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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.

Inflation talk is not about to end

10/11/2021 | 10:01am EST

Wall Street’s weekly performance was positive, but did not erase losses recorded the previous week. In the coming days, talks of inflation will continue with the start of the third quarter earnings season and ongoing tensions on energy prices.

Corporate results will be dissected and compared to the forecasts and expectations of financial analysts. As always, financial performance will be placed in one of three boxes: below expectations, in line with expectations or better than expected. The size of each gauge helps determine whether or not an earnings season is favorable. Company executives know that they must pass these tests, or else stock prices will falter.

There is a fair amount of criticism against the diktat of quarterly results, often considered a short-term measure that is out of step with the long-term vision needed to manage a company. This frequency is criticized even in the upper echelons of capitalism in the United States (even Donald Trump has taken up the subject, but not necessarily for the right reasons). But this is the current norm, so let's have a quick look at the last few quarters… Companies have globally smashed their targets and in turn analysts' expectations, taking advantage of the post-covid awakening. Some 87% of large U.S. companies beat earnings per share expectations in the second quarter!

The share of companies that do better than expected is a powerful indicator of confidence, which has worked well over the recent period and globally since the 2008 financial crisis, except for the brief 2020 interlude and a few episodes with no aftermath. The quarterly season that opens this week with large U.S. banks could be a little more complex. Companies have been confronted with cost inflation and exceptional logistical problems, which may make results less flamboyant.

On the agenda, we have BlackRock (Wednesday), UnitedHealth, Bank of America, Wells Fargo, Morgan Stanley, Citigroup and Rio Tinto (Thursday) and Goldman Sachs (Friday), to name the large caps. But the focus this season will be on industrial companies, which are often on the front line when it comes to absorbing cost increases and supply chain disruptions. Hopefully the earnings season will not turn into a season from hell.

Price developments will also be present at the macro level this week, with two important dates, September inflation to be released on Wednesday and producer prices expected on Thursday. Meanwhile, coal prices are hitting record highs after several mines in China closed due to bad weather. The current energy crisis, which is putting coal, gas and nuclear back in the saddle, painfully confronts us with our environmental contradictions. In other news, Goldman Sachs has lowered its forecast for U.S. growth for this year and next. The projections remain high (5.6% and 4% respectively), but suffer from the reduction in budgetary support and a slower than expected recovery in consumption. Nothing is going as planned for the Democrats in the US. Finally, 136 countries, including Ireland, have signed the agreement for a minimum taxation of multinationals at 15%. The big nations are among them, even India which dragged its feet until the last second. On paper, the scheme looks promising. It remains to be seen how it will be implemented.

 

Economic highlights of the day:

Few indicators today, except for the British monthly GDP.

The euro/dollar pair is at EUR 0.8642, almost unchanged, as is gold, at USD 1754 per ounce. Oil is up to USD 81.05 per barrel WTI and USD 83.70 per barrel Brent. In the sovereign debt market, the T-Bond is yielding 1.61% over 10 years, while the Bund is at -0.15% over the same duration. Bitcoin is trading at USD 57,272 a coin.

 

On markets:

* Apple asked the federal judge in its lawsuit against game publisher Epic Games on Friday night to suspend the measures it was supposed to implement by Dec. 9, as the group decided to appeal the September ruling. Apple shares were down 0.4 percent in premarket trading Monday.

* Netflix - Credit Suisse raised its price target on the stock to 740 dollars from 643 dollars previously, thanks in particular to the success of the mini-series "Squid Game", which should, according to the bank, boost the growth of subscribers in the third and fourth quarters. The stock was up 0.4% in pre-market trading.

* Tesla - Elon Musk, the chief executive of the electric vehicle maker, announced Saturday that the group's new factory in Germany should produce its first vehicles as early as next month but that it will probably take longer for mass production. The green light for the mega-plant, to be built in Berlin, is expected in the next few weeks after a final public consultation on Oct. 14.

* Facebook, Alphabet, Twitter - The Digital Industry Group (DIGI), the body representing the Australian subsidiaries of the three U.S. groups, said Monday that the establishment of a new special committee to monitor cases of misinformation showed the industry was ready to regulate itself as Canberra threatens to tighten rules against fake online publications.

* Merck & Co announced Monday that it has submitted an emergency use application in the U.S. for its oral Covid-19 treatment.

* Honeywell International on Sunday raised its forecast for business aircraft deliveries over the next 10 years by 1 percent to 7,400 units, or $238 billion in revenue.

