Monday Report

Economy

US statistics tended towards being reassuring. SME confidence (NFIB index) climbed higher than expected in August, up from 99.7 to 100.1, as did consumer confidence (Univ. of Michigan), up from 70.3 to 71. The Philly Fed’s leading economic indicator has recovered from 19.4 to 30.7 in September. Retail sales also beat expectations, up 0.7% MoM in August. Lastly, consumer prices rose slightly less than expected in August (up 0.3% MoM; up 5.3% YoY). In the eurozone, industrial production surprised to the upside (up 1.5% MoM; up 7.7% YoY). In China, retail sales (up 2.5% YoY), industrial production (up 5.3% YoY) and investment (up 8.9% YoY) all fell short of expectations in August.

Climate

Ahead of COP26 in November, the UN has analysed the 191 Nationally Determined Contributions (NDCs) received to date. They imply that CO2 emissions will be 16% higher in 2030 than in 2010; they would need to be 45% lower to have any hope of limiting the rise in temperature by 2100 to 1.5°C (and 25% lower to limit the rise to 2°C – see chart). The IPCC says these NDCs would result in warming of 2.7°C. Remember: beyond 2°C, the consequences of climate change will be both irreversible and uncontrollable.

Markets

It was a risk-off week for equities, which lost 1% in developed markets and 2.2% in emerging markets. Copper also fell sharply (down 3.9%) as the risk of a default by major Chinese real estate developer Evergrande loomed ever larger. Gold (down 2.3%) was penalised by dollar appreciation (with the dollar index up 0.7%) and the uptick in sovereign yields. Corporate spreads performed nicely. To be monitored this week: confidence among homebuilders (NAHB index), housing starts, building permits, manufacturing and services PMIs and Fed meeting in the US; manufacturing and services PMIs and consumer confidence in the eurozone; and one- and five-year borrowing rates in China.

Swiss Market

To be monitored this week, which has begun in the red: FCA August foreign trade and watch exports, SNB Q2 balance of payments and SNB monetary policy assessment. Otherwise, the last companies to report their H1 results will be BVZ, Airesis and Relief.

Equities

ANGLO AMERICAN (Satellites): on top of the impact of the semiconductor shortage on the automotive sector, the share price has been hit by a marked slowdown in China. Iron ore and palladium prices have fallen 25% since mid-August. We advise waiting for the trend in China to stabilise/improve before buying any more Anglo American.
ASTRAZENECA (Core Holdings) has unveiled excellent clinical data on antibody-drug conjugate Enhertu as a second-line treatment for HER2-expressing breast cancer, bringing some competition for Roche’s Kadcyla (c. $1bn in this indication). This antibody-drug conjugate, evaluated for treatment of HER2-expressing cancers (colon, breast, lung, bladder and stomach), is one of the group’s future growth drivers that have thus far been underestimated by the consensus.
ENEL: in a decision that has revived fears of punitive taxes on southern European utility operators, the Spanish government has announced consumer protection measures in the face of soaring electricity prices. We have removed Enel from our Satellite Recommendations and will move back into this key energy transition player once the risk is behind us and/or has been appropriately priced in.
MERCK & CO (Core Holdings) has presented overall survival data for Keytruda in combination with chemotherapy for triple negative breast cancer (15% of breast cancer cases). The findings are statistically significant, with a 27% reduction in mortality risk in patients with PD-L1 expression, and confirm the drug’s use as a treatment in this indication.

Bonds

In the US, economic data gave out a mixed message in August, with inflation rising less quickly than expected (at 0.3% MoM, vs. 0.4% expected) and retail sales exceeding expectations (up 0.7%, vs. an expected 0.7% decline). Two- to ten-year yields ended the week higher, with 10-year yields up 2 bps at 1.36%. In credit, it was a good week for high-yield indices, which gained 0.20% in both Europe and the US, while IG indices lost 0.3% in Europe and gained a mere 0.05% in the US.

Sentiment of traders

Stock market
Picking up where we left off on Friday, the week is off to a rocky start to say the least. Red will dominate during today’s session, and this could well continue all week. What with unexpected signs of strength from US consumer spending, Janet Yellen’s threats of a shutdown and the Fed’s monthly meeting in mid-week, all traffic lights are flashing amber. Add to that Evergrande’s troubles in China and we could be in for a rough ride this week, so fasten your seatbelts!
Currencies
The greenback has risen sharply on the back of the strong retail sales figures: EUR/USD is trading at 1.1720 and USD/CHF at 0.9320 this morning. Gold has lost $45 and is trading at $1,750/oz. CHF has fallen victim to profit-taking, with EUR/CHF trading at 1.0925. We anticipate the following ranges – EUR/USD: 1.1665-1.1850; USD/CHF: 0.9240-0.9400; EUR/CHF: 1.0890-1.0990.

Today’s graph

Performances

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