Thomas Planell
Portfolio manager - analyst
DNCA

Between 1933 and 1944, Roosevelt captivated the airwaves with his famous "fireside chats", familiar, sometimes intimate, radio speeches distilled suavely in the evening to his electorate. Today, it is Jerome Powell's turn to practise these "fireside chats", supposedly informal discussions. The slowdown in services confirms to him that the fire of inflation is contained. Beware, however, of the glowing embers in the industrial sector, which could rekindle the inflationary spiral. They have been rekindled by the firebrand of the Inflation Reduction Act and the bellows of the war economy to which Biden has committed himself. The ISM index, the watchdog of industrial sentiment, sent a powerful message to the markets this week. Corporate purchasing departments are already seeing a return to growth! 

This is all the more interesting given that a similar phenomenon was observed a few days earlier in the furnaces of the Chinese economy. The official industrial sentiment survey (PMI) rebounded to a one-year high... And even in Europe, the first sparks of better industrial fortune are being seen here and there. Are we seeing the end of the steamroller effect of 18 months of destocking?

That seems to be the message from the commodity markets. The Bloomberg Commodity Index is breaking through the downtrend line that has held it for the past two years. Copper is flirting with 9,400 dollars. Aluminium is over $2,400 a tonne. Industrial metals are visiting prices not seen for 14 months, spurred on by the prospect of restocking and research reports on the gargantuan appetite for conductive metals in artificial intelligence data centres. A tonne of cocoa is trading at almost five figures, taking coffee with it. Speculative euphoria? Not entirely: commodities whose fundamentals are depressed, such as iron ore, weighed down by China's property slump, or nickel, are not surrounded. So the market is separating the wheat from the chaff. The risk of regionalisation of the Israeli-Lebanese-Palestinian conflict is supporting WTI oil, which is approaching $90. This rebound in commodities is beginning to move upwards, against the turbulent tide of inflation figures, which are falling slightly faster than expected, particularly in Europe!

For the time being, these data give the ECB room to manoeuvre when it comes to cutting interest rates. Especially as Christine Lagarde is more interested in rising wages than the price of zinc. What's more, gas, our energy nemesis, is no more expensive than it was before the war! If the fall in interest rates is accompanied by a synchronised recovery in global growth, then the planets should be aligned for European companies. After a dismal fourth quarter (earnings performance had not been so poor relative to US companies since 2020), the markets are excited about a 4% rebound in earnings for the first three months of 2024. The Eurostoxx 50 has outperformed the Nasdaq this year, delivering a double-digit performance that has not escaped the notice of political heavyweights at a time when budget deficits are hard to fill. A spirit of spring cleaning reigns in our administrations and representative bodies, where the hobby of the moment consists of tracking down the little dust bunnies that have not yet been taxed, or not taxed enough.  So goes the flamboyant horn of rent-seeking! Whether it's super profits, share buy-backs or tighter taxes on investments, the time has come to settle the bill for whatever it costs, the war in Ukraine, the rise in administered salaries and the exemplary management of our public finances...

Far from being able to give lessons in budgetary austerity, the US Treasury has to play an equally delicate game, given the interest rates it is demanding: 4.5% for 10 years! Even so, the Fed's financial conditions index continues to ease, thanks to liquidity, which has been maintained at more than sufficient levels. Back at a moderate cruising speed, the battleship of the US economy is moving away from the overheating zone. Jerome Powell can put away his suit as commander of the container ship that wrecked Baltimore, for the time being. No, he will not break the recovery. The rate cut will come this year," he confides, "perhaps not as quickly and as much as the markets hope... But it will come. Beware, however, of a rebound in prices at the pump. A gallon at $4 has never augured well for an incumbent president... and for inflation sellers....

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DNCA Finance
Affiliate of Natixis Investment Managers.
DNCA has been approved as a portfolio management company by the French Financial Market Authority
(Autorité des Marchés Financiers) under number GP00-030 since 18 August 2000.
19, place Vendôme 75001 Paris, France.
www.dnca-investments.com

DNCA Finance is a limited partnership (Société en Commandite Simple) approved by the Autorité des Marchés Financiers (AMF) as a portfolio management company under number GP00-030 and governed by the AMF's General Regulations, its doctrine and the Monetary and Financial Code. DNCA Finance is also a non-independent investment advisor within the meaning of the MIFID II Directive.
DNCA Finance – 19 Place Vendôme-75001 Paris – e-mail: This email address is being protected from spambots. You need JavaScript enabled to view it. – tel: +33 (0)1 58 62 55 00 – website: www.dnca-investments.com

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