Yesterday, the session had a bad start after the release of a higher-than-expected inflation reading for September, Wall Street broke down in the first exchanges. Indeed, if price increases are still out of control, then the Fed's aggressive rate hike policy will continue. And when the Fed's aggressive rate hike policy continues, it means further liquidity reduction and increased risk of recession. The probability that the central bank will raise rates by another 75 basis points in November has risen from 85% to almost 100%. And we are starting to hear again about the need to go to 100 basis points.

But the markets have chosen to play a different tune, in one of those movements for which no one has a straightforward and indisputable answer. There are the chartist explanations of arriving on chart supports. There are technical justifications with important unwinding of short positions after the new phase of decline of the shares. There are algorithmic signals with the triggering of automatic purchases at the moment when the S&P500 erased 50% of its post-pandemic gains and broke through the 3500-point threshold. There are microeconomic arguments with a few quarterly corporate results that were less negative than expected. There are also more nebulous reasons, such as too much bad news, or the somewhat desperate rebound with no tomorrow called "dead cat bounce".

As is often the case, the movement is probably a sum of events that pile up and align in a common direction. It was undoubtedly accentuated by some investors keeping their finger on the trigger looking for the low point.

There's another flurry of statistics today in the US, mainly September retail sales and the University of Michigan's October consumer confidence index. Retail sales remained unchanged in September, but I won't venture to make any predictions on how it will affect markets given the behavior of indexes yesterday. Eyes also turn to China, not so much because of the macroeconomic data released last night (inflation up but not surprisingly and producer prices calming down), but rather because the Chinese Communist Party opens its 20th congress on Sunday. The CCP is expected to reappoint Xi Jinping to a third 5-year term, even though the country is facing a weakening of its economic momentum unseen in recent decades.

And of course, we have Great Britain, because if you have been following the news, it is today that the Gilts buyback program announced by the Bank of England is supposed to end to avoid considerable damage to the financial system of the country. Gilts are the public debt of Her Majesty and her subjects. The balance sheet at the beginning of the last day is positive with bonds that have risen and rates that have eased (the bond market is like that: when the yield goes up, the price of the bond goes down and vice versa). The government is about to announce a U-Turn on his unfunded-tax plan, and Liz Truss, UK prime minister, has officially sacked chancellor Kwasi Kwarteng.

On the corporate front, the day is dedicated to the quarterly results of JPMorgan Chase, Wells Fargo, Morgan Stanley and Citigroup. So far, this isn't fantastic. UnitedHealth will complete the picture.

 

 

Today's economic highlights:

US September retail sales then August business inventories and October University of Michigan consumer confidence index. All the macro agenda here. Chinese annual inflation came out at 2.8%, in line with expectations.

The dollar is up 0.5% to EUR 1.0287 and 0.9% to GBP 0.8931. The ounce of gold is little changed at USD 1653. Oil rebounded, with North Sea Brent crude at USD 92.85 a barrel and U.S. light crude WTI at USD 87.30. The yield on 10-year US debt remains near 3.93%. Bitcoin is trading at around USD 19,800 per unit.

 

In corporate news:

* JPMorgan Chase & Co reported a quarterly profit down 17% year-on-year, as deteriorating economic conditions weighed on its M&A advisory business and forced the banking group to increase its provisions for default risk. The stock nevertheless gained 2.3% in pre-market trading.

* Wells Fargo - The bank reported a decline in quarterly earnings due to an increase in the cost of risk. The stock was up 1.2% in premarket trading.

* Morgan Stanley and Citigroup will release their quarterly results before the Wall Street opening.

* Kroger, Albertson Companies - The two retail groups announced that they have reached an agreement to merge for an estimated $24.6 billion.

* UnitedHealth raised its annual profit target and posted a better-than-expected profit in the third quarter, helped by lower spending on COVID-19 testing and treatment. The stock gained 1.2% in pre-market trading.

* Beyond Meat lowered its full-year revenue forecast due to accelerating inflation and announced that it would cut about 200 jobs, or 19% of its workforce. The group was losing more than 10% in pre-market trading.

* Twitter -Tesla CEO Elon Musk is under federal investigation in the U.S. in connection with his proposed $44 billion takeover of Twitter, the social network said in a court filing made public Thursday. In addition, Wells Fargo lowered its price target on Tesla from $280 to $230, citing a risk of deteriorating demand, particularly in China.

* Caterpillar's board of directors is dropping its 65-year-old retirement policy for the company's chairman and CEO, allowing Jim Umpleby to stay on, the construction equipment maker announced Thursday.

* United Airlines is close to placing an order for more than 100 wide-body jets and is considering proposals for BOEING's 787 Dreamliner and Airbus' A350, Bloomberg reported Thursday.

 

Analyst recommendations:

  • Applovin: Wedbush starts at outperform with $26 price target.
  • Avangrid: Mizuho Securities upgrades to neutral from underperform. PT down 0.9% to $39.
  • Berkshire Hills: Piper Sandler downgrades to underweight from neutral. PT down 1.6% to $29.
  • Boohoo: Deutsche Bank downgrades from buy to hold, targeting GBp 36.
  • BP Plc: Scotiabank downgrades to sector perform from sector outperform, sets $33 price target.
  • EasyJet: Liberum remains Buy with target reduced from GBp 460 to GBp 430.
  • Glencore: J.P. Morgan remains Overweight with a price target reduced from GBp 690 to GBp 660.
  • Haleon: Jefferies maintains a Hold rating with a price target reduced from GBp 340 to GBp 280.
  • Invesco: Goldman Sachs trims price target to $15 from $15.50, maintains neutral rating
  • Liberty Global: Citi reinstated coverage with a recommendation of neutral. PT up 11% to $18.
  • Micron Technology: Loop Capital starts micron technology at buy with $70 price target.
  • NatWest: Exane BNP Paribas downgrades from Outperform to Neutral targeting GBp 295.
  • Norfolk Southern Corporation: TD Securities downgrades to hold from buy, adjusts price target to $245 from $305
  • Northrop Grumman: J.P. Morgan downgrades to neutral from overweight. PT down 2.3% to $490.
  • PepsiCo: UBS adjusts price target to $199 from $189, maintains buy rating.
  • Procter & Gamble: UBS adjusts price target to $135 from $153, maintains neutral rating.
  • ServiceNow: UBS adjusts price target to $465 from $515, maintains buy rating.
  • Simon Property Group: Morgan Stanley reiterates overweight rating, $131 price target.