“The Fed has gone crazy. They are making a big mistake." Donald Trump is more furious with Jerome Powell, the man he picked to head the central bank, than with China. The president's anger was justified by the sharp thud in the price lists favored, if not triggered, by the intervention of Powell, who yesterday, in the face of new signs of tension on prices, spoke of the possibility of reaching a sufficient level of interest rates to curb the strength of the American economy which risks getting too excited. A low blow for the president, engaged in the electoral campaign for the mid-term elections. What's more, an indication that comes at a very delicate moment for the needs of the US Treasury starting today with the massive offer of debt securities in an auction that could result in the desertion of Chinese buyers.
Tensions on interest rates have triggered the bear dance on stock exchanges all over the planet.
NASDAQ COLLAPSES, FOR S&P THE WORST DROP SINCE THE 2016 VOTE
Last night Wall Street, on the eve of the quarterly campaign, experienced a nightmare day: the Nasdaq dropped more than 4%, in its worst day since June 2016. Dow Jones -3,3%. The S&P500 index lost 3,2%: in the last five days, all downwards, the index suffered the worst drop since Trump's election.
The markets are thus pricing in the overtaking of bond yields, which have risen to a seven-year high, compared to stock exchange dividends.
Wall Street futures signaled this morning that the storm has not yet abated. But bond selling has subsided in the last few hours, as the US 3,15-year yield fell to XNUMX%.
The dollar weakens against the euro to 1,156.
JAMES MURDOCH WILL REPLACE MUSK INTO TESLA
On the corporate front, awaiting the accounts of the big banks arriving tomorrow, an indiscretion from the Financial Times holds the table: James Murdoch, the son of the tycoon who is momentarily the richest unemployed on the planet, will be the next CEO of Tesla to replace Elon Musk hit by the red card of the Sec.
THUD OF TOKYO. THE YUAN ONE STEP FROM 7 ON THE DOLLAR
The reaction of the Asian markets was no less strong. In Tokyo, the Topix index dropped 3,5%, with peaks of over 4% among technology. The yen appreciates for the sixth consecutive day. Taiwan, the most tied to tech, loses 6%. Seoul -4%, Mumbai and Sydney -2,5%.
Also down are the Chinese lists: Hong Kong -3,8%, CSI 300 index of the Shanghai and Shenzhen lists -4%.
The dollar-yuan exchange rate continues to approach 7, this morning at 6,93 despite the warning of US Treasury Secretary Steve Mnuchin. Yesterday the Chinese authorities hinted, through an article signed by a former central bank consultant, that they could tolerate a change even beyond 7, a warning to the White House on the risks of the tariff offensive.
SURPRISE DECLINE ALSO FOR OIL. SAIPEM -2,5%
The fear of a slowdown in the economy, caused by the rate hike, also has repercussions on oil, Brent traded in Asia this morning at 81,6 dollars a barrel, down 2%, yesterday it closed with a drop of 2%.
In Piazza Affari yesterday Saipem -2,5% even if Barclays raised the target to 6,6 euros. Eni -0,7%.
In this framework the psychodrama of the Italian maneuver continues. But the sustained rise in rates and the slowdown in the economy indicate that the already shaky numbers will soon need to be revised.
BUSINESS PLACE AT THE LOWEST OF THE YEAR
The long wave of sales also hit the European stock exchanges yesterday. But Piazza Affari was not the rear of the European price lists. Internal tensions over the maneuver took a back seat to the heavy climate that spread from Wall Street to Europe, triggered by fears over the confrontation with China and tensions on interest rates. And so the positive effect of the surprise increase in industrial production in August (also in Italy) which had given rise to hopes in the middle of the session for a rebound in quotations vanished. The stock markets have thus slipped downwards. In this climate, a sharp sectoral rotation has started on the European lists. Luxury has paid the price which, according to the Morgan Stanley report edited by Krupa Patel "is no longer in fashion". Thus Tlc (+2%, Telecom Italia +1,3%) and Banks (+0,4%) rose. Tech (-4,3%), basic materials (-4,2%), chemicals (-3,3%), industrial (-3%) and automotive (-3%) are down.
The FtseMib index (19.720, -1,70%) canceled the rebound attempt made the day before, returning to the lows of the year.
The other Stock Exchanges were heavy: Paris (-2,11%) paid for sales of luxury goods, Frankfurt (-2,19%) for cars. Madrid-1,09%. London -1,27%.
REUTERS: TRIA WILL LEAVE AFTER MANEUVER
Fitch writes: "We see considerable risks for the targets of the maneuver, especially after 2019". Hence the concrete risk that on the occasion of the rating review, which will arrive in the first quarter of 2019, the rating on Italy, today BBB- negative outlook, will be downgraded due to the new deficit targets. The agency's note arrived in the evening, just as the premier was at Palazzo Chigi Giuseppe Conte received the top management of the investee companies for an investment control room.
