Let's take a look at the month of January, since it has just ended. Overall, investors' appetite has been reawakened, which has benefited risky assets. They first positioned themselves on the big tech stocks that took a hit in 2022 and on the theme of the Chinese economic recovery. Then they took more intrepid bets on stocks that were largely speculative. In small steps at first, and more frankly as the month progressed.

The broad S&P500 index scored a monthly increase of 6.2%. It got off to a slower start, and its performance was strengthened at the end of the month. The index is the middle-ground between a Dow Jones whose gains are limited to 2.8% and a Nasdaq 100 which has gained 10.6%. This large gap is explained by the more conservative profile of the Dow Jones, whose largest weights are traditional stocks, such as UnitedHealth or The Home Depot. Investors' renewed appetite for risk has led them into technology and growth stocks, which are abundant in the Nasdaq. Among the heavyweights of the index, Nvidia and Tesla have recovered over 30% and Amazon and Meta Platforms over 20%. This helps!

In Europe, the broad STOXX Europe 600 index gained 6.7% for the month. The gains were copious until the middle of the month, before it stalled. The southern countries (Italy, Greece, Spain), whose shares are perceived as riskier, and therefore with a higher potential in an upward phase, are at the forefront. The French CAC40 and the German DAX are not far behind, thanks to the former's luxury segment and the latter's contingent of cyclical stocks. The Nordic markets (Norway, Finland, Denmark), which are more defensive or more exposed to energy stocks, generally close the gap, except in Sweden where performances have been solid. The Swiss SMI and the British FTSE 100 posted gains, but less than the major EU markets. The biggest gains among the large caps in the STOXX Europe 600 were Unicredit, STMicroelectronics, Kering and ASML (finance, luxury, semiconductors). The biggest decliners were Equinor, Genmab and AstraZeneca (healthcare, oil).

In Asia, the Chinese indices were the ones to gain, due to risk taking and the reopening of the country. Most of the performance (11% gains for the MSCI China and the Hang Seng) came at the beginning and middle of the month, because the end of January was more complicated: after the Lunar New Year break, investors launched a wave of profit taking. South Korea, thanks to its strong technology contingent, gained 9%. The gains were less in Australia (6%) and Japan (5%). Only one market posted a negative performance, the star of the year 2022: India. The SENSEX lost 2%. Negative sentiment has been compounded in recent days by the woes of conglomerate Adani Enterprises, which collapsed on the stock market along with its listed subsidiaries, after a damning report by short seller Hindenburg, which believes it has uncovered hidden risks in the case.

The big story of the day is the Fed's monetary policy decision this afternoon at 2pm. There is no great suspense, at least if we consider the market's bets materialized by the CME's FedWatch tool: 98.7% probability that the central bank will raise its key rate from the 4.25 to 4.50 range to the 4.50 to 4.75% range, i.e. a 25 basis point increase. It is the form that matters, that is to say the comments that will be made from 2:30pm by the Fed Chair Jerome Powell. He is not in a very comfortable position. He has to deal with financial markets that have already decided that inflation has been tamed and that the Fed will only have one more rate hike after this one to complete its current monetary tightening cycle. But he can't let investors become too complacent. The credibility of the central bank, i.e. its level of control over the economy, rests on its ability to dictate the trend rather than to undergo it. Jerome knows investors well and is well aware that if he lets them off the hook, it will turn into a speculative fiesta. He is also not yet completely at ease with the idea that the battle against inflation has been won.

All this makes tonight's communication exercise very tricky. I can't resist quoting a few passages from an article published last week by Nobel Prize-winning economist Joseph Stiglitz. He has never hidden his doubts about the current monetary policy, which he considers a cure worse than the disease. "Some will also say that inflation has been contained precisely because of the determination shown by central banks. My dog Woofie might have drawn the same conclusion from his barking when planes fly over the house. He might very well think that he scared them off, and that if he hadn't barked, there was a greater risk that those planes would crash into him." In other words, Stiglitz thinks that the Fed's crisis of authority may be unnecessary, even counterproductive, and should end. In a sense, this is in line with the aspirations of investors, but for more fundamental than speculative reasons.

While waiting for the US central bank, we will be treated to a full macroeconomic agenda, with many corporate earnings releases. After the US close, we'll have Meta Platforms and Alibaba. Earlier today, futures on Wall Street's main indexes were slightly down, as investors adopted a wait-and-see attitude before Powell.

 

Economic highlights of the day:

The statistics are coming in thick and fast today. The second reading of the global manufacturing PMI indices is scheduled for the major economies, as well as European inflation for January. In the US, while waiting for the Fed's decision (2:00 pm), we have the ADP (8:15 am) and JOLTS surveys on employment (10:00 am), and the ISM manufacturing and construction spending (10:00 am). All the agenda is here. This morning, the Caixin Manufacturing PMI for China came in below expectations at 49.2 points, while the "official" PMI was in the expansion zone.

The dollar is down 0.2% to EUR 0.9184 and GBP 0.8119. The ounce of gold is up to 1928 dollars. Oil is recovering, with North Sea Brent crude at USD 85.65 per barrel and U.S. light crude WTI at USD 79.40. The yield on 10-year US debt reaches 3.51%. Bitcoin is hovering around 23,000 dollars.

 

In corporate news:

* Advanced Micro Devices (AMD) - The U.S. semiconductor maker is up 3.3% in pre-market trading after reporting quarterly results Tuesday that beat Wall Street expectations, thanks in part to growth in its data center business. However, the group said it expects disappointing sales in the current quarter.

* Electronic Arts fell 5.6 percent in after-hours trading after it lowered its bookings forecast for this year amid the video game publisher's postponement of a flagship title based on the "Star Wars" franchise and reduced consumer spending.

* Snap plunged 10% in after-hours trading after announcing a net loss in the fourth quarter and pessimistic forecasts for the current quarter due to competition from TikTok and a decline in the advertising market.

* T-Mobile US and Meta Platforms are expected to release their quarterly results after the close.

* Altria Group (ex-Philip Morris Companies) will publish its fourth quarter financial statements before the opening of the New York trading session.

 

Analyst recommendations:

  • AMD: Wedbush lowers Price Target to $95 from $100, keeps Outperform rating.
  • Chemring: Jefferies upgrades from hold to buy targeting GBp 360.
  • Edison International: Wells Fargo Securities downgrades to equal-weight from overweight. PT up 6% to $73.
  • Elementis: Jefferies downgrades from buy to hold, targeting GBp 130.
  • General Mills: Mizuho Securities initiated coverage with a recommendation of neutral. PT set at $75.
  • McDonald's: Fubon Securities upgrades to buy from neutral. PT up 15% to $308.
  • QinetiQ: Jefferies downgrades from buy to hold targeting GBp 390.
  • Shopify: Scotiabank Starts Shopify at Sector Perform With $43 Price Target
  • Synthomer: Jefferies downgrades from buy to hold targeting GBp 160.