Investors cheer vaccination progress in the U.S., but need a little time to integrate the emerging inflation trajectory, however economically sound it may be. To illustrate the current context, let’s quote an observer who has been active in the markets since the 1990s describes situation quite well. "The problem for tech is that even if the Fed is accommodative, bond yields will rise, which will put pressure on the sector. At the same time, if they get aggressive, it could be bad for all stocks," he wrote recently to his clients. In his view, this justifies the current rotation from growth to discounted stocks.

For the investor, this timing is a matter of optimizing performance. It is not necessarily necessary to disavow one's convictions: remaining positioned in solid growth stocks is in any case a good idea for the medium and the long term. On the other hand, we have to be selective: there are exuberant valuations on companies with no real competitive advantage, which means that they will probably never manage to generate enough results to justify their status, once the hype has evaporated. Is this the case with Tesla, for example? The question is obviously legitimate, but the company can rely on an industrial tool that is now well established and on a real competitive advantage. Will it maintain it? The answer is more difficult, but Ark Invest, the most prominent management company of the moment, provides elements to support its reasoning that the American company could be worth between USD 1,500 and USD 4,000 in four years, compared to USD 655 today.

In other news, Recep Tayyip Erdogan abruptly dismissed the governor of Turkey's central bank on Saturday, two days after a sharp rise in interest rates aimed at curbing inflation. Bank of Turkey Governor Naci Agbal, who had been in office for less than five months, was replaced by Sahap Kavcioglu, an economist and former ruling party MP. Sahap Kavcioglu becomes the fourth governor of the Bank of Turkey in five years and the lack of independence of monetary policy in the country is seen by many economists as a factor in the weakening of the Turkish economy, with increasing reliance on the dollar and double-digit inflation (over 10%) almost permanently for the past four years. The Turkish lira plunged more than 17% against the dollar early on Monday in the foreign exchange markets.

Finally, last week's summit in Anchorage, Alaska, was a frosty one between the the U.S. and China. There was opposition on many points between Washington and Beijing and the leaders of both countries did not try to hide it behind a diplomatic façade. However, if there is opposition, the fact remains that on certain points the American administration and its Chinese counterpart have convergent interests. This is the case for issues related to climate change. After Thursday and Friday's meetings, the Chinese delegation said the two sides were "committed to strengthening communication and cooperation on climate change." 

Economic highlights of the day

Two indicators in the United States today, the Chicago Fed index and housing figures.

On Markets:

  • Canadian Pacific Railway announced on Sunday that it has acquired Kansas City Southern for $25 billion, creating the first rail network between the United States, Mexico and Canada, with the aim of taking advantage of the expected boom in freight transport between the three countries after their new trade agreement came into force last July. Kansas City Southern shares are up more than 15% in pre-market trading.
  • Synnex Corp announced on Monday that it would merge with rival Tech Data, owned by funds linked to Apollo Global, for $7.2 billion, including debt. Synnex shares are up 11% in pre-market trading.
  • Blackstone Group proposed on Sunday to buy Australia's Crown Resorts in a deal that values the troubled casino operator at $6.2 billion.
  • Tesla gained 3.7% to $679.05 in premarket trading after Ark Invest set a price target of $3,000 by 2025.
  • Facebook announced Monday that it had removed 1.3 billion fake accounts between October and December and that more than 35,000 people were working to combat online misinformation on its platform.
  • Ford announced Saturday that it will cut production at two additional U.S. plants because of the global semiconductor shortage.
  • The British competition authority announced on Monday the opening of an investigation into last year's takeover of the American publisher Simon & Schuster by Penguin Random House, owned by the Bertelsmann group. Penguin's bid was preferred to that of News Corp, Rupert Murdoch's group.