Goldman Sachs remains optimistic about the recovery of the Chinese market and estimates onshore and offshore equity returns at 16% and 13% for the coming year. The main stock market indices still ended the week up 1.1% for the Nikkei, 0.3% for the Hang Sang, and 0.2% for the Shanghai Composite.

COMMODITIES & FOREX MARKETS

• After a sharp decline at the close of November 4 to 78.81 per barrel, oil prices recovered to their October 26 highs and ended Tuesday’s session at 83.86 per barrel, 2.36%.
•  Diamond Standard CO. has launched a $50 million investment trust to make the precious stones trading more accessible to professional investors hoping to be traded on OTC Markets Group Inc. Coins sell-by Diamond Standard had increased by early 15% from the coronavirus-driven slump
• The yen rose 0.3% on Tuesday following the rise in longer-dated (10-year) Treasury bonds, so far this month the currency is up almost 1%.
• Thursday, Natural-gas futures for December delivery closed 5.5% higher. Over the past 34 days, the price delivery has varied by nearly 5% up and down more than a dozen times. According to EIA’s analysts, natural gas prices would average $5.53 between November and February but would be very volatile as they are closely linked to weather conditions

Inflation: how is the US doing?

The current price hike in the US is affecting gasoline prices, housing prices, and everyday consumer goods. In the markets, investors would anticipate an earlier than expected reaction from the Federal Reserve on raising rates.

For central bank leaders, this inflationary situation, which was described as transitory at the beginning of the year because of supply chain problems, could last until 2022. Indeed, the spread of the variant delta has not favored a return to normality of the economy this year. To mitigate this situation, Fed officials have agreed to a reduction in their monthly bond purchases this week, which could be stopped in June 2022. However, the inflation target would remain above 2% for a long time.

If consumers and businesses anticipate higher inflation in the future, Fed officials said they are prepared to raise rates to ease inflationary pressures. Meanwhile, the rise in futures prices following Wednesday’s report suggests that the Fed would raise rates in June 2022 at the next meeting.