As usual, the reaction of the two deputy prime ministers was contemptuous: "It is good that those who promoted the previous governments fail us," said Luigi Di Maio. And Matteo Salvini took it out on the "usual bureaucrats". In the morning, Economy Minister Giovanni Tria assured Parliament that the government "will do everything to recover the confidence of the markets". But according to Reuters, Tria is increasingly likely to step down as minister within months. "Tria wants to leave, regardless of the fact that we are fed up with him, but nothing will happen before January - a member of the majority told the agency - First we need to approve the budget law in Parliament".
THE SPREAD DOWN TO 294 POINTS. TODAY AUCTION AT RISK FOR THE BTP
Looking at the glass as half full, it was a good day for debt securities. The 294-year spread fell at the close to 300 basis points from this morning's peak above 3,49. The 3,60-year yield fell to 2% from 1,35%. There was also progress on the short end of the curve: the yield on the 1,52-year BTP fell to XNUMX% from XNUMX%.
In order to place all the 6 billion 12-month BOTs offered, the Treasury had to accept a yield of 0,949%, the highest since October 2013, more than doubled compared to the 0,436% of the previous auction in September. It is the highest interest rate in five years (the yield was negative in May). The request came close to 10 billion, for a supply/demand ratio of 1,63%, down on the 1,91 of the previous auction.
Given the premises, reads the note from Unicredit, “today's auction represents an important test of investor appetite” writes Unicredit. Indeed, today the offer of 3-7-15/20-year BTPs for another maximum 2,5 billion is on the agenda. A sharp increase in yields is also expected here. At the end, on the gray market, the new three-year bond traded at 2,37%, more than one percentage point above the 1,20% of the mid-September auction (on offer was the old April 2021 benchmark, coupon 0,05 .2013%): this would be an auction maximum since October XNUMX.
“LUXURY IS NO LONGER IN FASHION”. MONCLER -10%
In Piazza Affari yesterday the descent of luxury and that of car stocks held the scene.
The sales in the luxury sector were triggered by a report by Morgan Stanley released close to the conference call on the results of Lvmh. In Piazza Affari, especially Moncler (-10%), the worst blue chip of the day, paid the price. But the down jacket company, which nonetheless boasts a 45% performance since the beginning of the year, is not the only one to have blamed the downgrading of the luxury goods sector to Underweight from Neutral. In Milan, other excellent names in Made in Italy are also making heavy losses: Ferragamo -4,3% and Tod's -2,3%. Brunello Cucinelli -9%. The storm broke out on the day of the conference call on the results of Lvmh (-4,7%) despite the fact that 3rd quarter sales met analysts' expectations with organic growth of 10%; Kering -3,7%, Richemont -1,4%.
Morgan Stanley, after underlining the risk of a slowdown in the Chinese market (which absorbs a third of luxury sales) observes that in this phase of slowdown in profit growth, "value" stocks are to be preferred over "growth" stocks. Luxury stocks "are vulnerable to general underperformance" compared to "value" stocks write Morgan Stanley analysts led by Krupa Patel.
FERRARI IN THE SIGHT, THE CAR ALSO GETS OUT
Ferrari, icons of luxury but also of the four-wheeled world, suffered both from the downgrading of luxury and from tensions on the automotive front: the Reds thus left 8% on the ground.
The Stoxx index falls by 2,76%. In Frankfurt, the losses of the big names in the auto industry were all above 2%. Porsche -2,8%. In Milan, Fiat Chrysler lost 5,55%, Brembo 5,86%.
Technology is also heavy: Stm -5,77% which aligns with the decline in the technology sector.
THEY HOLD THE BANKS. CARIGE "AT RISK OF FAILURE" FOR FITCH
For once, the bankers weren't in the eye of the storm: tonic in the first part of the session, they slowed down in the final in line with the general trend. The sector index was practically unchanged. Bper Banca maintained a gain of 2,18% in the final. Unicredit +0,33% and Intesa +0,53%. Ubi Banca -1,01%.
Banca Carige still suffering (-5,77%): Fitch cut Banca Carige's long-term rating from 'B-' to 'CCC+' placing this level under a negative 'rating watch'. The downgrade reflects the view that "bank failure is now a real possibility."
Fineco Bank (-4,63%) takes the black spot in asset management, generally with little movement. But the title is the only one to have a positive year-to-date balance of almost 20%.
Maire Tecnimont was also positive (+0,27%). she keeps the positive sign in the final. Barclays has strengthened the Overweight opinion by bringing the target price to 5,60 euros from 5,50 euros.
Frana Astaldi (-17,47%) which has denied differences in the Board of Directors and in the board of statutory auditors and plans to convene a meeting of the board after the court ruling on the request for arrangement with creditors.
