Investors are awaiting results today from tech giants Microsoft and Alphabet, which should give them more clues about the health of the US economy.

Wall Street continued to rise yesterday, thanks to the latest narrative among investors: the US central bank has doubts about the relevance of maintaining a punitive monetary policy and is now considering easing its stance.

Converging clues, which look very much like timely leaks, have started to appear here and there. The bond market seems to be telling a slightly less rosy story, but who cares for now? At the same time, October's PMI indicators, which are good barometers of business sentiment, were almost uniformly dismal, especially in the US, Germany and the UK. As a result, investors thought that maybe the Fed would have to take its foot off the rate hike gas pedal.

As a result, western indexes generally gained between 1 and 2% yesterday, which is synonymous with a continuation of the rally from recent lows

There was one major incident yesterday, but it did not have a huge impact. It is still worth mentioning this morning, because it is rich in lessons. A few months ago, the theme of "getting back into Chinese equities" was once again in vogue among investment banks and asset managers, who were looking for a way out of the sudden misfortune of their beloved US technology stocks. By Chinese stocks, they meant "everything that is a little bit high tech, a little bit copied from American stars, a little bit the future local Google". China seemed to be coming out of the crisis in a relatively good shape, local stocks had missed the rebound of their western counterparts and the communist party was going to react eventually to make people forget about the real estate crisis and the slowdown of growth.

But it turns out that the track record of such a strategy has been catastrophic. Not only have so-called "offshore" Chinese stocks, i.e. those accessible to global investors, not rebounded, but they have continued to decline. This is because the political risk has increased with the reappointment of Xi Jinping as leader of the Chinese Communist Party for a third term. He made a virulent speech against all what he considers to be excesses. One could easily imagine how the government could affect a stock, with the disappearance of a leader, the dismantling of a company that is too influential or the stopping of the financing of a company that is embarrassing for the government. This has already happened…

It all comes down to the crash that occurred yesterday in China. The MSCI China index collapsed by 8%, bringing its liability to 42% since January 1. The Hang Seng lost 6.4%, for a 35% decline in 2022. Even the mainland Chinese indexes, with their generally suspect fluctuations, were down 2% yesterday. And I'm not even talking about the Nasdaq Golden Dragon China index, which includes 65 Chinese companies listed in the US, which ended the day at -14%.  

The geopolitical dimension has always been a component of risk. It strengthens from time to time and then contracts again. It is clear that it has returned to the top of the pile of concerns.

 

Economic highlights of the day:

The FFHA house price index, the Richmond Fed manufacturing and Conference Board consumer sentiment are on the agenda today. All the macro agenda is here. 

The dollar fell to EUR 1.0083 and GBP 0.8760. The ounce of gold is down a bit at USD 1649. Oil is consolidating its rally, with North Sea Brent crude at USD 91.21 per barrel and US WTI light crude at USD 84.71. The yield on 10-year U.S. debt is back up to 4.21%. Bitcoin remains stuck in the 19,000 / 19,500 dollars per unit zone.

 

In corporate news:

* 3M Co lowered its annual profit and revenue forecasts, as the Scotch and Post-it manufacturer expects to suffer more from inflation and the strength of the dollar on the results of its overseas operations. Its stock was down 2% in premarket trading.

* General Motors was up 5% in pre-market trading, as sales of high-priced trucks in North America helped the automaker post a quarterly profit that beat analysts' expectations.

* Coca-Cola raised its annual revenue forecast on the expectation of stable demand for its sodas, whose prices have risen to offset the impact of inflation. In pre-market trading, the stock gained 3%.

* General Electric reported a 19% decline in adjusted quarterly profit and lowered its annual profit target, citing internal supply problems, inflationary pressures and weakness in its renewable energy business.

* UPS on Tuesday reported an increase in adjusted third-quarter profit as higher delivery costs offset a slowdown in online business.

* Biogen raised its 2022 profit forecast again, thanks to a reduction in expenses.

* Apple is cutting the production rate of the iPhone 14 Plus due to weak demand and increasing the production rate of the iPhone 14 Pro, market research firm TrendForce reported Tuesday.

* Health insurer Centene was down in pre-market trading despite slightly better-than-expected quarterly profit growth.

* Halliburton gained 1.8% in premarket trading after posting a stronger-than-expected increase in third-quarter profit.

* Valero Energy said Tuesday it posted a better-than-expected third-quarter profit on demand.

* Archer-Daniels-Midland - The grain and agricultural commodities trading group saw its third-quarter profit nearly double, thanks to strong demand and tight supply.

* Meta Platforms - WhatsApp messaging was gradually accessible again Tuesday after a massive outage around the world.

* Warner Bros Discovery announced Monday that costs related to the cancellation of several series and movies, including "Batgirl," could reach $2.5 billion.

 

Analyst recommendations:

  • Alphabet: KeyBanc adjusts price target to $120 from $125, reiterates overweight rating.
  • ASOS: Berenberg remains Buy with target reduced from GBp 1800 to GBp 1200.
  • Caleres: Piper Sandler initiated coverage with a recommendation of neutral. PT up 7.2% to $28.
  • Danaher: Benchmark downgrades to Hold from Buy
  • Duke Energy: Guggenheim adjusts price target to $97 from $119, maintains buy rating.
  • Landstar: Jefferies initiated coverage with a recommendation of hold. PT down 2.9% to $145.
  • Planet Fitness: Piper Sandler upgrades  to overweight from neutral. PT up 22% to $70.
  • Match Group: Truist Securities adjusts price target to $56 from $68, keeps hold rating.
  • Meta: KeyBanc adjusts price target to $175 from $196, reiterates overweight rating
  • Moderna: JPMorgan adjusts price target to $122 from $165, keeps neutral rating.
  • Netflix: Daiwa Securities upgrades to outperform from neutral. PT up 17% to $330.
  • ServiceNow: Guggenheim upgrades to Buy from Neutral
  • Southern Company: Guggenheim lowers price target to $69 from $80, maintains buy rating.
  • Tesla: Morgan Stanley lowers price target to $330 from $350, maintains overweight rating.
  • Uber Technologies: Cowen adjusts price target to $70 from $76, keeps outperform rating.
  • Upstart: Mizuho Securities initiated coverage with a recommendation of underperform. PT down 20% to $17.
  • Verizon Communications: Cowen adjusts price target to $55 from $64, keeps outperform rating.