US indicators continue to deteriorate – Bordier Monday Report
In the euro zone, the ZEW investor confidence index rose strongly in January.
In the US, leading economic indicators continued to deteriorate in January with Imperial manufacturing collapsing (-11.2 to -32.9) and NYC services declining (-17.6 to -21.4). Retail sales fell by a more than expected 1.1% m/m, as did industrial production (-0.7% m/m). Property developers’ confidence (NAHB: 31 to 35) and housing starts were better than expected in January (-1.4% m/m), but not building permits (-1.6% m/m). In the euro zone, the ZEW investor confidence index rose strongly in January (from -23.6 to 16.7). Finally, good surprises in China in December came from retail sales (-1.8% y/y), investment (+5.1% y/y), industrial production (+1.3% y/y) and GDP (+2.9) in Q4. % y/y).
At a conference in Australia, climate campaigner Bill Gates said he thought there was no chance the +1.5°C limit would be met – a view we share – and would fight the rise. It should be below +2.5°C (therefore outside the Paris Agreement). The billionaire, who has been involved through TerraPower since 2006, confirms his interest in nuclear power and in particular Small Modular Reactors.
Economic data in the US was mixed, leading to higher interest rate volatility, which ended lower (2Y/10Y -8bp). In Europe, J. Lagarde said that the ECB will continue to tighten the monetary policy, while the markets continue to change their expectations downwards. Yields also fell in core (Bund 10Y -5bp) and peripheral (BTP 10Y -23bp). In credit, spreads tightened across all categories except HY US (+17bp). Thus, performances are positive in Europe (IG/HY +0.4%) and mixed in the US (IG +0.1%/HY -0.3%).
Investors still expect a soft landing for the economy and slightly more dovish central banks. But this week, the reality on the ground may overturn this sweet dream. Indeed, company results are expected to increase, and we risk seeing many CFOs declaring 2023 a “tough” year. We remain cautious.
The dollar continued to weaken on comments from Fed officials that they are set to slow the pace of interest rate hikes. The market now expects a rate hike of 25 bps at the next meeting on February 1. EUR/USD breaks above 1.0900 – USD/CHF is at 0.9180, while GBP/USD is trading at 1.2415 this morning. An ounce of gold is at USD 1923/oz, sup. 1864 and res. 1998.
The relative stability of the markets hides the volatility that remains high. 10-year rates were little changed during the week (USD: ~-8bp; EUR: ~-5bp; CHF: ~+8bp). Credit spreads are widening slightly on higher yields but tightening on quality credit. In Q4, affected by the release of company results, stocks advanced in a scattered manner (US: -0.6%; Europe: -0.1%; emerging: +0.6%). The dollar depreciates slightly (dollar index: -0.2%), favoring gold (+0.9%) and other commodities (oil: +2.7%; copper: +1.5%). This week will monitor: regional leading economic indicators (Chicago, Richmond, Kansas City), US manufacturing and services PMI and Q4 GDP; Manufacturing and services PMI and consumer confidence in the euro zone.
Watch this week: foreign trade (Ofdf) and exports in December and 2022 (Ofdf). The following companies will publish results, orders or turnover figures: Logitech, Komax, Givaudan, Rieter, Emmi, Lonza, Mikron, Bucher, Schlatter, SGS and Starrag.
LIQUID AIR (Comes with satellite recommendation). The industrial gases specialist will benefit from strong fundamentals in a sector driven by the energy transition and the expansion of end markets in electronics and healthcare. The stock offers a European investment option in this sector and complements our now US-only recommendation on Linde.
LVMH (Access to Core Holding on 01/10). Facing uncertainties and a Luxury industry whose growth will slow in 2023, LVMH offers assurance (size/growth/margins/pricing power/balance sheet) with less sensitivity to cycles. All of its divisions will benefit from reopenings in China, and its margins will benefit from price increases, favorable currency hedging ($) and lower input costs. The development of Vuitton and Dior + the integration of Tiffany allows us to look to the future with confidence, as its valuation has become reasonable again. A record vintage release for 2022 results next Thursday, as well as details on the direction of markets (China/US/Europe), should confirm this conclusion.
SIMRIZ (Core Holding) pre-announced disappointing 2022 EBITDA, coming in 4% below expectations. Management is not setting targets for 2023 at this stage, but is reiterating its mid-term targets. For more details, we have to wait for the publication of the final annual results on March 8. We recommend holding positions and waiting for annuals to strengthen.
The schedule of the day