The US central bank is due to unveil its monetary policy decision, in a context marred by the recent series of bank failures. If the market, which is always right, is right, US policy rates should rise 25 basis points. That is to say, from the "4.50 to 4.75%" range to the "4.75 to 5%" range. This scenario is 89% likely this morning in the CME's FedWatch tool, which is based on the prices of one-month Fed Funds futures contracts. A few days ago, in the midst of the banking panic, the probability of a status quo had flirted with 50%, a sign that investors were banging on the door of the Fed to stop worrying about the fight against inflation and to focus on financial stability.

The fact is that the response by monetary and government authorities to stop the banking dominoes from falling has been successful, so far anyway. This explains the return of investors’ appetite for equities and the relative serenity with which they await the rate hike announcement. I admit I'm a bit skeptical about this sudden evaporation of fears… There’s been three and a half bank failures in the US - First Republic is still reeling – but the Nasdaq posted six gains in the last seven trading days. It has almost reached its highs for the year. Yesterday, all indices rose, usually by more than 1%. The two most prominent sectors were financials, thanks to the rebound in banks, and energy, thanks to higher oil prices.

Things are moving so fast right now that Bloomberg is already able to headline this morning "A New Chapter of Capitalism Emerges from the Banking Crisis" while a State Street strategist is already able to assert that "the failures of banks we've seen so far are idiosyncratic.” You'll notice that the two propositions are a bit opposed. That is, if you know what idiosyncratic means. In this case, I think the gentleman means that these banks have gone under for their own reasons. But both positions have something in common: this is not the first time we've heard of the new capitalism or of the isolated event, which should force us to raise our level of vigilance.

So let's focus on the Fed tonight, with an exercise that probably looks less difficult than expected for Jerome Powell. By now, he knows that investors are willing to accept another rate hike, even if it's only 25 basis points, and that they have displayed a certain amount of optimism. It is still more comfortable, even if it is at the cost of a certain form of moral hazard that I mentioned yesterday. Note that US central bankers should also provide updated guidance on the path of rates.

To round off this morning, I would like to add a quick summary of the conclusions of Bank of America's latest monthly survey of asset managers, which was conducted from March 10 to 16, in the middle of the big banking mess, but just before the Credit Suisse collapse. The first finding is that stagflation is still the most anticipated scenario: 88% of respondents cited it. This is the 10th consecutive month with over 80%, the first time the survey has been conducted. But for now, stagflation is a bit like recession: everyone talks about it but no one really sees it. The most notable change from the February survey will come as no surprise: a "systemic credit event" has become the number one risk for managers, up from fifth place. It is ahead of "inflation remains high" and "central banks remain bullish on rates", which are two sides of the same fear.

 

Economic highlights of the day:

The Fed’s rate decision (2pm), and a conference to present the decision (2.30pm) is today’s main event. All the agenda is here. 

The dollar flat against the euro and the pound at EUR 0.9279 and GBP 0.8182. The ounce of gold remains at USD 1943. Oil rallied, with North Sea Brent at USD 75.08 a barrel and US WTI light crude at USD 69.41. The yield on US 10-year debt rose a little to 3.59%. Bitcoin is trading around USD 28,000.

 

In corporate news:

  • Nike was down 1.8% in pre-market trading as the sports equipment maker warned on Tuesday night that its margins were under pressure due to heavy promotions to reduce excess inventory. The announcement offset an upward revision of annual revenue guidance after better-than-expected fourth-quarter sales.
  • First republic Bank was down 9% in premarket trading on concerns about the troubled bank's ability to secure a capital injection. US authorities are considering a possible government bailout to help the group cope with unrealized losses, according to a Bloomberg report. PacWest and Western Alliance banks were also listed lower.
  • Boeing is down 1.34% in pre-market trading due to additional charges for the KC-46 tanker program. The company also signed an agreement with Japan Airlines to buy 21 737 MAX aircraft worth $2.5 billion at list price, industry sources said. The deal is expected to be announced Thursday, the sources added.
  • Gamestop, whose stock is popular with retail investors, climbed nearly 40 percent in pre-market trading as the video game distributor reported its first quarterly profit in two years.
  • Virgin Orbit, billionaire Richard Branson's troubled aerospace company, is set to secure a $200 million investment from private equity firm Matthew Brown Companies via a private placement of shares, according to a document seen by Reuters. The stock is up 62.7 percent in pre-market trading.
  • Eli Lilly will partner with Roche to develop a blood test for Alzheimer's disease, according to a statement on Wednesday.
  • Finnish video game maker Rovio, which publishes the Angry Birds game, has ended its takeover talks with Playtika.
  • Regeneron said on Wednesday that the US Food and Drug Administration (FDA) had approved the extension of its cholesterol treatment to children aged 5 to 11.

 

Analyst recommendations:

  • Disney: Fubon Securities upgrades to buy from neutral. PT up 31% to $126.
  • Entain: Jefferies remains Buy with a price target reduced from GBp 1900 to GBp 1805.
  • Halma:  HSBC upgrades to buy from hold. PT up 21% to 2,550 pence.
  • Intuitive Surgical: Daiwa Securities initiated coverage with a recommendation of outperform. PT up 8.2% to $267.
  • Live Nation: Roth MKM initiated coverage with a recommendation of neutral. PT up 4% to $72.
  • Marks and Spencer: Goldman Sachs upgrades from sell to neutral targeting GBp 180
  • Meta Platforms: KeyBanc Capital Markets upgrades to overweight from sector weight. PT up 19% to $240.
  • Nike: Barclays raised its recommendation on Nike Inc. Class B to overweight from equal-weight. PT up 23% to $154.
  • Roper: J.P. Morgan upgrades to neutral from underweight. PT down 2.4% to $420.
  • Semtech: B Riley Securities upgrades to buy from neutral. PT rises 69% to $52.
  • The British Land: Goldman Sachs downgrades from neutral to sell targeting GBp 370.
  • Warner Music: Guggenheim Securities upgrades to buy from neutral. PT up 18% to $36.