Right now, to be on the safe side, it’s best to bet on players in the oil sector and more broadly in the energy sector. Yesterday, Opec+ decided not to change its production control mechanism, the relaxation of which could have contributed to mitigating the surge in oil prices and, by extension, the energy market as a whole. But it's clear that the organization was not gonna shoot itself in the foot by opening the floodgates wider to guarantee low prices to nice Western consumers. A cartel is still a cartel. The brevity of yesterday's meeting shows that the status quo decision must not have been very complicated to take, even if a few rogue members had hinted last week that an effort on production was possible. Brent crude briefly hit USD 82 a barrel yesterday, a nearly three-year high, while you have to go back to 2014 to find US light crude at its current levels, near USD 78. As with every time oil flirts with USD 80, stories about the USD 100 mark will re-emerge because markets love round numbers and psychological milestones.
This spike in energy prices only adds to inflationary scenarios. Investors are now fully aware that the monetary cycle is entering a new era. Up to now, they were under the illusion that the ultra-accommodative policy would never run out. In a sense, they are not completely wrong, as central banks will be forced to remain generous. But the ideal conditions that have dominated until now will fade. For the time being, we cannot say that bond markets are on a roll, even if yields are logically on the rise. But the threat of a sudden acceleration is enough to make investors nervous, as they know how to adapt to anything, as long as the changes are not too drastic. The promise of a dawn of rising bond yields is bad news for long-maturity sectors, such as food, and for richly valued sectors, such as technology, Kepler Cheuvreux said in a paper published Monday. Tech stocks paid a heavy price yesterday. But the research firm recalls that the sector has done better than the indices over the period 2016 / 2018 when real rates were in an ascending phase: its course also depends on the gradual character or not of the rise in yields and the dynamics of corporate earnings.
In China, Beijing is going to ban banks and insurers from financing speculation in commodities and certain luxury goods. On another note, developer Fantasia Holdings missed a payment deadline. This is not on Evergrande’s scale as the company is only worth $400 million, but the news has caused a bit of a stir as it may be the start of a bigger trend.
Economic highlights of the day:
The final PMI indicators for September will be announced throughout the day from Japan to the US. Other indicators include French industrial production, the European producer price index, the US trade balance and the ISM services index. Earlier today, the Australian central bank did not change its monetary policy as expected.
The dollar is trading at EUR 0.8629. The gold ounce is down to USD 1753. Oil is still on a roll, at USD 82.38 per barrel of Brent and USD 78.62 per barrel of WTI. The yield on 10-year US debt is up to 1.50%, while the Bund is at -0.22%. Bitcoin is back above USD 50,000.
* Facebook explained by a "misconfiguration" the worldwide outage that prevented its 3.5 billion users from accessing the social network as well as its photo-sharing app, Instagram, and messaging app, WhatsApp, for several hours Monday. The U.S. giant is recovering 1.3% in pre-market trading.
* Pepsico gains 1.2% in pre-market trading after raising its full-year revenue forecast as demand for sodas in theaters and restaurants benefits from the easing of pandemic-related restrictions.
* Johnson & Johnson announced Tuesday that it has submitted data to the U.S. drug agency for emergency use approval of a booster dose of its COVID-19 vaccine for people 18 and older.
* Lululemon Athletica announced Monday that its board of directors approved a $500 million increase in its ongoing share repurchase program to $641.2 million.
- A. O. Smith Corp: Baird upgrades to outperform from neutral. PT rise 39% to $85
- Albertsons Companies: BMO Capital Markets cut the recommendation to underperform from market perform. PT down 14% to $26
- Alnylam Pharmaceuticals: UBS upgrades to buy from neutral, adjusts pt to $215 from $141
- Chipotle Mexican Grill: UBS adjusts price target to $2,100 from $1,850, keeps buy rating
- Coherent: Stifel reinstated coverage with a recommendation of hold. PT up 8.4% to $270
- DFS Furniture: Berenberg remains Buy with a price target raised from GBp 340 to GBp 365.
- Fifth Third Bancorp: Goldman Sachs adjusts price target to $50.50 from $44, maintains buy rating
- Greggs: Goodbody raised the recommendation to buy from hold. PT up 16% to 3,475 pence
- Johnson Matthey: Liberum remains a Hold with a price target reduced from GBp 3150 to GBp 2900.
- Magnite: Vertical Research downgrades to Negative Rating from Positive
- Merck: Atlantic Equities adjusts pt to $100 from $92, maintains overweight rating
- Microchip Technology: Vertical Research downgrades to sell from neutral, adjusts price target to $116.50 from $163
- Prudential Financial: Credit Suisse adjusts price target to $131 from $125, maintains outperform rating
- Schwab: Atlantic Equities LLP initiated coverage with a recommendation of overweight. PT up 30% to $95
- Signature Bank : Goldman Sachs adjusts price target to $340 from $325, maintains buy rating
- Southern : Mizuho adjusts southern company pt to $55 from $60, keeps underperform rating
- Tractor Supply: BofA Securities downgrades to neutral from buy, keeps $217 price target; shares down 3%
- Valero Energy: Barclays adjusts price target to $82 from $75, maintains overweight rating
- Xenon Pharmaceuticals: Jefferies & Co adjusts pt to $50 from $28, maintains buy rating