Looking at Wall Street’s performance yesterday, it seems that investors are choosing to focus on the prospect of a looser Fed monetary policy, and less on the looming US default and recession. The S&P 500 gained 0.3% and the Nasdaq 100 some 0.55%. In Europe, indices generally rose as well, except in the south where Italy and Spain lost some ground.

In China, dreams of an economic boom are still being thwarted. One wonders if China really wants to wake up. The statistics released this morning look solid, but that is because the basis for comparison was extremely weak. Retail sales for April were up 18.4% year-over-year, but economists were hoping for 20%. Industrial production and investment were up by 5.6% and 4.7% respectively, but the expectation was higher, especially on production. In short, another missed opportunity to make China the new driving force of equity markets.

Today, investors were awaiting US retail sales for April, to get more clues about the health of the economy. But this only added to the confusion. Retail sales increased less than expected, by 0.4% last month, the Commerce Department said. Economists polled by Reuters had forecast sales rebounding 0.8%. However, core sales – which exclude volatile components such as automobiles, gasoline, building materials and food services - remained strong, rebounding 0.7% in March. I can already hear many investors wondering: is this good news for interest rate policy? Or not?

Meanwhile, April industrial production rose by a higher-than-expected 0.5% month on month after no change in March, the Fed said. Overall, the latest data show that the US economy remains resilient and even experienced a rebound in early Spring, but inflation remains sticky. To add to confusion, retailer Home Depot – which is a good indicator of the resilience of the consumer - lowered its annual sales forecast, saying that consumers are cutting back on spending on tools and building materials as they feel the pinch of rising prices.

In this confusing environment, Wall Street opened slightly in the red. Confused investors can try to find some clues about how all of this might affect Fed policy by listening to Fed official John Williams' speech shortly after 12:00 pm. His colleagues have recently made some dovish comments, in favor of a more flexible monetary policy.

 

Economic highlights of the day:

After the German ZEW financial confidence index, the day will be marked by a series of US statistics: retail sales, industrial production, business inventories and the NAHB house price index. The full agenda is here. This morning, Chinese industrial production for April disappointed heavily, with a rebound of 5.6% year-on-year, half as much as expected. The rebound in retail sales was impressive due to a soft comparison base, but it came in at 18.4% versus 21.9% expected.

The dollar remains flattish at EUR 0.9195 and GBP 0.7999 . The ounce of gold is also little changed at USD 2008. Oil rallied, with North Sea Brent crude at USD 75.29 per barrel and U.S. light crude WTI at USD 71.17. The yield on 10-year US debt is up slightly to 3.48%. Bitcoin is trading around USD 27,000.

 

In corporate news:

  • Home Depot - The number one U.S. home improvement retailer lost 4% in pre-market trading after lowering its annual sales and profit forecast, due to slowing demand in the face of inflation.
  • Amgen, Horizon Therapeutics - The Federal Trade Commission (FTC), the U.S. competition watchdog, is expected to file an appeal on Tuesday to block Amgen's takeover of Horizon Therapeutics, a source close to the matter told Reuters. Horizon Therapeutics shares were plunging 18 percent in premarket trading.
  • Berkshire Hathaway, the company of billionaire Warren Buffett, announced on Monday that it had initiated an investment in Capital One Financial and no longer held a stake in Bank of New York Mellon.
  • Baidu, China's leading online search engine, reported first-quarter revenue above expectations, helped by higher advertising revenue as China reopens post-COVID.
  • Tesla has applied for permission to expand its Shanghai plant and start production of battery pouch cells. The group's chief executive, Elon Musk, has also indicated that no new hiring will be possible without his personal approval, according to an internal memo seen by Reuters.
  • OpenAI, the creator of ChatGPT, backed by Microsoft, is preparing to release a new open source artificial intelligence model, the specialized site The Information reported on Monday, citing a source informed of the matter.
  • Morgan Stanley plans to cut 7 percent of its Asia-Pacific investment bank's workforce, a source close to the matter said Tuesday.
  • Wells Fargo will pay $1 billion to settle charges that the bank misled shareholders about its progress following a series of corporate governance scandals.
  • Rumble - The video-sharing platform was down 5.4% in premarket trading after reporting a larger-than-expected first-quarter net loss.

 

Analyst recommendations:

  • Amazon: President Capital Management upgrades to buy from neutral. PT up 16% to $129.
  • Amdocs: Barclays upgrades to overweight from equal-weight. PT up 26% to $115.
  • Associated British Foods: RBC upgrades from sector perform to outperform with a target of GBp 2250.
  • Commerce Bancshares: Morgan Stanley downgrades to underweight from equal-weight. PT down 3.5% to $48.
  • Cullen/Frost: Morgan Stanley downgrades to equal-weight from overweight. PT up 21% to $121.
  • Gilead: BMO Capital Markets upgrades to outperform from market perform. PT up 28% to $100.
  • Macfarlane: Stifel initiated coverage with a recommendation of buy. PT set to 145 pence.
  • Prosperity Bancshares: Morgan Stanley downgrades to underweight from equal-weight. PT down 1.1% to $60.
  • Rolls-Royce: Jefferies remains Buy with a price target raised from 170 to 210 GBp.
  • TUI: Morgan Stanley upgrades from Underweight to Overweight targeting GBp 740.
  • Williams Companies: Citi upgrades to buy from neutral. PT up 24% to $36.