Yesterday, the ECB raised rates by a quarter of a point, meeting investors' expectations despite some divided opinions. However, Christine Lagarde, the central bank's leader, indicated that this would mark the end of the rate hike cycle. Investors, who were anticipating one more hike, reacted with a significant rise in equity indexes, leading to discussions about a "dovish hike" – essentially a rate increase with a reassuring gesture toward investors. This stands in contrast to the Fed's current approach, characterized as "status quo hawkish," where they maintain existing policies with a mild nod to investors.

The stock market favors the end of a rate hike cycle because it signifies the beginning of an economic downturn, accompanied by more affordable borrowing. During the decision presentation conference, Christine Lagarde mentioned uncertainty about future rate increases. It's crucial to note that current rates are likely to stay stable for some time, unless inflation surges. In the foreseeable future, there's a possibility that rates may need to increase again if prices rise significantly. Christine also emphasized that we might face challenging economic times, but these measures are necessary to control inflation.

Despite some potentially concerning statistics indicating rising prices, the news appeared to delight investors. Wall Street surged, even in the face of robust August retail sales, increased producer prices, and a strong labor market—data that might have previously dampened market sentiment, particularly alongside rising oil prices. Surprisingly, the bond market, known for its prudence, also rallied after the data release. The U.S. 10-year yield briefly touched 4.3%, though it had cooled down for a few days. However, this didn't hinder gains, with the S&P 500, Dow Jones, and Nasdaq all rising between 0.8% and 1%.  The ECB's announcement of a rate ceiling resonated with the market's hope that the Fed might be at a similar stage, suggesting that current rates have already peaked in this cycle. This anticipation bodes well for the upcoming Fed rate decision next week. Arm Holdings also made a notable debut, surging 25% on its first day of trading. European markets in Paris, Frankfurt, Zurich, London, and elsewhere also enjoyed gains exceeding 1%. 

In short, the equity markets celebrated what they perceived as the end of the rate hike cycle. The conclusion of the rate hike cycle hinges on inflation remaining in check, even though it still exceeds the levels deemed ideal by conventional monetary policy (around 2%). Yet, U.S. economic indicators remain robust. Additionally, oil prices have surged by 28% in just three months, and China is showing signs of renewed strength, with unexpectedly positive data and increased liquidity injections from the PBOC—a departure from recent trends. These factors and others may exert upward pressure on prices globally.

Turning to corporate news, Adobe released its quarterly results, which didn't bring any significant surprises. In the automotive sector, watch for potential reactions as a massive strike is looming in the USA following failed wage negotiations between the UAW union and the major automakers (Ford, General Motors, and Stellantis). It's worth noting that a prolonged strike could further contribute to inflationary pressures. The semiconductor sector may also continue to respond to the Arm Holdings IPO. In addition, there have been developments in the Chinese real estate sector, mainly revolving around efforts to delay repayments, refinance loans, and other complex financial maneuvers that can be challenging to track.

Asia-Pacific markets followed in the wake of Western markets. The Nikkei 225 continued to climb, gaining over 1%, as did South Korea and Australia. India and Taiwan are more measured, but bullish nonetheless. In China, Shanghai is struggling to find the right tempo, but Hong Kong is more reactive, gaining 1.2% during the session. European leading indicators are bullish.

Economic highlights of the day

In China, industrial production and retail sales were published at 10. In the US, the week ends with Empire Manufacturing (8:30am), followed by Capacity Utilization and Industrial Production (9:15am) and University of Michigan Sentiment (10:00am). Full agenda here.

The dollar rises to 0.9378 EUR and 0.8049 GBP. The ounce of gold is trading around 1917 USD. Oil resumes its ascent, with North Sea Brent at 93.96 USD a barrel and US light crude WTI at 90.01 USD. The yield on 10-year US debt has risen to 4.28%. Bitcoin is trading at 26,640 USD.

