One thing that really bothers me this morning is the sharp decline in the US 10-year bond yield, which fell to 3.46%. Normally, if this yield falls, it means that the market anticipates an improvement in key rates, and that equities should benefit from it. However, there is no information to seriously justify the rise in bonds (bond prices rise when their yields fall) and there is no explanation for the lack of reaction from equities. This is not the least of the mysteries of the moment, even if the yield curve is still inverted – auguring an imminent recession.
I really like Reuters columnist Wayne Cole’s take on this situation this morning. He reminded us that the Treasury curve was once said to predict five of the last two recessions, but now no one seems to doubt its power to predict future trouble. Hence the half-ironic explanation: perhaps long-term yields are falling because of recession fears caused by their own fall. The other possible explanation is that central banks are beginning to seriously panic over economic dynamics, which would justify Jerome Powell’s small solitary act last week.
It is true, however, that this time the gap between 10a and 2a remained below zero for a long time, so a recession is likely to come. In fact, the longer the spread stays below zero, the longer the recession lasts.
Either way, this rate contraction remains to be watched one week before the Fed’s next policy decision on rates.
Meanwhile, another piece of data showed that the labor market is still resilient, despite inflation and a tough economic environment. The number of Americans filing new claims for unemployment benefits increased by 4,000 to 230,000 for the week ended Dec. 3, the Labor Department said. However, it meets expectations.
Despite worries about the Fed’s monetary policy and the looming recession, Wall Street indices rose slightly this morning, helped in part by news that China would further ease its Covid restrictions.
Today’s Economic Highlights:
Japan’s Q3 GDP contracted slightly less than expected (-0.8% vs. -1% expected). The Brazilian central bank left its key rates unchanged at 13.75%.
The dollar fell 0.2% to 09493 EUR and remained stable against the pound at 0.8190 GBP. The ounce of gold strengthens to 1788 dollars. Oil remains under pressure, with North Sea Brent at $78.10 a barrel and US WTI light crude at $73.71. The yield on US 10-year debt fell to 3.46%. Bitcoin is trading around $16,800.
In company news:
* Tesla fell 1.8% in premarket trading after Bloomberg reported the U.S. automaker would cut hiring and working hours at its factory in Shanghai, China.
* Separately, new car sales in China fell in November, down 9.5% year-on-year to 1.67 million units, the first drop in six months, according to data released Thursday by the CPCA, an industry federation.
* The Pentagon has signed cloud contracts with Alphabet subsidiary Google, Amazon Web Services, Microsoft and Oracle for a total of $9 billion.
In addition, the Court of Justice of the European Union on Thursday asked Google to delete data from the results of online queries when they are “manifestly erroneous” under the “right to be forgotten”.
* Meta Platforms – Representatives of Facebook’s parent company, which is being sued by the Federal Trade Commission (FTC) for blocking the social media giant’s takeover of Within, are due to speak Thursday in a key battle over the virtual reality market.
* Exxon Mobil rose 1.3% in premarket trading after the group announced an extension of its $50 billion share buyback plan through 2024, including $15 billion for this year.
* Chervon announced that it has increased its capital spending budget for 2023 to $17 billion.
* Gamestop reported a bigger-than-expected loss and lower-than-expected quarterly revenue due to a lack of new hit games and slowing consumer spending. The stock fell 0.4% in premarket trading.
* Rent the Runway – The online clothing rental platform jumped 15.4% in premarket trade as the group raised its revenue forecast for this year.
Analyst Recommendations:
- Anglo American: Morgan Stanley moves from overweight to underweight, targeting 30 GBp.
- AvalonBay: Goldman Sachs downgrades to neutral after buying. PT up 11% at $187.
- British Land: Kempen & Co downgrades to neutral upon purchase. PT up 1.8% at 400 pence.
- Churchill Downs: JP Morgan reinstated coverage with a neutral recommendation. PT set at $243, implies a 9.8% increase from the last price.
- DTE Energy: Wolfe Research upgrades to outperform its peers. PT up 9.3% at $125.
- Fedex: JP Morgan confirms its opinion on the stock and remains Neutral. The target price has been revised downwards and is now set at 184 USD compared to 192 USD previously.
- Just Group: JP Morgan goes from neutral to overweight by targeting 95 GBP.
- Lockheed Martin: Citi reinstated coverage with a buy recommendation. PT set at $558, implies a 16% increase from the last price.
- Segro: Kempen & Co downgrades to sell from buy. PT down 8.5% at 730 pence.
- Mid-America: Goldman Sachs upgrades to buy from breakeven. PT up 22% at $194.
- Polaris: BMO Capital Markets downgrades to market performance from outperformance. PT up 1.7% at $110.
- Principal Financial: Credit Suisse downgrades to underperform versus neutral. PT down 4.7% at $86.
- Raytheon Technologies: Citi reinstated coverage with a neutral recommendation. PT set at $104, implies a 5% increase from the last price.
- Salesforce: Baird moves from outperform to neutral. PT down 15% to $150.
- Travis Perkins: JP Morgan downgrades from neutral to underweight, targeting GBP 800.
