Flash boursier

Key data

Highlights:

1° Prospect of less Eurozone stimulus
2° G20 meeting in Hamburg this week

Tighter monetary conditions may be looming

With the exception of Japan, financial markets around the globe came under pressure last week, responding to the prospect of tighter monetary conditions – even though inflation remains slack, most notably in the US and Europe.

Speaking at the ECB annual forum in Sintra (Portugal), Mario Draghi made it clear that monetary stimulus could be tapered because political risk has receded in the Eurozone, and inflation and economic growth figures have turned the corner.

The ECB has come increasingly under pressure to start tightening policy. The problem is that inflation is still low, so it will not be able to follow in the Fed’s footsteps for now and start raising rates.

Even though central bankers always carefully weigh their words, investors took the less accommodative remarks last week as a further clue that they should buy euros and dump bonds, leading to a broad-based upswing in yields. The ECB’s remarks were echoed by statements coming from the governors of the Bank of England and Bank of Canada – all of which served to stoke concerns among investors. In the currency market, the euro shot up to a two-year high against the US dollar before handing back some of its gains today.

This week all eyes will be on the release of minutes from the latest Fed meeting, which are expected to shine some more light on the central bank’s strategy for coping with inflation and employment divergence in the US. Then, job stats are out on Friday. Economists expect the unemployment rate at 4.3% and 181,000 new hires in June.

Elsewhere, Angela Merkel will this week host a two-day G20 summit in Hamburg. Donald Trump will be attending and plans to hold a first meeting with Vladimir Putin, on the sidelines of the main proceedings.

Nestlé (ISIN CH0038863350, price: CHF 83.45)

Third Point Capital, a US activist hedge fund run by Dan Loeb, has disclosed a new shareholding in Nestlé.

It is calling for sweeping changes with the aim of improving margins and shifting business strategy. Specifically, it wants to see operating margin at 18% (versus 15% based on latest financials), which would place it level with industry peers.

Third Point is also calling for a bond issue that would be used for share buybacks. Perhaps a coincidence, but Nestlé the following day assigned CHF 20bn to buybacks out to 2020.

Third Point’s incursion may be antagonistic and perhaps geared to short-term gains. But its demands are aimed at improving shareholder returns, which is good news for those who have invested in the group.

Buy with a target of CHF 90.

Nike (ISIN: US6541061031, price: USD 59)

The share price of sports equipment maker Nike shot up by more than 10% after strong quarterly financials and forward guidance led to renewed investor trust.

Nike has been able to keep a lid on costs while harnessing stronger demand in Western Europe, China and other emerging markets.

For the current year, the group expects sales growth of no less than 5% and targets revenue of USD 50bn in 2020.

The group has also teamed up with Amazon to gain access to the latter’s rapidly growing retail channels. Under the terms of the deal, Amazon has also undertaken to ban all fake Nike goods from its websites and will no longer accept sales of this brand by intermediaries, which is currently allowed.

Target price is USD 65.

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