The British central bank raised interest rates by 25 basis points, which is a rather mild increase compared to that of the Fed yesterday, which delivered its biggest hike since 1994. The Swiss National Bank then surprised markets today by raising its rate by half a point.
But that's not all, the Bank of Brazil raised rates overnight for the 11th consecutive time. Yesterday, the European Central Bank held an ad hoc, i.e. emergency, meeting after finding that German and Italian bond yields were going a little too far in the opposite direction. It announced that a new instrument will soon be deployed to avoid too great a disparity in yields.
The days when central bankers competed with each other to be the nicest governor in the financial world are long gone. From now on, the atmosphere is one of forced interest rate hikes, to reduce the amount of money in circulation and respond to the global inflation problem that threatens all economies. But reducing sources of funding means slowing down the economy. As has been said and written all over the place for the past several months, the hundred-billion-dollar question is whether we can keep enough control over the brakes to avoid spinning out, to use a car metaphor. The main driver is Fed head Jerome Powell. It is therefore logical that Fed meetings, like the one that took place yesterday, are major markers for the economy in general and financial markets in particular.
Last night, the US central bank announced a massive 75 basis point rate hike. This means that the main access to money now costs 1.5 to 1.75%, compared to 0.75% to 1% previously and 0 to 0.25% from early 2020 to early 2022. This is what the market had been expecting for a few days, so it was not surprised. Initially, investors were expecting a monetary tightening of 50 basis points, but the latest inflation figures forced the Fed to act more firmly. However, Jerome Powell explained that hikes of this magnitude are not the norm, while warning that the July meeting should still result in a 50-75 basis point hike, depending on the macroeconomic data that will come in by then. The speech led to a sharp drop in U.S. government bond yields, because the market was afraid of even more aggressive guidance. This is also what allowed US equity indexes to confirm their rebound, with the Nasdaq, for example, gaining 2.5%, ending a hemorrhage of five consecutive sessions in the red.
As always, we have to wait for the dust to settle to gauge the real implications of the Fed's announcements. Already, this morning, all three Wall Street indexes are in the red, with the Nasdaq 100 down 2.5%. The market might be going from: "OK, the Fed has decided to take the inflation problem in stride, but they seem to think that the economy will not face a hard landing, even though they have lowered their growth forecasts and dropped mentions of a strong labor market in their communication", to: "The Fed has decided to take the inflation problem head on, but they've screwed up big time in their assessment of the situation for the past two years, and they're not handling the shockwaves of raising rates to over 3% by the end of the year very well." The next few days will tell what version of events wins.
Economic highlights of the day:
Weekly unemployment figures, building permits and the Philly Fed index are today's main indicators. All the macro agenda here.
A dollar is worth EUR 0.9572. The ounce of gold is back up to USD 1827. Oil finally lost ground with North Sea Brent at USD 117.61 per barrel and US WTI light crude at USD 114.35. The yield on 10-year U.S. debt reached at 3.33%, down 10 points. Bitcoin is trading at USD 21,130
* McDonald's - A Paris court on Thursday approved a deal for McDonald's to pay 1.245 billion euros in fines and back taxes to end a tax dispute in France.
* Twitter - Elon Musk is expected to reiterate his intention to buy Twitter when he addresses the social network's employees on Thursday, the Wall Street Journal reported, citing a source close to the matter. Twitter shares were up 1.1% in premarket trading.
* Kroger on Thursday raised its 2022 earnings per share forecast to $3.85 to $3.95 from $3.75 to $3.85.
* Tesla raised selling prices on all of its U.S. car models as global supply chain problems persist.
* Revlon filed for Chapter 11 bankruptcy protection on Wednesday, a court filing shows, as the cosmetics maker has struggled in recent years to compete with new players focused on online sales.
* Activision Blizzard - Activision's board of directors and outside advisers said there was no evidence to suggest that the video game developer's senior executives intentionally ignored or attempted to minimize reported sexual harassment.
* Abbott Laboratories said it suspended production of its EleCare baby milk after severe storms and heavy rains in southwestern Michigan flooded areas of its Sturgis City plant. The stock was down 2.4% in pre-market trading.
* The Boeing Company said it has been able to work around a supply chain problem that slowed production and deliveries of the 737 MAX last month. Citi also raised its recommendation to "buy" from "neutral.
* The U.S. Federal Aviation Administration (FAA) urged executives at major U.S. airlines to act quickly on risks associated with the deployment of fifth-generation 5G wireless technology to avoid potential disruptions at major airports.
* Telus - Canadian mobile operator Telus will buy LifeWorks in a C$2.9 billion deal, the two companies announced. U.S.-listed Telus shares were down 3 percent at $22.1 in premarket trading.
* AC Immune - The pharmaceutical company announced the failure of a clinical trial of its experimental Alzheimer's treatment, developed with Swiss partner Roche, in patients with early signs of the disease. AC Immune's stock was down 26 percent to $2.13 in pre-market trading.
- Arthur J. Gallagher & Co: RBC Capital Markets raised the recommendation to outperform from sector perform. PT up 21% to $185.
- ASOS: Berenberg remains Buy with a target reduction from GBp 4100 to GBp 2500.
- Bill.com: Piper Sandler adjusts price target to $212 from $205, reiterates overweight rating.
- Extra Space Storage: KeyBanc adjusts price target to $200 from $224, reiterates overweight rating.
- Fedex: BofA Securities raises price target to $265 from $231, keeps buy rating.
- Nike: UBS lowers price target to $168 from $173, maintains buy rating.
- Roblox: Stifel adjusts price target to $40 from $45, reiterates buy rating.
- Royal Mail: HSBC maintains royal mail's buy rating, trims price target.
- The Boeing Company: Citigroup upgrades to buy from neutral, adjusts price target to $209 from $219.
- Unity Software: Benchmark starts at sell with $27 price target.
- Watsco: Morgan Stanley cut the recommendation to underweight from equal-weight. PT down 16% to $207.
- Whitbread: Societe Generale cuts pt to 27.90 pounds sterling from 36.20 pounds, keeps hold rating.