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OFFON

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.

Is inflation still transitionary?

09/28/2021 | 09:05am EDT

US stock futures were tumbling this morning due to a surge in inflation fears, as oil and gas prices soar. The yield on the benchmark 10-year treasury note climbed to 1.53%, while the 2-year US Treasury bond reaches 0.31%, its highest level in 18 months.

Prospects for rate hikes and price increases benefit banking and energy stocks. Investors are unsure what to do with the rise of energy prices - Brent crude oil has climbed to USD 80 per barrel. Central banks are still talking about transitory inflation.

Sometimes investors find themselves confronted with too much information - thus hindering decision-making. This is what seems to be happening right now. The simple mantra at the beginning of the year - the more we vaccinate, the more we boost the economic rebound - has been replaced by a much more complex equation. As the year progresses, unknowns pile up, weather they are related to the pandemic, supply chain disruptions, inflation and more restrictive monetary policies looming on the horizon. In addition, events of remarkable magnitude that are currently unfolding, such as the Evergrande crisis in China or the global surge in energy prices.

Scenarios that lead to ongoing inflation are clear and growing. It is therefore not surprising to see bond yields rise, after having stagnated in recent weeks. It is quite likely that the upcoming surveys conducted by investment banks will show that investors are less inclined to believe central banks and their transitory inflation scenarios, whereas most of them were still buying into them just recently.

We are now two weeks before the first earnings reports for the third quarter, which are not expected to be as flamboyant as those for the second quarter. They should reflect the slowdown in China’s industry sector, which has been forced to slow down because of the scissor effect between the rise in raw material prices and the stricter environmental policies decided by the central government. Add the Evergrande case, and it becomes clear that September has been a complicated month for the country. Chinese growth is an important marker for investors, but so far, most are brushing off the threat by betting on an intervention from Chinese authorities if things turn really sour.

 

Economic highlights of the day:

On the macroeconomic agenda of the day, we find a battery of American indicators and many interventions of central bankers, with guest-stars Christine Lagarde and Jerome Powell in the afternoon. Data includes August wholesale inventories, the FHFA house price index for July, the Richmond Fed manufacturing index and the Conference Board consumer confidence index for September.

The dollar is up to EUR 0.8560. The ounce of gold is dozing around USD 1753, in contrast to a glowing oil, as North Sea Brent is trading at USD 79.78 per barrel, while US light crude WTI is at USD 75.90. Bond yields continue to rise, with the US 10-year clinging to the symbolic level of 1.50% while the German Bund is yielding -0.22%. The 2-year US Treasury bond reaches 0.31%, its highest level in 18 months. Bitcoin is trading around USD 42,000.

 

On markets:

* Ford Motor and its South Korean partner SK Innovation announced Tuesday their intention to invest $11.4 billion in an electric vehicle assembly plant dedicated to the F-150 and three battery sites in the United States. Ford shares gained 3.4% in pre-market trading.

* Merck & Co is in advanced discussions to buy Acceleron Pharma, the Wall Street Journal reported Monday, citing people close to the matter. On Friday, Bloomberg had reported that Acceleron was discussing a buyout for more than $11 billion.

* Goldman Sachs - Petershill Partners , the bank's IPO investment firm, was trading close to its IPO price Tuesday morning in its first trading session in London. The IPO price of 350 pence values it at nearly four billion pounds.

* Pfizer and BioNTech announced Tuesday that they have applied to the U.S. authorities for approval of their COVID-19 vaccine for children aged five to 11. In addition, Pfizer and its French partner Valneva on Tuesday reported positive results from Phase II trials of VLA 15, a treatment for Lyme disease.

 

Analyst recommendations:

  • 888 Holdings: Investec resumes coverage with a Buy rating with a GBp 660 target.
  • Applied Materials: New Street Research cut the recommendation on Applied Materials Inc. to neutral from buy. PT down 1.9% to $140
  • Callon Petroleum: BMO Capital adjusts price target to $50 from $60, maintains market perform rating
  • Chesapeake Energy: Tudor Pickering & Co adjusts price target to $73 from $60, maintains buy rating
  • ConocoPhillips: BMO Capital adjusts price target to $80 from $76, maintains outperform rating
  • Electrocomponents: RBC upgrades from sector perform to outperform with a target of GBp 1,350.
  • Entain: Investec starts tracking at Hold with a target of GBP 2,400.
  • Flutter: HSBC upgrades from hold to buy targeting GBp 17,400.
  • Laredo Petroleum: BMO Capital Adjusts Price Target for Laredo Petroleum To $90 From $80, Maintains Market Perform Rating
  • Marathon Oil: Tudor Pickering & Co adjusts price target to $23 from $17, maintains buy rating
  • Occidental Petroleum: Tudor Pickering & Co adjusts price target to $37 from $32, maintains hold rating
  • Oxford Biomedica: Jefferies maintains a hold rating with a target price raised from GBp 1,180 to GBp 1,450.
  • Pioneer Natural Resources: Tudor Pickering & Co adjusts price target to $191 from $181, maintains buy rating
  • Playtech: Investec reiterates Hold with a GBp 460 target.
  • Rolls-Royce: J.P. Morgan remains at Overweight with a target price raised from GBp 130 to GBp 150.
  • Sage Group: Goldman Sachs downgrades from neutral to sell with a target of GBP 700.
  • Travel + Leisure Co: Jefferies cut the recommendation to hold from buy. PT up 2.5% to $61
  • Wells Fargo: Morgan Stanley cut the recommendation to equal-weight from overweight. PT down 3.3% to $46
  • Zimmer Biomet: Needham Lowers PT  to $187 From $202, maintains Strong buy

