Closing Wall Street: Half-masted, China and Fed worried

Profit-taking continued on Friday at the New York Stock Exchange, which has just signed its second week of consecutive rise, after its sharp correction in October. Risk aversion resurfaced on Friday, with the publication of a series of worrying signs on the Chinese economy. US WTI crude has confirmed its entry into the bearish zone, down more than 20% since its peak in early October, while the Fed remains determined to continue its rate increases, given higher inflation and full employment in the United States.

At closing, the index Dow Jones finished Friday down 0.77% to 25.989 points, while the broad index S & P 500 yielded 0.92% to 2.781 pts and that index Nasdaq Composite, rich in technology and biotechnology stocks fell 1.65% to 7.406 pts.

Over the week, however, the three indexes regained ground for the second week in a row: + 2.8% for the Dow Jones in 5 sessions, + 2.1% for S & P 500 and a more modest gain of 0.7% for the Nasdaq.

Further Fed rate hikes expected in December

On the foreign exchange market, the dollar continued to rise, following the announcement of the Fed, which did not change its key rates on Thursday, but was determined to continue its cycle of normalization rates, probably by a further increase after its meeting of 18 and 19 December. The dollar index (which measures its change against a basket of 6 currencies, including the euro) gained Friday 0.18% to 96.90 points.

On the bond markets, however, interest rates eased on Friday, as investors moved towards bond security (with prices moving in the opposite direction of interest rates). The yield on the 10-year government bond (T-Bond) dropped by 5 basis points to 3.19%, but it remains in an area close to its highest levels since early 2011.

The macroeconomic indicators of the day have not called into question the expectations of Fed rate hikes. The producer price index rose more than expected in October (+ 0.6% over one month instead of + 0.2% expected). Over one year, the 'PPI' appreciated + 2.9% and + 2.8% excluding food and energy.
Meanwhile, the U.S. consumer sentiment index, measured by the University of Michigan, came in better than expected in November, at 98.3, compared to 98 in consensus, even though it is down slightly from October (98, 6).

WTI oil has chained 10 drop sessions!

Oil continued its tumble, confirming its passage in bear market characterized by a fall greater than 20% compared to its peaks of early October. The barrel of US light crude WTI has now chained 10 negative sessions, signing its longest bearish series since July 1984!

The December WTI futures contract still lost Friday 0.79% to $ 60.19 after spending part of the session under the psychological threshold of $ 60. It now has a loss of 21% since October 3rd. At the time of the Nymex closing, the January deadline on Brent North Sea yielded 0.67% to $ 70.18, and was also close to the "bear market" (-19% since October 3).

After rising in fear of a supply shortage due to the entry into force of US sanctions against Iran, oil then turned down when it appeared that this scenario would not materialize . As a result, production and inventories continue to rise in the United States, while several countries, including Iraq, Abu Dhabi and Indonesia, would like to increase their pumping more than expected in 2019. In addition, an article from 'Wall Street Journal' claiming that a think tank advising the Saudi government to study the potential effects of a break-up of OPEC has contributed to the bearish pressure for 48 hours.

China shows worrying signs of weakness

Signs of a slowdown in the Chinese economy have also helped to undermine oil prices and stock markets. On the morning of Friday, Asian stock markets fell sharply (-2.4% for Hang Seng in Hong Kong, -1.4% for CSI 300 in Shanghai, -1% for Nikkei in Tokyo). The Chinese car market got a cold snap in October, with sales plummeting for the fourth month in a row … SUV, sedan and minivan purchases fell by 13% year-on-year, returning to a little more of 2 million units, said Friday the Chinese association of car manufacturers.

According to the Reuters news agency, the Chinese central bank (PBOC) expressed concern over a report of "negative pressures" currently affecting the Chinese economy. To support the activity, Beijing plans to set quotas for banks to encourage them to increase their credit to Chinese private companies of medium size.

These signs of slowdown in China come amid trade tensions with Washington, which have already resulted in increased import taxes on nearly half of China's exports to the United States. Donald Trump will meet with his Chinese counterpart Xi Jinping at the end of the month, on the sidelines of the G20 summit in Argentina, to find an agreement to rebalance the trade balance, which leans significantly in favor of Beijing.

VALUES TO FOLLOW

Walt Disney (+ 1.7%) presented good quality accounts for its fourth fiscal quarter. Profits reached $ 2.32 billion ($ 1.55 per share), against $ 1.75 billion ($ 1.13 per share) a year earlier. The adjusted EPS is $ 1.48 compared to $ 1.07 for the same period last year. Revenues amounted to $ 14.31 billion, compared with $ 12.78 billion a year earlier. Analysts on average expected a quarterly EPS of $ 1.34, for revenues of $ 13.7 billion.

Dropbox (+ 3.3%) announces its third quarter results. The net loss amounted to $ 5.8 million ($ 0.01 per share), compared to a loss of $ 14.1 million ($ 0.07 per share) a year earlier. On an adjusted basis, earnings per share amounted to $ 0.11. Revenues rose 26% year-over-year to $ 360 million. Analysts on average expected a quarterly EPS of $ 0.06, for revenues of $ 353 million.

Hertz Global (+ 19%) announces its third quarter accounts. Earnings were $ 141 million ($ 1.68 per share), compared with $ 93 million ($ 1.12 per share) a year earlier. Revenues rise by 7% to $ 2.76 billion. In adjusted basis, the bpa comes out at $ 2.14, against $ 1.42 a year earlier. Analysts were forecasting a quarterly EPS average of $ 1.77, for revenues of $ 2.68 billion.

General Electric (-5.7%). JP Morgan maintains its "underperformance" recommendation on the Wall Street stock, and lowers its price target from $ 10 to $ 6.

Activision Blizzard (-12.4%) publishes its third quarter results. Earnings were $ 260 million ($ 0.34 per share), compared to $ 188 million ($ 0.25 per share) a year earlier. Revenues amounted to $ 1.51 billion, against $ 1.62 billion a year earlier. The adjusted EPS is $ 0.42 compared to $ 0.47 a year ago. Analysts on average expected a quarterly EPS of $ 0.50, for revenues of $ 1.66 billion. On T4, the group targets revenues of $ 2.236 billion, for a bpa of $ 0.64.

Procter & Gamble (+ 1.1%) unveiled a new "simpler" organization, in six divisions. It will be effective next July. Each division, led by its own CEO, will assume responsibility for its sales and profits.

Yelp (-26.6%) released its third quarter accounts. Earnings were $ 14.9 million ($ 0.17 per share), compared to $ 8 million ($ 0.09 per share) a year earlier. Sales amounted to $ 241.1 million, compared with $ 223.3 million a year earlier. Analysts on average expected a quarterly EPS of $ 0.10, for sales of $ 245 million.

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