Romain Fournier

Chief Editor
Having worked in the British, French and Swiss financial press, Romain is able to report on local and international issues, as comfortable in French as in the language of Shakespeare, Romain Fournier leads the editorial team at Marketscreener. Fine connoisseur of the English-speaking markets, Romain delivers an editorial every day on US and UK markets.

A 0.75% rate hike is getting likelier

06/14/2022 | 10:10am EDT
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Today, the Fed is starting its much-awaited two-day meeting, where officials will decide how much to speed up the pace of its monetary tightening, just a few days after the release of data showing inflation accelerated in May to a 40-year high. Traders now anticipate a 0.75 % hike, instead of the previously expected 0.5%.

In any case, the surprise inflation reading means that the Fed will likely increase rates aggressively until the end of the year, which significantly increases the likelihood of a recession in the US.

" The data were disheartening because they showed broad-base price pressures in the economy. In short, the Federal Reserve appears to be further "behind the curve" in its efforts to reduce the rate of inflation" Wells Fargo said in a note. The financial institution now believes – like many of its peers - it is likely that the Committee will opt to hike rates by 75 bps, which would take the target range for the fed funds rate to 1.50% to 1.75%. It is also forecasting 175 bps of additional tightening at the four remaining FOMC meetings of the year, 'or 200 bps if the FOMC only hikes by 50 bps at the June 15 meeting".

Another data that strengthened the 0.75% rate hike scenario is U.S. producer prices for May, which was released today. Prices surged 10.8% year-on-year, adding to signals that inflation shows no sign of slowing. On a monthly basis, producer prices rose 0.8% in May from April, above the previous monthly increase of 0.4%.

These figures will likely have an impact on bond yields, which took the upward slope yesterday, with 2- and 5-year maturities paying better than the 10 year. This is called an inversion of the yield curve and is a bad omen, as it usually precedes a recession.

Financial markets capitulated yesterday, as shown by the plunge of more than 4% of the Nasdaq in the United States. The S&P500 entered a bear market, which means that it has lost more than 20% on its last peaks, a situation that has occurred only 19 times in 140 years. A typical bear market lasts 289 days and results in a 37.3% decline, according to Bank of America data. These are averages, of course.

There are still a few positive news in all the gloom, with Oracle posting strong quarterly results yesterday, which allowed the stock to stand out in the after-hours on Wall Street, in the midst of the technology sector slump.

 

Today's economic highlights:

Several "macro" statistics today, the main ones being the Eurozone industrial production and the US producer price index in May. All the macro agenda can be found here.

The dollar is trading at EUR 0.9576. The ounce of gold is down to USD 1818. Oil remains staggeringly resilient, with North Sea Brent at USD 123.6 per barrel and US light crude WTI at USD 122.20. The 10-year US debt yield accelerates to 3.35% while the 5-year rises to 3.49%. Bitcoin falls further to USD 22,000.

 

On markets:

* Oracle reported better-than-expected quarterly results on Monday night, thanks to demand for its cloud computing products and services. The IT group's stock gained 13.2% in early trading.

* The Boeing Company gained 11.5% in premarket trading after its CEO, Dave Calhoun, said Monday that demand for civil aircraft is strong and that the upcoming renewal of airline fleets offers good prospects.

* Apple - The German Cartel Office announced Tuesday that it is investigating the group's rules for third-party app publishers to track user data.

* United Airlines gained about 0.7% in pre-market trading after announcing Monday that the lifting of the negative test requirement for arrivals in the U.S. caused a sharp increase in searches for international flights.

* ResMed - The medical equipment group announced on Tuesday the acquisition of the German healthcare software company MEDIFOX DAN for $1 billion. ResMed shares were up 1% in pre-market trading.

* Twitter - Elon Musk will address all employees of the social network on Thursday for the first time since he presented his proposed acquisition of $ 44 billion, said Monday source close to the file.

* Continental Resources - The shale oil and gas company said Tuesday it has received a cash offer from the family trust of its founder, Harold Hamm, valuing it at $25.41 billion. Continental shares were up 7.3 percent in premarket trading.

* Spirit Airlines announced Tuesday that it is in discussions with JetBlue Airways to improve its offer, which currently values it at $3.4 billion, while also talking with Frontier Group Holdings, another candidate for the takeover.

