The Boliden share price could decline more

The primary focus of U.S. Equity Markets is rising inflation, raising the 10-year Treasury yield. The US CPI figure for March is due on Wednesday, April 13, with annual inflation expected to grow from 7.9% to 8.5%.

The 10-year U.S. Treasury yield is fast approaching the 3% level. But we still have negative inflation-adjusted interest rates, encouraging continued indebtedness even if the trade-off against earned profits decreases.

U.S. 10-year Treasury Yield price from October 11, 2021, to April 12, 2022

Investors' second focus this week is on U.S. bank reports. Thursday, April 14, will be the big reporting day when Citigroup, Goldman Sachs, Morgan Stanley, and Wells Fargo publish their Q1 2022 results.

Analysts have reduced their earnings outlook for both the S&P500 and the Nordic companies. According to Factset Earnings Insight, Wall Street analysts anticipate that the U.S. Financial Industry companies will report an almost 26% decline in their EPS for Q1 2022.

As for U.S. banks, investors' focus is on the size of loan losses recognized in Q1 2022. U.S. banks have increased their provisions for expected loan losses since Q1 2021, while the banks' reported profits had declined simultaneously.

For S&P500 companies overall, the forecast is for 4.5% earnings growth in Q1 2022. Of the few companies that have reported their Q1 2022 results so far, the trend is for less cyclically sensitive sectors (including finance and technology) to have surprised overwhelmingly positively, while most industrial and consumer durables companies have reported worse-than-expected results.

The valuation of the S&P500 in terms of P/E-ratio versus share price development has decreased somewhat. However, a minor gap indicates that the valuation of the S&P500 company universe is still slightly higher than the long-term justified average.

S&P500 change in forwarding 12-month EPS versus the difference in price ten years

Boliden's share price could decline more

So far this year, the Boliden share has had a powerful performance, supported by a rising copper price.

On Monday, April 11, the company announced that geotechnical investigations had indicated a need to change to an adjusted dam raising method in the Aitik production site, situated in Swedish Laponia. In addition, there is a need to reinforce the existing dam structure there. Boliden will need to invest SEK 1 billion in the Aitik plant in 2022 and a further SEK 4 billion in 2023-2024. Boliden shares fell by 6.7% on the news.

The graph below illustrates that the Boliden share has performed significantly more robust than the HG1 Copper future during the last year.

Boliden share (dark)versus Copper Future (light blue) from April 11, 2021, to April 11, 2022

The five-year chart indicates that the Boliden share and the Copper future have established a close correlation in the longer term. The price of copper has historically been a good indicator of how the industry is performing. Given the challenging conditions that the engineering industry is working in today, the copper price should not be able to rise much more than this. We, therefore, suggest a short position in the Boliden share.

Boliden share (dark)versus Copper Future (light blue) five-year chart

Boliden's Q1 2022 report is due on April 28.

The full name for abbreviations used in the previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence