Overall, equity markets are bouncing back after a difficult week. Investors have gone from "inflation is no longer a problem and interest rates will come down" to "help, inflation is coming back and the monetary easing we took for granted is no longer there". At least in the United States, because Europe, which cannot boast such a strong pace of growth, could see a period of rate cuts as early as June. Well, that was the scenario until now, but geopolitical events could reshuffle the deck.

On Friday, Wall Street initially rose, suggesting that it was indifferent to signals that inflation was picking up. But the indices were soon overtaken by fears that the economic situation was deteriorating. The three major indices remained in their recent stagnation channel: not far from the record highs signed in mid-March, but not really ready to explore what's going on higher either.

Now let's look at the events of the last 72 hours. The first is the escalation of the Middle East conflict, and the second is the turmoil in the metals market following new restrictions on Russian exports. There is no connection between the two in terms of cause, but their consequences are similar in one respect: commodities are under pressure, which is not very good news for inflation. We'll come back to that.

Over the weekend, Iran launched a major attack on Israel. A spectacular attack from the air with little impact on the ground. Tehran had promised to retaliate after the destruction of an Iranian-owned building on Syrian territory. The main risk remains an escalation if Israel retaliates, which is not a given at the time of writing. Oil, for its part, reacted with a sharp rise before giving back its gains. It is now a bit lower, but still trading just under USD 90 per barrel for Brent. Clearly, the risks for black gold remain on the upside.

To return to the second point, on Friday, Washington and London banned metal exchanges from accepting Russian aluminum, copper and nickel, while at the same time banning imports of these metals into the United States and the United Kingdom. This decision sent prices soaring, especially for aluminum (+5% this morning). As a result, the London Stock Exchange recovered 1% on Friday, while most other markets lost ground. The FTSE 100 includes 23% oil and mining stocks, far more than most other major indices. To set the record straight (thanks to the economists at ING who summed up the situation), no Russian metal produced after April 13th can be delivered to the LME (London) or the CME (Chicago), the world's two largest commodity markets. Russia accounts for about 6% of the world's nickel production, 5% of its aluminum and 4% of its copper, but Russian metals dominate the LME stocks: they represented 36% of the nickel in the warehouses, 62% of the copper and 91% of the aluminum. However, these stocks can be sold.

Today, there was some good news: Goldman Sachs posted strong results, and data showed retail sales rose 0.7% in March following a 0.9% increase in February, ahead of estimates.

Beyond geopolitics, the week ahead will once again revolve around the age-old debate about interest rate cuts in the US. Some have settled the issue, such as Bank of America: the investment bank believes that US inflation will pick up in the coming months and that the Federal Reserve will only cut rates once this year, in December 2024. Others predict no rate cuts, and some two or even three rate cuts. The advantage of covering the full range of possibilities is that someone is bound to be right. The problem is, no one knows who.

This week, the agenda includes US retail sales and the first estimate of Chinese Q1 GDP (today). Not to forget a speech by Jerome Powell on Tuesday.

The corporate calendar includes some forty quarterly earnings releases from companies worth over $50 billion. These include Goldman Sachs Group, UnitedHealth, Johnson & Johnson and Netflix in the U.S. and LVMH, ASML, Rio Tinto and L'Oréal in Europe. Earnings season is shaping up quite nicely, if financial analysts are to be believed, with the majority of earnings estimates for the year revised higher in the past month. Going back to what I wrote earlier, the strengthening of oil and metal prices is accelerating the earnings outlook, as the energy and materials sectors had tended to drag down expectations in the first half of the year.

In the Asia-Pacific region, the red dominated morning trading, with declines ranging from 0.4% in Australia to -1.3% in Taiwan. The exception is China, the Hang Seng lost 0.7% but the CSI300 gained more than 2%. Mainland China benefited from post-close announcements on Friday. Regulators announced a set of draft rules to smooth stock market trading and protect investor interests. Clearly, Hong Kong and Shanghai don't see eye to eye. Western leading indicators are bullish after last week's losses. In Europe, all indices are in the green, with the Stoxx EU 600 up 0.8%. On Wall Street, futures on the Dow Jones and the S&P 500 are up both by 0.7%, while the Nasdaq 100 is up 0.8%.  

Economic Highlights of the Day:

EU Industrial Production, US Empire Manufacturing, US Retail Sales, Business Inventories and the NAHB Housing Market Index are on the agenda.

The dollar is worth EUR 0.9399 and GBP 0.8024. Gold lost some ground to USD 2,356. Oil retreats slightly, with North Sea Brent at $89.33 a barrel and US light WTI at $84.70. The yield on the 10-year US Treasury note is slightly lower at 4.53%. Bitcoin is trading at USD 66,140.

