Yesterday, among the western markets, only the North American ones were open, due to the May Day Bank Holiday. Wall Street ended in very small bounds, with -0.04% for the S&P500, -0.11% for the Nasdaq 100 and -0.14% for the Dow Jones.

Let's start with a macroeconomic refresher. On Sunday, China reported a manufacturing PMI activity indicator back in the contraction zone in April, quite a bit below expectations. Economists see this as a warning for the country's long-awaited recovery, which appears to be hurt by slowing exports. The momentum in services remains strong. Yesterday, the US showed a similar pattern, with the ISM manufacturing index also remaining in contraction territory. The strength in US construction spending and industrial prices, however, led the market to reinforce its bet on a Fed rate hike of 25 basis points this week - the probability is 95.4% this morning on the CME FedWatch forecasting tool.

Oh yes, because it's central bank week after all, let's not forget that. And it started with a bang. Earlier today, the Bank of Australia has just raised rates by 25 basis points to 3.85%. This was against all odds as economists were betting on a status quo. The RBA says it needs this to keep inflation in check. Tomorrow, the U.S. central bank will release its verdict. The market has fully understood that another round of tightening is on the horizon. The Fed believes it still has some work to do to achieve a satisfactory balance between curbing inflation and deflating economic momentum. Investors are mostly hoping that Jerome Powell and his team will announce a pause after that, taking into account the ongoing turmoil in the banking sector, which I'll talk about next, not without closing this macro section on the third central bank of the week, the ECB, which is also expected to raise rates by a quarter point on Thursday.

But what once again agitated the financial sector this weekend was the end of the agony of the American bank First Republic. Embroiled in a spiral of loss of confidence, withdrawal of funds and lower share price, the institution was closed by authority of the State of California, before being sold to JPMorgan Chase. The American investment guarantee agency, the FDIC, will assume part of the losses. In the short term, the operation removes a major source of tension. But it naturally raises a number of other questions, first and foremost: after the death of Silvergate, SVB Financial, Signature Bank and First Republic, who will be next? The US authorities answer "no one", but the market is a little more skeptical, as shown by the declines of other banking players yesterday, including Citizens Financial, PNC Financial or Keycorp, which gave up 5 to 6%. The bailout culture orchestrated by the authorities is probably one of the most important biases inoculated by the financial crisis in the brain of investors. It is therefore easy to understand why the words of central banks have become gospel.

In other news,  apart from the debates on bank bailouts and the Fed's decision, the recurring political tug-of-war over the debt ceiling is dominating. Treasury Secretary Janet Yellen believes that there is a risk of a stalemate on June 1 if no agreement is reached between Democrats and Republicans. Joe Biden has asked congressional leaders to meet on May 9 to discuss a way out of the crisis.

Corporate earnings releases continue. This week, Apple, Airbus, Porsche, Novo Nordisk or Shell are planned, along with Pfizer and Advanced Micro Devices today. FactSet says half of the S&P500 companies have already reported, with earnings on average down 3.7% year-on-year. The results are down, but they are above analysts' expectations. So in absolute terms it's poor, but in relative terms it's good. Investors usually react on the relative side since they are basing their expectations on analysts' estimates.

 

Economic highlights of the day:

Lots of manufacturing activity indicators today. These are refined readings of data released 10 days ago for the major economies. We also have the first estimate of inflation in the Eurozone in April and the JOLTS job openings survey in the US. All the agenda is here. 

The dollar is unchanged at EUR 0.9119 and GBP 0.8021. Gold is back to 1985 dollars. North Sea Brent crude is worth USD 78.80 a barrel and US WTI light crude USD 75.13. The yield on 10-year US debt is back up to 3.55%. Bitcoin is down to USD 28,050.

 

In corporate news:

Pfizer beat first-quarter earnings estimates Tuesday on strong demand for its recently acquired drugs and steady demand for its COVID-19-related products. The stock is up nearly 3% in pre-market trading.

Uber said Tuesday it expects quarterly profit to beat estimates, after a surge in demand for travel and food delivery helped the U.S. VTC services giant report better-than-expected results for the January-March period. The stock is up 10% in pre-market trading, while rival Lyft's is up 4%.

Marriott International on Tuesday raised its full-year profit forecast as the U.S. hotel operator benefited from pent-up demand for leisure and business travel.

Tesla has raised prices for its vehicles to $290 in Canada, China, Japan and the U.S., its website showed Monday, a move that comes after the automaker has repeatedly cut prices on its top-selling models since the beginning of the year.

Morgan Stanley plans to cut some 3,000 jobs in the second quarter in a new wave of layoffs, Reuters learned on Monday from a source familiar with the matter. This would be the second layoff plan in six months at the bank.

IBM is expected to suspend hiring for some positions while some 7,800 jobs could eventually be replaced by artificial intelligence (AI), the computer group's boss told Bloomberg on Monday.

Thousands of screenwriters who work for Hollywood movies and television will go on strike starting Tuesday, the first time in 15 years, after failing to reach a deal for higher pay from studios such as Walt Disney and Netflix.

Meta Platforms is looking to raise $8.5 billion in a five-tranche bond offering, its second issue after raising $10 billion in 2022, according to a filing Monday by the social networking group.

Dupont on Tuesday cut its full-year revenue forecast, citing a slower-than-expected recovery in the electronics and industrial markets. The U.S. chemical company's stock is down nearly 5% in pre-market trading.

Cheniere, the largest U.S. liquefied natural gas (LNG) exporter, reported on Tuesday a return to profit in the three months ended March 31, as increased shipments offset lower prices.

Thomson Reuters, parent company of Reuters News, reported on Tuesday an increase in first-quarter revenue and operating profit, thanks in part to divestments and high customer retention rates.

Lordstown Motor - The electric truck maker's stock is down 13.6 percent in premarket trading after hitting an all-time low the day before, as the group warned it may be forced to file for bankruptcy amid uncertainty over an investment deal with its largest shareholder Foxconn.

Marathon Petroleum said Tuesday it more than tripled its quarterly profit, driven by higher margins linked to sustained fuel demand and limited crude reserves, and increased its $5 billion share buyback program. The stock is up 1.2% in pre-market trading.

 

Analyst recommendations:

  • ArcBest: BofA Global Research downgrades to underperform from neutral. PT down 0.8% to $91.
  • Comcast: BofA Global Research upgrades to buy from neutral. PT up 18% to $49.
  • Ferrari: Barclays starts in-line weighted tracking by targeting USD 274.73.
  • Hershey: Mizuho Securities lifts price target to $263 from $235. Maintains neutral rating.
  • Iveric Bio: Credit Suisse downgrades to neutral from outperform. PT up 4.9% to $40.
  • Microsoft: Accountability Research downgrades to hold from buy. PT up 2.7% to $314.
  • Mondelez: Mizuho Securities lifts price target to $86 from $78. Maintains buy rating.
  • O'Reilly Automotive: Oppenheimer & Co lifts PT to $1,000 from $890. Maintains outperform rating.
  • Rightmove: HSBC upgrades from hold to buy targeting GBp 645.
  • Saia: BofA Global Research upgrades to neutral from underperform. PT up 6.1% to $310.
  • Textron: Alembic Global Advisors downgrades to neutral from overweight. PT up 8% to $73.