On Monday, Wall Street indexes closed slightly above their Thursday night level. The volatility continues to take hold, with investors hoping that the "one step forward, two steps back" phase is over. In Europe, indexes are also up, with rather copious gains in France, Germany and Switzerland. This was boosted by the spectacular U-turn of the new British government on its economic policy. Liz Truss apologized for almost sinking the ship, but intends to stay at the helm.

Britain’s new Chancellor, Jeremy Hunt, unveiled an emergency fiscal statement yesterday and warned about "very tough" decisions with cuts in government spending and tax hikes, and completely reversed Liz Truss' initial plan, moving to austerity. The only surviving measure from the defunct mini-budget is the removal of the cap on bankers’ bonuses.

Among several measures, a corporate tax hike will be implemented. The new Chancellor said it "will raise around £32 billion a year".

The powerful rebound benefited the three usual types of stocks, with no surprises. High-beta stocks, i.e. those that overreact to global changes generally because of their poor quality. Technology stocks and stocks generally perceived as oversold in the recent period (hence the 7% jump in Tesla). I would add financial stocks, apparently galvanized by Bank of America's results.

Today, the strong results from Goldman Sachs and Johnson & Johnson pushed U.S. stock indexes  further in the green at the open.  

The British about-face was not the only surprise of the beginning of the week. Another chancellor with a different job in another country has taken an adventurous step in the opposite direction, but one dictated by necessity. Olaf Scholz has announced that the last three German nuclear power plants will be extended until next April. Initially, one of them was to close its reactors before the end of the year. In reality, this is a modest development - it does not mean that the country has given up on nuclear power - but it does strengthen the production base for the coming winter. Finally, one last curiosity, China did not release its Q3 growth overnight as expected. The National Bureau of Statistics said that the announcement is delayed, without giving a new date. Some experts believe that Beijing has made sure that the Communist Party Congress will not be disturbed by economic data. In any case, it is the CCP that decides.

Investors are likely to focus on corporate earnings releases, with some other big names today, including Netflix or Hasbro.

 

Economic highlights of the day:

The ZEW survey of German financial sentiment, the September industrial production in the US and by the NAHB house prices are on the agenda today. All the macro agenda is here.

A dollar is worth EUR 1.0149 and GBP 0.8833. The ounce of gold is trading at USD 1655. Oil is relatively stable, with North Sea Brent at USD 91.05 per barrel and US WTI light crude at USD 84.69. The yield on 10-year US debt remains slightly below 4%. Bitcoin remains close to USD 19,500 per unit.

 

In corporate news:

* Goldman Sachs announced on Tuesday a reorganization of its core businesses into three divisions as it released its third-quarter results, marked by a smaller-than-expected decline in earnings per share. The U.S. bank gained 2.4% in pre-market trading.

* Johnson & Johnson reported better-than-expected quarterly sales on strong demand for its cancer drug Darzalex and its Crohn's disease treatment Stelara. In pre-market trading, the company was up 1.5%.

* Lockheed Martin - The U.S. defense group reported better-than-expected quarterly revenue, thanks to increased sales in its aerospace division with the war in Ukraine.

* Hasbro reported a larger-than-expected drop in third-quarter profit due to inflation.

* Intel expects a $16 billion valuation, up from an initial $50 billion, for its Mobileye autonomous driving software subsidiary that could debut on Wall Street on Oct. 26, stock market documents show Tuesday.

* Boeing - The U.S. Federal Aviation Administration (FAA) has told Boeing that some major documents submitted as part of the certification review of the 737 MAX 7 were incomplete and others needed to be revised by the U.S. manufacturer, a document seen by Reuters shows.

* Microsoft laid off nearly 1,000 employees this week, or less than 1 percent of its workforce, in several divisions, Axios reported Tuesday, citing a source.

* Nordstrom announced Monday the resignation of its CFO, Anne Bramman.

 

 

Analyst recommendations:

  • Abbott Laboratories: Barclays starts at overweight with $118 price target.
  • Antofagasta: Morgan Stanley upgrades from Underweight to Overweight, targeting GBp 1220.
  • Cleveland-Cliffs: Exane BNP Paribas downgrades to underperform from neutral. PT down 4% to $14.30.
  • Dechra Pharmaceuticals: Jefferies upgrades from hold to buy targeting GBp 3112.
  • Global Payments: Exane BNP Paribas downgrades to neutral from outperform. PT up 1.9% to $115.
  • Intel: KGI Securities downgrades to underperform from neutral. PT down 32% to $18.
  • Intuitive Surgical: Barclays starts at overweight with $235 price target.
  • JPMorgan: Goldman Sachs adjusts price target to $136 from $130, maintains buy rating
  • Juniper: Piper Sandler upgrades to neutral from underweight. PT up 9% to $29.
  • Kimberly-Clark: Evercore ISI initiates coverage with in-line rating.
  • NXP Semi: KGI Securities downgrades to neutral from outperform. PT up 9.7% to $155.
  • PepsiCo: President Capital Management upgrades to buy from neutral. PT up 16% to $200.
  • Potlatch: RBC Capital Markets upgrades to outperform from sector perform. PT up 29% to $55.
  • Regeneron Pharmaceuticals: Evercore ISI downgrades to in line from outperform, keeps $760 price target.
  • Roblox: Wedbush raises price target to $36 from $34, maintains neutral rating.
  • RPM International: UBS cut its recommendation to neutral from buy. PT up 10% to $101.
  • The Estee Lauder Co: Stifel Nicolaus adjusts price target to $275 from $315, maintains buy rating.