© MarketScreener.com 2021
Stocks mentioned in the article
ChangeLast1st jan.
888 HOLDINGS PLC -1.62% 387.6 Delayed Quote.35.76%
ACCELERON PHARMA INC. 0.12% 173.95 Delayed Quote.35.96%
APPLIED MATERIALS, INC. 1.94% 135.93 Delayed Quote.57.51%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.01% 0.7464 Delayed Quote.-2.32%
BELIEVE 0.45% 17.578 Real-time Quote.0.00%
BIONTECH SE -2.80% 278.34 Delayed Quote.241.44%
BITCOIN (BTC/EUR) 0.63% 52521.42 Real-time Quote.127.46%
BITCOIN (BTC/USD) 0.62% 61105.39 Real-time Quote.116.02%
BRITISH POUND / US DOLLAR (GBP/USD) -0.29% 1.3751 Delayed Quote.1.08%
CALLON PETROLEUM COMPANY 1.57% 51.02 Delayed Quote.302.96%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.03% 0.8085 Delayed Quote.3.27%
CHESAPEAKE ENERGY CORPORATION 1.04% 62.07 Delayed Quote.0.00%
CONOCOPHILLIPS 1.51% 75.72 Delayed Quote.86.52%
ELECTROCOMPONENTS PLC -0.09% 1100 Delayed Quote.26.36%
ENTAIN PLC 0.09% 2125 Delayed Quote.87.47%
EURO / US DOLLAR (EUR/USD) 0.19% 1.1647 Delayed Quote.-4.60%
FLUTTER ENTERTAINMENT PLC 0.77% 169.8 Real-time Quote.0.96%
FORD MOTOR COMPANY -1.63% 16.28 Delayed Quote.88.28%
GOLDMAN SACHS BDC, INC. 0.21% 19.17 Delayed Quote.0.05%
HSBC HOLDINGS PLC 0.01% 434.8 Delayed Quote.14.77%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.17% 0.013337 Delayed Quote.-2.34%
INVESTEC GROUP 0.33% 66.91 End-of-day quote.82.61%
LAREDO PETROLEUM, INC. 8.31% 79.88 Delayed Quote.274.37%
LONDON BRENT OIL 1.41% 85.7 Delayed Quote.66.07%
MARATHON OIL CORPORATION 2.47% 16.58 Delayed Quote.142.58%
MERCK & CO., INC. -0.02% 81.15 Delayed Quote.-0.77%
MORGAN STANLEY 1.52% 101.8 Delayed Quote.46.33%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.02% 0.7153 Delayed Quote.0.26%
OCCIDENTAL PETROLEUM CORPORATION 3.45% 33.93 Delayed Quote.92.72%
OXFORD BIOMEDICA PLC 0.26% 1560 Delayed Quote.51.46%
PFIZER, INC. 0.70% 43.16 Delayed Quote.16.27%
PIONEER NATURAL RESOURCES COMPANY 1.56% 191.62 Delayed Quote.68.63%
PLAYTECH PLC -0.30% 673 Delayed Quote.67.71%
ROLLS-ROYCE HOLDINGS PLC -2.10% 135.1 Delayed Quote.21.44%
S&P 500 -0.11% 4544.9 Delayed Quote.20.77%
S&P GSCI BRENT CRUDE INDEX 1.00% 720.3412 Delayed Quote.62.03%
S&P GSCI CRUDE OIL INDEX 2.33% 459.0594 Delayed Quote.70.96%
SAGE GROUP PLC 0.33% 720.8 Delayed Quote.23.85%
SK INNOVATION CO., LTD. -0.19% 256500 End-of-day quote.35.00%
TRAVEL + LEISURE CO. -1.68% 52.56 Delayed Quote.19.17%
VALNEVA SE 0.42% 19 Real-time Quote.145.16%
WELLS FARGO & COMPANY 0.66% 50.66 Delayed Quote.66.77%
WTI 2.23% 84.151 Delayed Quote.73.60%
ZIMMER BIOMET HOLDINGS, INC. -0.26% 150.42 Delayed Quote.-2.13%