Monday Report

Economy

In the US, leading economic indicators continue to deteriorate with the collapse of Empire manufacturing in January (from -11.2 to -32.9) and the decline in services in NYC (from -17.6 to -21.4). Retail sales contracted by 1.1% m/m, more than expected, as did industrial production (-0.7% m/m). Real estate developers’ confidence (NAHB: from 31 to 35) and housing starts held up better than expected in January (-1.4% m/m), but building permits did not (-1.6% m/m). In the euro zone, the ZEW investor confidence index rebounds strongly in January (from -23.6 to 16.7). Finally in China, the positive surprises in December come from retail sales (-1.8% y/y), investments (+5.1% y/y), industrial production (+1.3% y/y) and Q4 GDP (+2.9% y/y).

Planetary Limits

At a conference in Australia, Bill Gates, who is committed to the fight against climate change, indicated that, in his opinion, the +1.5°C limit had no chance of being respected - an opinion that we share - and that the increase would have difficulty in being less than +2.5°C (therefore beyond the Paris Agreement). The billionaire, who has been involved with TerraPower since 2006, confirms the interest of nuclear power and in particular Small Modular Reactors.

Markets

The relative stability of the markets hides a volatility that remains high. Over the week, 10-year yields moved little (USD: ~-8bp; EUR: ~-5bp; CHF: ~+8bp). Credit spreads widened slightly on high yield but narrowed on investment grade credit. Equities, impacted by Q4 corporate earnings releases, are mixed (US: -0.6%; Europe: -0.1%; emerging markets: +0.6%). The dollar depreciates somewhat (dollar index: -0.2%), favouring gold (+0.9%) and other commodities (oil: +2.7%; copper: +1.5%). Coming up this week: regional leading economic indicators (Chicago, Richmond, Kansas City), US manufacturing and services PMI and Q4 GDP; eurozone manufacturing and services PMI and household confidence.

Swiss Market

Coming up this week: foreign trade (Ofdf) and watch exports in December and 2022 (Ofdf). The following companies will publish results, orders or sales figures: Logitech, Komax, Givaudan, Rieter, Emmi, Lonza, Mikron, Bucher, Schlatter, SGS and Starrag.

Equities

AIR LIQUIDE (Satellite entry). Specialising in industrial gases, the company will benefit from strong fundamentals in the sector, driven by the energy transition and expanding end markets in electronics and healthcare. The stock offers an investment option in Europe in this sector and complements our now US-only recommendation on Linde.
LVMH (entry into Core Holding on 10/01). Faced with uncertainties and a Luxury Goods industry whose growth will slow in 2023, LVMH offers guarantees (size/growth/margin/pricing power/balance sheet) of less sensitivity to cycles. All its divisions will benefit from the reopening of China and its margins will benefit from price increases, favourable currency hedges ($) and lower incoming costs. The development of Vuitton and Dior + the integration of Tiffany allow the company to look to the future with confidence as its valuation has returned to a reasonable level. The publication of a record year for its 2022 results next Thursday as well as details on the direction of the markets (China/US/Europe) should reinforce this conviction.
SYMRISE (Core Holding) has forecast a disappointing EBITDA for 2022, coming in 4% below expectations. The management does not give 2023 targets at this stage but reiterates its medium-term objectives. We will have to wait for the publication of the final annual results on 8 March for more details. We recommend holding positions and waiting for the annual results to strengthen.

Bonds

In the US, economic data was mixed, leading to an increase in rate volatility, which ended lower (2Y/10Y -8bp). In Europe, C. Lagarde stated that the ECB would continue to tighten monetary policy, while markets continued to revise their expectations downwards. Rates also declined on the core (Bund 10Y -5bp) and peripheral (BTP 10Y -23bp). On the credit side, spreads tightened on all categories except US HY (+17bp). Thus, performances were positive in Europe (IG/HY +0.4%) and mixed in the US (IG +0.1%/HY -0.3%).

Sentiment of traders

Stock market
Investors are still expecting a soft landing for the economy and a little more dovish central banks. However, this week, the reality on the ground could put a damper on this sweet dream. A flurry of corporate results is expected and we may see a swarm of CFOs announcing a “challenging” 2023, with the attendant bearish consequences. We remain cautious.
Currencies
The greenback continued to weaken following comments from FED officials that they are preparing to slow the pace of rate hikes. The market now expects rates to be raised by 25bp at the next meeting on 1st February. EUR/USD has broken through 1.0900 – USD/CHF is at 0.9180 and GBP/USD is trading at 1.2415 this morning. Gold is at 1923 USD/oz, up from 1864 and down from 1998.

Today’s graph

Performances

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