All three Wall Street indexes opened in the red today. Traders still forecast a 50 basis points next week, which means a terminal rate next year below 5%. So, investors continue to be torn between "yay, central banks are going to be nice again" and "gee, the economic indicators always say everything and its opposite". But all in all, the balance is tipping in the right direction with the support of lower energy prices and the Chinese easing of its "zero-covid" policy.
The market feels that a milestone has been reached in monetary policy, thanks to recent data pointing at cooling inflation. It seems that we can start to see the end of the Fed's hawkish policy, which presumed success can be seen in the leading indicators, such as the PMIs. They show that activity is contracting in both industry and services. Calming down the overheated economy means helping to reduce inflation, at least on paper. The thing that is bothering investors is that not all the statistics are converging towards the same point. US household consumption and the labor market remain strong. This raises fears of a feedback loop on inflation, should monetary policy become more flexible again.
Central bankers are already promising better days ahead. This is the case for Fed boss Jerome Powell, who surprised everyone last week by adopting a softer stance earlier than expected. This is also the case for several European Central Bank members.
In addition to monetary policy, investors have a second reason to be hopeful: China is abandoning its zero-covid policy. I don't know if this is due to popular pressure, catastrophic activity statistics or fear of an economic stall against the US. Probably a combination of several factors. In any case, what seemed hypothetical before the last Communist Party Congress is becoming a reality: China is in the process of reopening. This creates an appetite, especially since the Chinese stock market liabilities are considerable. As an indication, the MSCI Chinese index is at -30% in 2022, against -11.5% for the MSCI World. In the short term, speculation is taking hold of stocks that had collapsed recently. But the movement, if it is confirmed, will revive much more powerful underlying mechanisms.
In other news, OPEC+ kept its oil production unchanged. At the same time, the EU has set a price cap of USD 60 for Russian oil exports. I explained some time ago the complex mechanics of restricting the prices of a third nation. I am not sure that it works, nor that the effect is spectacular. Besides, this "ceiling" is higher than the current price of Russian oil on the world market.
Economic highlights of the day:
S&P publishes throughout the day the final versions of the services PMI indices for November. All the macro agenda is here. Overnight, the final Caixin services PMI came in at 46.7 points, below the initial estimate and down from October.
The dollar is up 0.1% to EUR 1.0582 and up 0.6% to GBP 0.8188. Gold fell to 1774 dollars. Oil fell slightly, with North Sea Brent crude at USD 86.69 per barrel and U.S. light crude WTI at USD 81.09. The 10-year US debt yield stands at 3.53%. Bitcoin is trading around USD 17,000.
In corporate news:
Tesla plans to cut production of its Model Ys at its Shanghai plant by more than 20 percent this month from the previous month, two sources briefed on the matter said. The U.S. automaker meanwhile sold 100,291 vehicles produced in China in November, up 40 percent from October, the highest monthly pace since the plant opened in late 2020, according to China News Agency. Tesla stock is down 1.3% in pre-market trading.
* Apple- Foxconn, one of Apple's subcontractors, expects a full resumption of production in late December at its Zhengzhou, China, factory, where some of the iPhone is produced, a source at the Taiwanese group said Monday.
* Netflix's launch of a low-cost, ad-supported subscription plan helped the U.S. streaming group gain new users in the fourth quarter and should improve significantly over time, JP Morgan wrote Monday.
* Amgen - The U.S. drugmaker announced Saturday that its experimental anti-obesity treatment AMG133 showed promising results in a first clinical trial, paving the way for a larger study planned for early 2023.
- Burberry: HSBC moves from Hold to Light with a target of GBp 1950.
- Callon Petroleum: J.P. Morgan raised its recommendation to neutral from underweight. PT up 38% to $57.
- Comcast: Wells Fargo Securities upgrades to equal-weight from underweight. PT up 6% to $38.
- Frasers Group: Shore Capital Stockbrokers initiated coverage with a recommendation of buy. PT rises 36% to 1,200 pence.
- Laredo Petroleum: J.P. Morgan downgrades to underweight from neutral. PT up 12% to $69.
- Murphy Oil: J.P. Morgan upgrades to overweight from neutral. PT up 23% to $56.
- NetApp: Loop Capital Markets downgrades to hold from buy. PT up 0.9% to $67.
- Persimmon: Jefferies downgrades from buy to hold targeting GBp 1436.
- Spirax: Jefferies remains Underperform with a target cut from GBp 11,460 to GBp 9,910.
- Spire: J.P. Morgan downgrades to neutral from overweight. PT up 0.4% to $69.
- Starbucks: Deutsche Bank downgrades to hold from buy. PT up 0.9% to $106.
- SVB Financial: Morgan Stanley downgrades to underweight from equal-weight. PT down 17% to $186.
- United Therapeutics: Goldman Sachs reinstated coverage with a recommendation of sell. PT set to $230.
- Warner Music: Baptista Research initiated coverage with a recommendation of hold. PT set to $37.
- Watches of Switzerland: HSBC downgrades from buy to hold targeting GBp 1100.