One thing that really bothers me this morning is the sharp drop in the yield on 10-year US bonds, which fell to 3.46%. Normally, if this yield falls, it means that the market is expecting an improvement in key interest rates, and that equities should benefit. However, there is no information to seriously justify the rise in bonds (bond prices rise when their yields fall) and there is no explanation for the lack of reaction from stocks. This is not the least of the mysteries of the moment, even if the yield curve is always inverted - on omen of an impending recession.

I really like Reuters columnist Wayne Cole's take on this situation this morning. He reminded us that the Treasury curve was once said to have predicted five of the last two recessions, but now no one seems to doubt its power to predict future trouble. Hence the half-ironic explanation: perhaps long-term yields are plummeting because of recession fears caused by their own plummeting. The other possible explanation is that central banks are starting to seriously freak out about economic dynamics, which would justify Jerome Powell's little solo act last week. 

It's true, however, that this time, the spread between the 10y and 2y remained below zero for a long time, so it is likely that a recession will come. Actually, the longer the spread stays under zero, the longer the recession.

In any case, this contraction in yields is still something to watch with one week to go before the Fed's next policy decision on rates.

Meanwhile, another data showed that the job market is still resilient, despite inflation and a difficult economic environment. The number of Americans filing new claims for unemployment benefits rose 4,000 to 230,000 for the week ended Dec. 3, the Labor Department said. However, this is in line with expectations.

Despite worries about the Fed's monetary policy and the looming recession, Wall Street indexes were slightly up this morning, partly helped by news of China relaxing more of its Covid restrictions.


Today's Economic Highlights:

Japan's Q3 GDP contracted slightly less than expected (-0.8% vs. -1% projected). The Brazilian central bank left its key rates unchanged at 13.75%.

The dollar fell 0.2% to EUR 09493 and remains flat against the pound at GBP 0.8190. The ounce of gold is strengthening to 1788 dollars. Oil remains under pressure, with North Sea Brent crude at USD 78.10 a barrel and U.S. light crude WTI at USD 73.71. The yield on 10-year US debt is easing again to 3.46%. Bitcoin is trading around 16,800 dollars.


In corporate news:

* Tesla was down 1.8% in pre-market trading after Bloomberg reported that the U.S. automaker would cut hiring and working hours at its plant in Shanghai, China.

* Separately, new car sales in China fell in November, down 9.5 percent year-on-year to 1.67 million units, the first decline in six months, according to data released Thursday by the CPCA, an industry federation.

* The Pentagon has signed cloud contracts with Alphabet subsidiary Google, Amazon Web Services, Microsoft and Oracle for a total of $9 billion.

In addition, the Court of Justice of the European Union on Thursday required Google to remove data from online query results when they are "manifestly erroneous" as part of the "right to be forgotten.

* Meta Platforms - Representatives of Facebook's parent company, which is being sued by the Federal Trade Commission (FTC) to block the social networking giant's takeover of Within, are scheduled to speak Thursday in a key battle in the virtual reality market.

* Exxon Mobil advanced 1.3% in pre-market trading after the group announced an extension of its share buyback plan to $50 billion through 2024, including $15 billion for this year.

* Chervon announced it has increased its capital expenditure budget for 2023 to $17 billion.

* Gamestop reported a larger-than-expected loss and lower-than-expected quarterly revenue due to a lack of new hit games and a slowdown in consumer spending. The stock was down 0.4% in premarket trading.

* Rent the runway - The online clothing rental platform jumped 15.4% in premarket trading as the group raised its revenue forecast for this year.


Analyst recommendations:

  • Anglo American: Morgan Stanley downgrades from Overweight to Underweight, targeting GBp 30.
  • AvalonBay: Goldman Sachs downgrades to neutral from buy. PT up 11% to $187.
  • British Land: Kempen & Co downgrades to neutral from buy. PT up 1.8% to 400 pence.
  • Churchill Downs: J.P. Morgan reinstated coverage with a recommendation of neutral. PT set to $243, implies a 9.8% increase from last price.
  • DTE Energy: Wolfe Research upgrades to outperform from peerperform. PT up 9.3% to $125.
  • Fedex: JP Morgan confirms his opinion on the stock and remains Neutral. The target price has been revised downwards and is now set at USD 184 as compared to USD 192 previously.
  • Just Group: J.P. Morgan upgrades from neutral to overweight targeting GBp 95.
  • Lockheed Martin: Citi reinstated coverage with a recommendation of buy. PT set to $558, implies a 16% increase from last price.
  • Segro: Kempen & Co downgrades to sell from buy. PT down 8.5% to 730 pence.
  • Mid-America: Goldman Sachs upgrades to buy from neutral. PT up 22% to $194.
  • Polaris: BMO Capital Markets downgrades to market perform from outperform. PT up 1.7% to $110.
  • Principal Financial: Credit Suisse downgrades to underperform from neutral. PT down 4.7% to $86.
  • Raytheon Technologies: Citi reinstated coverage with a recommendation of neutral. PT set to $104, implies a 5% increase from last price.
  • Salesforce: Baird downgrades to neutral from outperform. PT down 15% to $150.
  • Travis Perkins: J.P. Morgan downgrades from neutral to underweight, targeting GBp 800.