Monday Report

Economy

US statistics were few and far between last week. SME confidence (NFIB index) rose less sharply than expected in February, up from 95 to 95.8. Consumer price inflation (0.4% MoM; 1.7% YoY) was in line with expectations, while the positive surprise of the week was the rebound in consumer confidence (Univ. of Michigan), up from 76.8 to 83. In the eurozone, the Sentix index of investor confidence bounced back higher than expected in March, up from -0.2 to 5, while industrial production climbed higher than expected in January, up 0.8% MoM. In China, the economy is back in business, with investment up 35% YoY, industrial production 35% YoY and retail sales 33.8% YoY.

Climate

Last Thursday, the European Parliament voted by a very narrow majority (334 vs. 329) against a proposal to phase out free CO2 pollution credits for European industries. With the EU due to present its proposed European “carbon border adjustment mechanism” – connected with its climate objective of reducing CO2 emissions – in June, the debate is set to heat up. A carbon border levy to replace the current system thus looks set to be a major challenge for European industry.

Markets

Rising US long yields (up 6 bps) did not dampen risk appetite in equities, which gained 3.5% in Europe and 2.6% in the US. In the eurozone, the ECB is considering stepping up its asset purchases, causing peripheral yields to fall (down 13 bps in Italy and 7 bps in Spain). There was a pause in the US dollar’s appreciation (with the dollar index down 0.3%), enabling gold to gain 0.9%. To be monitored this week: regional confidence indicators (Empire, Philadelphia and Chicago), retail sales, industrial production, confidence among homebuilders, housing starts and Fed meeting in the United States; ZEW confidence indicator and new vehicle registrations in the eurozone; and one- and five-year borrowing rates in China.

Swiss Market

To be monitored this week: FCA February foreign trade and watch exports, and FSO February producer and import prices. The following companies are due to report results: Aryzta, Hiag Immobilien, Sensirion, Tecan, Vetropack, Conzzeta, BKW, Komax, Newron, Partners Group, Orell Füssli, SIX Group, Comet, Metall Zug, Swissquote, Von Roll, Zur Rose, Interroll and Aluflexpack.

Equities

ELI LILLY (US Core Holdings) has released results from its trial of donanemab in Alzheimer’s disease. The data is very promising, with treatment slowing disease-related decline by 32% (primary endpoint). Three out of four secondary endpoints were missed but still showed a positive trend. Consequently, a second, more extensive trial will be needed to secure approval (2023-2024), though the consistency of the observed response increases the likelihood of its success. Buy on weakness.
ORACLE (US Core Holdings) has reported results in line with expectations for Q3 of its FY 2021. The share price has fallen 5% on disappointing guidance and slowing cloud growth over the past few quarters. The company has announced a $20bn share buyback programme.
According to Reuters, VOLKSWAGEN (Satellites) is considering axing up to 4,000 jobs (5% of its workforce) at its German plants: the CEO’s cost-cutting strategy, which recently won the support of the Board, is taking shape.
ZALANDO (Satellites) will this Tuesday report Q4 2020 results showing strong growth (with sales up at least 36%), boosted by fresh COVID restrictions. While Q1 2021 is set to continue in a similar vein, management’s full-year guidance will remain cautious due to the difficulty of assessing the impact of store reopenings and a very high base effect in H1 2020.

Bonds

In the US, 10-year yields rose 6 bps to 1.42% and the curve continued to steepen, with the 2-year/10-year spread widening 5 bps to 148 bps. It was a different picture in Europe, where peripheral yields ended the week sharply down (with Italian 10-year yields down 13 bps) in response to the ECB’s announcement that it was planning to accelerate asset purchases under the PEPP. In credit, only high-yield indices posted positive performance in Europe (up 0.20%) and the US (up 0.04%).

Sentiment of traders

Stock market
With Biden’s stimulus on the one hand and inflationary fears on the other, investors are likely to once again be caught between two stools this week. We will be listening closely to Jay Powell’s comments on Wednesday to see whether he can reassure markets that inflation is under control. In the meantime, sector rotation is likely to continue and our focus will be on US 10-year yields.
Currencies
With EUR/USD failing to break through resistance at 1.20, the pair (1.1932) once again looks set to test support at 1.1840. Investors will be closely following the Fed’s comments (16-17 March). EUR/CHF is consolidating at around 1.1090. GBP is stable at GBP/USD 1.3927 and EUR/GBP 0.8560. Our ranges – USD/CHF: supp. 0.92, res. 0.94; GBP/USD: supp. 1.3860, res. 1.40; EUR/CHF: supp. 1.10, res. 1.12.

Today’s graph

Performances

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