* "Crypto" stocks could once again suffer from the continued decline of major cryptoassets, starting with bitcoin, which fell earlier today to its lowest level since December 2020.

 

Analyst recommendations:

  • AstraZeneca: UBS downgrades from buy to neutral targeting GBp 10,100.
  • Burberry: Kepler Cheuvreux downgrades to hold from buy. PT up 2.9% to 1,650 pence.
  • Duke Realty:  Edward Jones downgrades to hold from buy.
  • Envista Holdings: Baird cuts to neutral from outperform, price target to $46 from $54.
  • Henry Schein: Baird downgrades to neutral from outperform. PT up 12% to $88.
  • NetApp: Baird downgrades to neutral from outperform. PT up 12% to $88.
  • Nike: HSBC retains his Neutral opinion on the stock. The target price has been revised downwards and is now set at USD 132 as compared to USD 140 previously.
  • Omnicom: Edward Jones downgrades to hold from buy.
  • Oracle: Jefferies maintained its neutral recommendation. The target price has been lifted and is now set at USD 80 compared to USD 75 before.
  • PBF Energy: Wells Fargo Securities upgrades to overweight from equal-weight.
  • Phillips 66: BMO Capital Markets initiated coverage with a recommendation of outperform. PT set to $132.
  • ReNeuron: Liberum starts tracking as a buy, targeting GBp 80.
  • Valero Energy: BMO Capital Markets initiated coverage with a recommendation of market perform. PT up 18% to $155.
  • Viad Corp: Oppenheimer & Co initiated coverage with a recommendation of outperform. PT set to $42.
  • Walmart: Evercore ISI adjusts price target to $130 from $135, maintains in-line rating.
  • Wizz Air: HSBC moves the stock from "light" to "hold" with a target of GBp 2200. Berenberg upgrades from hold to buy targeting GBp 3300.
  • YouGov: Liberum starts tracking at buy, targeting GBp 1500.

© MarketScreener.com 2022
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Stocks mentioned in the article
ChangeLast1st jan.
APPLE INC. 0.03% 164.92 Delayed Quote.-7.12%
ASTRAZENECA PLC 1.19% 10842 Delayed Quote.24.94%
BURBERRY GROUP PLC -0.81% 1777 Delayed Quote.-2.23%
CONTINENTAL RESOURCES, INC. 2.12% 67.53 Delayed Quote.47.74%
DUKE REALTY CORPORATION 1.39% 62.9 Delayed Quote.-5.48%
ENVISTA HOLDINGS CORPORATION -2.08% 40.06 Delayed Quote.-11.10%
HENRY SCHEIN, INC. -1.21% 75.42 Delayed Quote.-2.72%
NETAPP, INC. -2.13% 71.1 Delayed Quote.-22.71%
NIKE, INC. -3.41% 110.11 Delayed Quote.-33.94%
OMNICOM GROUP., INC. 0.24% 70.4 Delayed Quote.-4.15%
ORACLE CORPORATION 0.39% 76.77 Delayed Quote.-11.97%
PBF ENERGY INC. 5.91% 31.88 Delayed Quote.145.80%
PHILLIPS 66 2.06% 85.53 Delayed Quote.18.04%
RENEURON GROUP PLC 0.00% 26.5 Delayed Quote.-67.68%
RESMED, INC. 0.06% 236.78 Delayed Quote.-9.10%
SPIRIT AIRLINES, INC. -0.20% 24.6 Delayed Quote.12.59%
THE BOEING COMPANY -0.63% 164.85 Delayed Quote.-18.12%
TWITTER, INC. -0.26% 42.83 Delayed Quote.-0.65%
UNITED AIRLINES HOLDINGS, INC. -2.20% 37.8 Delayed Quote.-13.66%
VALERO ENERGY CORPORATION 4.02% 110.67 Delayed Quote.41.65%
VIAD CORP 3.98% 39.42 Delayed Quote.-11.40%
WALMART INC. 0.99% 128.87 Delayed Quote.-10.93%
WIZZ AIR HOLDINGS PLC -1.24% 2232 Delayed Quote.-46.70%
YOUGOV PLC -1.92% 1020 Delayed Quote.-36.25%
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