Financial markets: publication of the results and position of the ECB, what to think?

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The season of earnings

Ahead of Q3 publications, it was logical to expect less momentum after a record second quarter, in a context of rising energy prices and tensions in supply chains. This caution was reflected in a (moderate) downward revision of earnings growth expectations in the few weeks leading up to the earnings announcement.

To date, at a time when almost half of the companies have published their results, the trend remains on the whole well oriented: a very large majority of companies have published results above expectations. In fact, around 70% of companies in Europe and 80% of companies in the United States surprise positively. The overrun is rather limited in terms of turnover (around 1%) and more significant in terms of results (around 10% of additional growth). The energy and materials sectors show the best growth rates while positive surprises are quite high in the financial sector, with US banks doing very well at the start of the earnings season.

The US tech sector shows a mixed picture, with very positive results at Microsoft and Google, and disappointments at Apple and Amazon.

This season of results, in fact, confirms on the financial level the strong interruption of the supply chains and the increase in energy and labor costs. These disruptions no longer only affect the traditional distribution and industry sectors, but also two major American technology leaders, Apple and Amazon, whose strong growth results are still below expectations due to supply difficulties. The latter would therefore “cost” $ 6 billion in sales to Apple this quarter and could weigh on iPhone sales in the next quarter. For its part, Amazon also experienced less strong growth in its sales and was impacted by increased logistics and labor costs; In this context, Amazon is putting itself in a position to be able to deliver during the Christmas holidays, at any cost, which should allow it to reach its sales targets but temporarily degrade cash generation. Which leads some analysts to say that Amazon’s good days are behind us, with slowing sales growth and the constraints of the real economy starting to weigh on results and affect the e-commerce giant, the third largest. which was saved by the cloud division.

This situation shows that there is therefore a distinction to be made within tech stocks in the face of these exogenous shocks, some are ultimately more digital than others (and moreover Apple and Amazon are not ranked in the industry). . In our opinion, these phenomena validate the need to focus on the sectors least affected by the difficulties related to energy and supply chains: on the one hand, the sectors benefiting from reflation and rising rates (banks and energy), on the other. , companies that benefit from a high pricing power, such as those in the luxury sector, or little exposed to these difficulties (digital sector).

Central banks: a provisional that lasts longer?

On the Frankfurt side, nothing new was expected at the decision-making level and the central theme of Christine Lagarde’s conference was to position a speech on the current upward trend in inflation and its implications for monetary policy. The ECB now admits that the rise in inflation will last longer than expected and will only fall again in the course of 2022. The ECB’s business telephone survey – cited by Christine Lagarde – appears to show that the resolution of supply difficulties will take a good part of 2022. This does not prevent the ECB from maintaining its course: end of the pandemic-related asset purchase program (PEPP) scheduled for next March, but no rate hikes in sight as the ECB does not see stabilization the inflation rate permanently above 2%.

The effect on the markets of these comments was not felt for long with a rising euro and a long rate hike, but paradoxically inflation expectations dropped more during the session.

The most spectacular phenomenon remains the sharp rise in long-term rates in Australia, which rose 24bps this morning ahead of next week’s central bank meeting. This follows yesterday’s central bank letting 3-year rates drift, failing to defend the 0.1% target. This effectively constitutes an abandonment of the policy of controlling the yield curve and means that the market can now expect a change in the monetary policy of the central bank.

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