Financial markets lost some ground yesterday, but we should not give too much importance to the previous day's session, since the amplitude of the variations was extremely low, for example less than 0.2% for the three American indices. These days are typical of transition periods, with low volatility (the VIX index remained below 17 points for the third consecutive day) while waiting for the next catalysts... which will not take long to arrive since the quarterly results of large companies begin to fall today, with LVMH, Givaudan or Just Eat Takeaway in Europe. In the US, JPMorgan Chase, Wells Fargo and Goldman Sachs take over tomorrow. The forecasts that will be formulated in conjunction with the first quarter financial statements will make it possible to refine several variables. For example, the degree of confidence of companies in the recovery, the impact of the European delay in vaccination or whether the slope of results modeled by analysts is correct, too low or too high.

As such, professionals expect on average a 24.5% jump in Q1 2021 earnings over Q1 2020 for companies that are part of the US S&P500. FactSet blended this figure with the propensity of US companies to beat expectations, to conclude that there is a good chance that the average S&P500 company's earnings will rise 28% year-over-year in Q1. That's huge, but not unheard of, as 34% annual growth was recorded in Q3 2010. These are the kind of numbers we should expect to see in the coming weeks. They will probably put the valuation of some companies into perspective, especially since Q2 figures should be similar, given the period of lockdowns that occurred everywhere in early spring 2020.

Exceptional times call for exceptional figures. A major US bank put forward a barely believable statistic at the end of last week: investors have injected more money into equity funds in the last five months than in the last twelve years: $576bn of new money in five months, compared with $452bn between 2008 and 2020. Those who see the glass as half empty think that such an influx is unreasonable at a time when activity indicators are peaking. Others say it is justified by the new cycle that is unfolding "post-covid".

This endless debate will momentarily give way to other considerations today. This afternoon, investors' attention turned to  the U.S. consumer price figures for March. We know that investors love to scare themselves with inflation, rates and central banks. U.S. consumer prices climbed in March by more than forecast. The consumer price index increased 0.6% in March from the prior month after a 0.4% gain in February, according to Labor Department data. A Bloomberg survey of economists expected a 0.5% rise.

There are also some ominous signals coming from the credit market in China with bankruptcy worries over China Huarong Asset Management, a large player specializing in loans to fragile companies. The group did not publish its annual results before the March 31 deadline, which those in the know attributed to the imminence of a financial restructuring under the leadership of the authorities, to avoid a snowball effect.

 

Economic highlights of the day

Two important indicators today, the German ZEW investor confidence survey for April and the US inflation for March. This morning, China reported a strong increase in its March import-export figures, though below projections.

The dollar is approaching EUR 84.0. Gold is flat at USD 1733. Oil is up slightly, at USD 60.2 per barrel WTI and USD 63.9 per barrel Brent. The yield on US debt climbed to 1.69% over 10 years. Bitcoin is doing well around the USD 63,000 mark.

 

On markets:

*U.S. health officials on Tuesday recommended suspending Johnson & Johnson's Covid-19 vaccine while they conduct a detailed review of records of six cases of atypical and severe blood clots in people who received the vaccine. The stock is down 3% in pre-market trading.

*American Airlines meanwhile announced that its first-quarter revenue is expected to fall about 62% compared to the same period in 2019 and expects a loss of $2.7 billion to $2.8 billion.

* Asian VTC and meal delivery services giant Grab Holding announced Tuesday a partnership agreement with Altimeter Growth-backed SPAC that will value it at nearly $40 billion (€33.6 billion) for an initial public offering. This is the largest SPAC (special purpose acquisition company) deal ever.

* China's central market regulator said Tuesday it had warned several internet companies against using prohibited practices.

* Abbott Laboratories is expected to report quarterly revenue and earnings per share above Wall Street analysts' expectations thanks to strong demand for its COVID-19-related medical devices, according to J.P. Morgan.

* Crown Resorts said private equity group Blackstone has amended the terms of a proposed $6 billion buyout, saying the Australian casino operator must not lose any other operating licenses before the deal is approved.