In corporate news :

  • Goldman Sachs: The bank profit rose 28% in the first quarter, buoyed by a recovery in debt underwriting and dealmaking that boosted its investment banking unit.
  • Apple's smartphone shipments fell by around 10% in the first quarter of 2024, penalized by intensifying competition from Android smartphone manufacturers, according to figures revealed Sunday by a study from IDC. The share price lost 0.7% in pre-market trading.
  • Salesforce is in advanced talks to acquire data management software provider Informatica, the Wall Street Journal reported on Friday, citing people familiar with the matter. Salesforce shares are down 3.5% in premarket trading.
  • Boeing, Spirit Aerosystems - The aerospace supplier is limiting overtime and hiring due to lower production of 737 MAX aircraft from U.S. manufacturer Boeing, which is facing quality issues after an in-flight incident on an Alaska Airlines plane in early 2024, Spirit told Reuters on Friday.
  • Tesla said on Friday it had cut prices for its FSD full autonomous driving software subscriptions in the US and Canada, amid slowing demand and price competition. Technology website Electrec also reported on Monday that the automaker would be cutting more than 10% of its workforce. The stock lost 0.5%.
  • Defense sector - Tensions in the Middle East support military groups. Lockheed Martin, Rtx, Northrop Grumman, and General Dynamics gain between 1% and 2% before the opening.
  • Semi-conductors - The U.S. government will provide up to $6.4 billion in subsidies to Samsung to expand its chip production in Texas, as part of a broader effort to develop chip manufacturing in the U.S., the Commerce Department said Monday.
  • Moderna - The U.S. drugmaker's lawsuit against Pfizer and BioNTech for infringement of its patent rights in their COVID-19 messenger RNA vaccine will be stayed while the U.S. Patent Office determines whether two of the three Moderna patents in question are valid, a Massachusetts federal court ruled Friday.
  • Novavax - US hedge fund Shah Capital wrote to the company's board of directors on Monday to request the appointment of two new independent directors, the Financial Times reported on Monday.
  • Johnson & Johnson - The South African Health Products Regulatory Authority announced on Saturday that it was recalling batches of Johnson & Johnson children's cough syrup after detecting high levels of diethylene glycol. The affected lots were sold in South Africa, Eswatini, Rwanda, Kenya, Tanzania, and Nigeria, according to the statement.
  • Medical Properties Trust said Friday it would sell a majority stake in five Utah hospitals for $886 million.
  • Blackbaud - Clearlake Capital said Monday it would buy the group at a price valuing it at $4.3 billion.
  • Snap One - Resideo Technologies will buy the group for $1.4 billion, including debt. Snap One gains 29.2% before the opening.
  • Warner Music Group - Hollywood artists have reached a tentative agreement with major record companies such as Warner Music Group and Sony Music Entertainment, which includes minimum wage increases and protections against the use of artificial intelligence (AI).
  • New York Community Bancorp appointed Craig Gifford as CFO on Friday to succeed John Pinto, as the bank seeks to regain investor confidence after revealing errors in its financial reports earlier this year.
  • United States Steel - The steelmaker's shareholders on Friday approved the planned $14.9 billion takeover of the group by Japanese rival Nippon Steel, bringing the merger a step closer to completion, even as political opposition to the deal intensifies.
  • Encore Wire - Prysmian, the world's largest cable manufacturer, is to acquire US-based Encore Wire for an enterprise value of around 3.9 billion euros ($4.15 billion), the two companies said on Monday.

Analyst recommendations:

  • Jpmorgan Chase & Co.: CTBC Securities Investment Service Co LTD downgrades to neutral from add with a target price of USD 190.
  • Linde Plc: Kepler Cheuvreux downgrades to hold from buy with a target price of USD 495.
  • Servicenow, Inc.: Guggenheim downgrades to neutral from buy.
  • The Hershey Company: President Capital Management Corp downgrades to neutral from buy with a target price reduced from USD 220 to USD 190.
  • Eog Resources, Inc.: Evercore ISI maintains its outperform rating and raises the target price from USD 113 to USD 150.
  • Old Dominion Freight Line, Inc.: Raymond James maintains its outperform rating and reduces the target price from USD 415 to USD 233.
  • Ge Vernova Inc.: Mizuho Securities initiates a Buy recommendation with a target price of USD 154.
  • Las Vegas Sands Corp.: Wells Fargo maintains its overweight rating and reduces the target price from USD 64 to USD 62. Seaport Global initiates a Buy recommendation with a target price of USD 63.
  • Unity Software Inc.: SPDB International Holdings Ltd initiates a Buy recommendation with a target price of USD 31.
  • Easyjet Plc: AlphaValue/Baader Europe upgrades to add from reduce with a price target reduced from GBX 622 to GBX 616.
  • Ssp Group Plc: Stifel upgrades to buy from hold with a target price of GBX 265.
  • Tesco Plc: Kepler Cheuvreux upgrades to buy from hold with a price target raised from GBX 305 to GBX 345.
  • Wizz Air Holdings Plc: AlphaValue/Baader Europe upgrades to add from reduce with a price target reduced from GBX 2431 to GBX 2401.