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Romain Fournier

Chief Editor
Having worked in the British, French and Swiss financial press, Romain is able to report on local and international issues, as comfortable in French as in the language of Shakespeare, Romain Fournier leads the editorial team at Marketscreener. Fine connoisseur of the English-speaking markets, Romain delivers an editorial every day on US and UK markets.

Pelosi’s expected Taiwan visit spooks markets

08/02/2022 | 09:57am EST
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A planned visit by U.S. House of Representatives Speaker Nancy Pelosi to Taiwan is fueling tensions between the US and China.

This adds to an already difficult environment, with the war in Ukraine, the energy crisis in Europe, soaring inflation and hawkish policies from central banks. In addition, PMI data published yesterday showed factory activity slowed in the United States, Europe and Asia.

The CBOE volatility index, aka the fear index, jumped to 24.50 points, its highest level in a week. All this is reflected in Wall Street indexes, which were all in the red this morning.

In Bank of America's latest survey of a large panel of asset managers, conducted in mid-July, renewed tension between China and the US was not among the main threats identified by investors. What they were concerned about then was continued high inflation, a global recession and uncooperative central banks. Investors then cited a domino effect in the credit market, the Russian-Ukrainian conflict, civil unrest in the US and a resurgence of covid-19. But no Chinese-U.S. friction was at the top of the list.

Over the past decade, poor relations between the two countries topped the list of concerns between July 2018 and January 2020, at the height of a trade war and its extra tariffs implemented by the Trump administration (still in place).

Relations between the two powers could worsen in August. The confirmation of Nancy Pelosi's visit to Taiwan later today is stirring up the diplomatic corps and sending Asian financial markets tumbling. What comes next will probably have an air of deja-vu. Beijing might display its navy and air force in the most conspicuous way possible, trying to come as close as possible to an incident. Taipei will raise its alert levels. And Washington will work to send the message that it is the US that decides where it sends its representatives, not the CCP. In this area, as in many others involving power relations, there is no certainty about the consequences. This is not the first time that the situation has escalated, nor is it the first time that the interests of China and the US are not aligned. Some commentators fear that Beijing could step up its help to Moscow in the war with Ukraine as retaliation. The situation in Taiwan is particularly followed by investors across the globe, since the territory produces roughly two-thirds of the world's computer chips.

In today's news, the Australian central bank raised its main policy rate by half a point, as expected. Corporate results are a little more scarce but there are still a few good names: Advanced Micro Devices, S&P Global, Caterpillar, PayPal and Starbucks. Ukraine announced that despite the resumption of grain exports, it will take time to return to pre-war levels. On the oil market, Brent crude oil fell back below the symbolic USD 100 threshold.

 

Economic highlights of the day:

Not much to report today, apart from the JOLTS survey on US job openings. The full macro agenda here. China reported an official manufacturing PMI back in contraction territory in July, at 49 points, below expectations (50.3). The Caixin PMI, which contains more private companies, deteriorated to 50.4 points but remains in the expansion zone.

The dollar rises slightly to EUR 0.9780. The ounce of gold continues to rise to USD 1783. Oil is down on the other hand, with North Sea Brent at USD 99.9 a barrel and US WTI light crude at USD 93.81. The yield on US 10-year debt falls to 2.55%. Bitcoin falls back below USD 23,000.

 

On markets:

* Caterpillar reported lower-than-expected sales due to supply chain problems and the suspension of its Russian operations. The stock was down 4.1% in pre-market trading.

* Semiconductor manufacturers, heavily exposed to China, were down in pre-market trading due to concerns over diplomatic relations between Beijing and Washington.

* Uber on Tuesday reported positive quarterly cash flow for the first time in its history and forecast better-than-expected operating profit for the third quarter. The stock was up 11.6% in premarket trading.

* S&P Global was down 3% in premarket trading after the financial information provider reported lower quarterly revenue and a lower-than-expected 2022 earnings per share forecast than the Refinitiv IBES consensus.

* KKR & Co said on Tuesday that its second-quarter after-tax distributable profit fell 9% year-on-year as slower trading amid recession fears led to a drop in fees collected. The private equity firm was down 1.3% in pre-market trading.

* Marriott International gained 1.9% in premarket trading after reporting higher quarterly results and saying it expects adjusted earnings per share to be above expectations for the third quarter.

* Pinterest was up 19% in premarket trading after activist investor Elliott Investment Management said it had become the largest shareholder in the group, which also reported a weaker-than-expected quarterly profit.

* Activision Blizzard - The video game maker reported Monday net sales down to $1.64 billion from $2.30 billion a year ago, according to generally accepted accounting principles.

* Dupont on Tuesday reported a better-than-expected second-quarter profit thanks to strong demand. The stock was down 2% in premarket trading.

* Cowen, the investment bank, was up 8.4% in premarket trading after announcing that it had been acquired by Dominion Bank for $1.3 billion.

* Marathon Petroleum - The U.S. refiner reported better-than-expected quarterly earnings on Tuesday, benefiting from rising demand for fuel and refined products amid supply shortages.

* Devon Energy and Diamondback Energy, which specializes in shale oil, both reported better-than-expected quarterly earnings on Monday, helped by soaring energy prices.

* Ferrari raised its annual sales and EBITDA forecasts after posting "record" second-quarter results.