* KKR - The share of the American investment fund is up 1.4% after the appointment of the tandem of Joe Bae and Scott Nuttall as CEO of the group. The co-founders, Henry Kravis and George Roberts, will retain the co-presidency of the group, says KKR.

* Hasbro - The U.S. toy giant announced Monday that its chief executive, Brian D. Goldner, was stepping down for medical reasons. He is being replaced on an interim basis by Rich Stoddart.

* Southwest Airlines fell 1.9 percent before the Wall opened in reaction to the release of data from flightaware.com showing that the airline cut at least 30 percent of its flights on Sunday for the second day in a row, a proportion far higher than those observed among its competitors.

* Emerson Electric - The maker of industrial automation systems plans to merge two of its software divisions with rival Aspen Technology in a deal valued at about $11 billion, the Wall Street Journal reported Monday.

 

Analyst recommendations:

  • AstraZeneca: Berenberg remains Buy with a price target raised from GBP 100 to GBP 105.
  • Comcast: Raymond James downgrades Comcast Corp. Class A to market perform from outperform. PT up 9.7% to $60
  • ConocoPhillips: Goldman Sachs downgrades to neutral from buy. PT up 1.4% to $76
  • Exxon: Exane BNP Paribas cut its recommendation to underperform from neutral. PT down 3.5% to $60
  • Kingfisher: Berenberg starts tracking at Hold with a target of GBP 370.
  • On Holding: Goldman Sachs initiated coverage of On Holding AG Class A with a recommendation of neutral. PT up 6.4% to $32
  • Starbucks: Deutsche Bank raised its recommendation to buy from hold. PT up 14% to $127
  • The Weir Group: Stifel upgrades from Hold to Buy with a target of GBp1875.

© MarketScreener.com 2021
Stocks mentioned in the article
ChangeLast1st jan.
ALPHABET INC. -2.69% 2843.66 Delayed Quote.62.25%
APPLE INC. -3.17% 156.81 Delayed Quote.18.18%
ASTRAZENECA PLC -1.14% 8411 Delayed Quote.14.84%
BANK OF AMERICA CORPORATION -3.93% 45.76 Delayed Quote.50.97%
BLACKROCK, INC. -3.12% 901.64 Delayed Quote.24.96%
CITIGROUP INC. -2.65% 65.5 Delayed Quote.6.23%
COMCAST CORPORATION -1.50% 51.1 Delayed Quote.-2.48%
CONOCOPHILLIPS -4.48% 71.48 Delayed Quote.78.74%
EMERSON ELECTRIC CO. -4.16% 90.31 Delayed Quote.12.37%
EXXON MOBIL CORPORATION -3.51% 61.25 Delayed Quote.48.59%
FACEBOOK INC -2.33% 333.12 Delayed Quote.21.95%
GOLDMAN SACHS BDC, INC. -0.37% 18.91 Delayed Quote.-1.10%
HASBRO, INC. -0.67% 98.75 Delayed Quote.5.57%
HONEYWELL INTERNATIONAL INC. -1.88% 208.21 Delayed Quote.-2.11%
KINGFISHER PLC -0.12% 325 Delayed Quote.20.19%
KKR & CO. INC. -3.08% 74.35 Delayed Quote.83.63%
LONDON BRENT OIL -11.41% 72.86 Delayed Quote.59.07%
MERCK & CO., INC. -3.79% 79.16 Delayed Quote.-3.23%
MORGAN STANLEY -3.15% 97.93 Delayed Quote.42.90%
NETFLIX, INC. 1.12% 665.64 Delayed Quote.23.10%
ON HOLDING AG -5.69% 43.11 End-of-day quote.0.00%
RIO TINTO PLC -2.60% 4546.5 Delayed Quote.-16.96%
S&P 500 -2.27% 4594.62 Delayed Quote.22.33%
S&P GSCI CRUDE OIL INDEX -8.82% 373.5064 Delayed Quote.40.46%
SOUTHWEST AIRLINES CO. -4.32% 44.96 Delayed Quote.-3.54%
STARBUCKS CORPORATION -2.90% 110.66 Delayed Quote.3.44%
TESLA, INC. -3.05% 1081.92 Delayed Quote.53.32%
THE WEIR GROUP PLC -5.24% 1682 Delayed Quote.-15.46%
TWITTER, INC. -0.95% 47.07 Delayed Quote.-13.07%
UNITEDHEALTH GROUP -2.28% 439.91 Delayed Quote.28.37%
WELLS FARGO & COMPANY -5.61% 48.43 Delayed Quote.70.01%
WTI -11.91% 68.16 Delayed Quote.60.61%