In corporate news:

  • Ford Motor and General Motors each lost around 2% in pre-market trading due to a simultaneous strike, called by the United Auto Workers (UAW) union, at several of the US automakers' plants.
  • Northrop Grumman, Lockheed Martin - China will impose sanctions on the two American defense and aerospace groups for supplying weapons to Taiwan, the Chinese Foreign Ministry announced on Friday.
  • Applied Materials, Lam Research and Kla Corp each fell more than 2% in pre-market trading after Reuters reported that Taiwan's TSMC, the world's leading chipmaker, had asked its suppliers to delay delivery of high-end chipmaking equipment.
  • ARM Holdings is still up 8.7% in pre-market trading, the day after its Nasdaq debut, which saw the stock jump 25% from its IPO target price. Needham has also upgraded the stock to "Hold".
  • Neumora Therapeutics, a company also backed by Japanese conglomerate Softbank, parent company of Arm, is making its New York stock market debut this Friday, having raised $250 million for its IPO.

Analyst recommendations:

  • Adobe: Morningstar maintains its hold recommendation on the stock. The target price has been raised from USD 485 to USD 510.
  • Apollo Global: BMO Capital Markets upgrades to outperform from market perform. PT up 7.3% to USD 103.
  • Applied material: Wolfe Research upgrades to outperform from neutral. PT remains unchanged at USD 185.
  • Arthur J. Gallagh: Keefe Bruyette & Woods maintains a market perform rating. The target price has been raised slightly from USD 221 to USD 222.
  • Autodesk: Moffett Nathanson drops coverage on the stock, previously rated underperform. No target price is provided.
  • Bank of New York Mellon: Morgan Stanley downgrades to underweight from in-line. PT reduced by 2% to USD 48.
  • Broadcom: Daiwa Securities upgrades to outperform from neutral. PT up 2.8% to USD 925.
  • Copart: Baird downgrades to neutral from outperform. PT reduced by 46.7% to USD 48.
  • Copart: Jefferies downgrades to hold from buy. PT down 45.3% to USD 52.
  • Crowdstrike: HSBC maintains its Buy rating. Previously set at USD 200, the target price remains unchanged at USD 200.
  • Datadog: MoffettNathanson LLC drops coverage on the stock, previously rated as outperform. No target price is given.
  • Extra space storage: Evercore ISI maintains its in-line recommendation. The target price has been reduced from USD 147 to USD 145.
  • Idexx laboratories: Stifel downgrades to hold from buy. PT down 5% to USD 500.
  • Kla: Wolfe Research upgrades to outperform. PT remains unchanged at USD 600.
  • Kroger: Wolfe Research upgrades to outperform from neutral. PT down 9.3% to USD 49.
  • Lam research: Wolfe Research upgrades to outperform. PT remains at USD 825.
  • Microsoft: HSBC maintains its hold recommendation. The target price remains at USD 347.
  • Northern Trust: Morgan Stanley maintains its equal weight/in-line rating. The target price has been lowered from USD 97 to USD 92.
  • Oracle: HSBC maintains its Buy rating. Previously set at USD 144, the target price remains unchanged at USD 144.
  • Palantir: HSBC maintains a hold recommendation on the stock with a target price of USD 16.
  • Pfizer: Sadif Investment Analytics downgrades to buy from strong buy. PT down 22.3% to USD 37.164.
  • Public storage: JP Morgan downgrades to neutral from overweight. PT reduced from USD 324 to USD 321.
  • Royal Caribbean: Stifel downgrades to hold from buy. PT down 4% to USD 130.
  • Salesforce: HSBC maintains its Buy rating. Previously set at USD 267, the target price remains unchanged at USD 267.
  • Servicenow: HSBC maintains its Buy rating. Previously set at USD 704, the target price remains unchanged at USD 704.
  • Snowflake: HSBC maintains its Buy rating. Previously set at USD 201, the target price remains unchanged.
  • Zoom video: HSBC upgrades to Buy from Hold. PT remains unchanged at USD 83.