The rebound in US markets late Friday eased the bearish tendencies of previous sessions, but did not dispel investors’ fears. Energy prices remain high and the big maneuvers seem to have started in China around Evergrande, for better or for worse. In the US, China is also at the forefront, while the Democrats are having a hard time with their spending plans.
Joe Biden called on his troops to revise the stimulus package downwards. He is said to have spoken of a reduction to between $1,900 and $2,300 billion, compared to the $3,500 billion announced a few months ago. This has provoked the anger of the left wing of the party.
Meanwhile, the listing of China Evergrande Group and its subsidiary Evergrande Property Services in Hong Kong was suspended after the company missed another payment deadline. The local stock market is open today, unlike the mainland Chinese markets which are closed for several days for the National Day holiday. Shanghai will not resume trading until next Friday. Seoul is also closed today but will reopen tomorrow.
We learned from the official Chinese press that Hopson Development Group (whose listing was also suspended) was going to take control of 51% of Evergrande Property Services for a little over $5 billion. The initial announcement of the suspension caused the Hang Seng to plunge by 2% and reversed the trend on the Nikkei 225, which had turned from green to red. The consequences of the real estate group's rout are highly dependent on the level of support from Beijing for its cutback. Its agony continues to weigh on the morale of investors, who do not really have visibility on the scope of the shockwave of such a bankruptcy.
China is also on the agenda in the United States, where Joe Biden's Trade Representative, Katherine Tai, is expected to announce today that the country has failed to comply with the terms of the so-called "Phase I" trade agreement signed in January 2020 by Donald Trump and Xi Jinping. This agreement included the purchase of $200 billion in additional U.S. goods by the Chinese over two years. It would seem that with three months to go, the balance sheet is quite far from the initial commitment. Beijing will probably argue that coronavirus has changed the situation. To give you an idea of the imbalance in the trade balance between the two countries, China had exported $452 billion of goods to the United States in 2019, importing in return only $106.5 billion. In 2020, exports fell to $435 billion and imports rose to $124.5 billion, but remain far from the ambitions of the Trump plan, which will surely make his successor take the blame.
On another note, Washington is going to launch a three-year countdown that will force a majority of Chinese companies to leave the US stock market, according to the Wall Street Journal. At issue is the lack of accounting transparency of many companies, which poses a risk to investors. Investors are not always happy with the move: some have already swapped US-listed securities for those listed in Hong Kong.
The developments surrounding Evergrande remain a source of instability, as do the tensions in the energy market and, in turn, the current fears about inflation. An Opec+ meeting is scheduled for today, but there is no indication that it will have any influence on crude prices. The big event circled in red this week is on Friday with the release of September's U.S. employment numbers, which are an important marker for U.S. monetary policy.
Today's Economic Highlights:
US Durable Goods Orders for August are the main indicator of the day.
The dollar continues to rise to EUR 0.8594. The ounce of gold is down to USD 1753. Oil is trading at USD 79.4 per barrel for Brent and USD 75.9 for WTI. In the sovereign debt market, the US 10-year bond is at 1.47%, while the Bund is at -0.23% for the same duration. Bitcoin is falling back after rebounding sharply to above USD 47,500.
On markets:
* Tesla gains 2.8% in pre-market trading after announcing Saturday that it delivered 241,300 electric cars in the third quarter, a record number that exceeded financial analysts' expectations.
* Merck gained 3% in premarket trading as the pharmaceutical company continued to benefit from positive early results from a trial of its experimental COVID-19 treatment.
* Johnson & Johnson plans to ask the U.S. drug agency this week to approve a booster dose of its COVID-19 vaccine, the New York Times reports.
* Teva Pharmaceutical Industries announced a temporary halt to drug production at its Irvine, Calif., plant to address issues raised by the U.S. Food and Drug Administration after an inspection.
* S&P Global made concessions to try to win European competition authority approval for a $44 billion takeover of IHS Markit, a European Commission document shows.
* U.S.-based Roper Technologies announced Sunday the sale of its TransCore business to Singapore Technologies Engineering for $2.68 billion.
Analyst recommendations:
Amazon: Goldman Sachs initiated coverage with a recommendation of buy. PT up 16% to $770
BP Plc: Barclays retains his positive opinion on the stock with a Buy rating. The target price is revised upwards from GBp 500 to GBp 475.
Cerillion: Liberum remains Buy with target price raised from GBp 670 to GBp 925.
Diploma: Stifel resumes its Buy rating with a target of GBP 3,300.
Idacorp: Wells Fargo Securities downgrades to underweight from equal-weight. PT up 0.7% to $105
J D Wetherspoon: Stifel upgraded from Hold to Buy targeting GBp 1,330.
Liontrust: Peel Hunt starts tracking at Hold with a target of GBP 2291.
Sabre Insurance: Berenberg remains Sell with a price target reduced from GBp 224 to 199 .
Southwest Airlines: Barclays raised the recommendation on Southwest Airlines Co. to overweight from equal-weight. PT jumps 38% to $75
SVB Financial: Goldman Sachs initiated coverage of SVB Financial Group with a recommendation of buy. PT up 16% to $770
Union Pacific: Barclays upgrades to overweight from equal-weight. PT up 29% to $260
© MarketScreener.com 2021