* Simon Property was up 2.1% in premarket trading after raising its annual profit forecast and quarterly dividend.

* Avis Budget reported total revenue of $3.24 billion, up from $2.37 billion a year ago, and quarterly earnings per share of $15.71.

 

Analyst recommendations:

  • ArcBest: Goldman Sachs maintains neutral rating and raised the target to $100 from $90.
  • Ares Management: UBS raised the target to $82 from $68. Maintains buy rating.
  • Axonics: Piper Sandler adjusts price target to $82 from $77. Reiterates overweight rating.
  • Burlington Stores: Goldman Sachs starts at buy with $183 price target.
  • Chemed: RBC Capital Markets maintains outperform rating. PT down 12% to $541.
  • Chesapeake Energy:  Benchmark Company LLC initiated coverage with a recommendation of buy. PT up 52% to $137.
  • Comstock Resources: Piper Sandler raised the recommendation to neutral from underweight. PT up 8.1% to $17.
  • Constellation Brands: BMO Capital Markets initiated coverage with a recommendation of outperform. PT up 19% to $290.
  • Humana: Morgan Stanley raised the target to $494 from $453. Maintains equal-weight rating.
  • Idex: Mizuho Securities Co Ltd raised the target to $205 from $190. Maintains neutral rating.
  • Man Group: Numis Securities cut the recommendation to hold from add. PT set to 275 pence.
  • Matson: Stifel downgrades to hold from buy. PT up 1.9% to $93.
  • Mohawk Industries: RBC Capital Markets maintains underperform rating. PT down 21% to $101.
  • Ross Stores:  Goldman Sachs reinstated coverage with a recommendation of buy. PT up 24% to $102.
  • Snowflake: BTIG downgrades its recommendation to "neutral" from "buy".
  • Visteon: Morgan Stanley maintains equal-weight rating. PT up to $107 from $91.
  • W.W. Grainger: Oppenheimer & Co raised the target to $615 from $580. Maintains outperform rating.

© MarketScreener.com 2022
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Stocks mentioned in the article
ChangeLast1st jan.
ACTIVISION BLIZZARD, INC. -0.51% 74.34 Delayed Quote.11.74%
ADVANCED MICRO DEVICES, INC. 0.27% 73.39 Delayed Quote.-49.14%
ARCBEST CORPORATION 2.01% 81.35 Delayed Quote.-33.46%
ARES MANAGEMENT CORPORATION 0.17% 77.34 Delayed Quote.-4.84%
AVIS BUDGET GROUP, INC. 2.24% 224.95 Delayed Quote.6.10%
AXONICS, INC. 0.86% 64.65 Delayed Quote.14.46%
BURLINGTON STORES, INC. -1.73% 192.49 Delayed Quote.-33.97%
CATERPILLAR INC. 1.21% 235.12 Delayed Quote.12.36%
CHEMED CORPORATION 0.19% 511.71 Delayed Quote.-3.28%
CHESAPEAKE ENERGY CORPORATION 1.08% 99.3 Delayed Quote.53.91%
COMSTOCK RESOURCES, INC. 1.71% 18.41 Delayed Quote.123.73%
CONSTELLATION BRANDS, INC. -1.50% 253.64 Delayed Quote.1.06%
COWEN INC. 0.05% 38.75 Delayed Quote.7.34%
DEVON ENERGY CORPORATION 1.46% 67.5 Delayed Quote.53.24%
DIAMONDBACK ENERGY, INC. 2.09% 146.74 Delayed Quote.33.27%
DUPONT DE NEMOURS, INC. 0.64% 69.46 Delayed Quote.-14.01%
FERRARI N.V. -0.34% 215.22 Delayed Quote.-16.56%
HUMANA INC. -0.22% 533.14 Delayed Quote.14.94%
IDEXX LABORATORIES, INC. 2.21% 408.96 Delayed Quote.-39.24%
KKR & CO. INC. 0.00% 50.55 Delayed Quote.-32.15%
MAN GROUP LIMITED -1.32% 210.1 Delayed Quote.-7.61%
MARATHON PETROLEUM CORPORATION 1.27% 123.47 Delayed Quote.92.95%
MARRIOTT INTERNATIONAL, INC. 1.49% 161.26 Delayed Quote.-2.41%
MATSON, INC. 0.24% 62.79 Delayed Quote.-30.42%
MOHAWK INDUSTRIES, INC. 1.26% 100.94 Delayed Quote.-44.59%
PAYPAL HOLDINGS, INC. -2.87% 77.64 Delayed Quote.-58.83%
PINTEREST, INC. -1.48% 24 Delayed Quote.-33.98%
ROSS STORES, INC. 0.36% 116.79 Delayed Quote.2.20%
S&P GLOBAL, INC. -1.10% 347.14 Delayed Quote.-26.44%
SIMON PROPERTY GROUP, INC. 1.47% 117.46 Delayed Quote.-26.48%
SNOWFLAKE INC. -3.20% 136.56 Delayed Quote.-58.36%
STARBUCKS CORPORATION 0.00% 98.66 Delayed Quote.-15.65%
UBER TECHNOLOGIES, INC. 0.00% 27.76 Delayed Quote.-33.79%
VISTEON CORPORATION -1.30% 141.29 Delayed Quote.27.13%
W.W. GRAINGER, INC. -0.60% 590.99 Delayed Quote.14.73%
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