Fed chills, Apple thrills, and the ECB's rate pills

Jobless claims hit the slide, while the ECB plays limbo with rates—how low can they go? Wall Street's excitement meter needs a battery change, snoozing through Fed's steady hand. Apple, once the AI underdog, now leads the tech pack with a market cap comeback.

The U.S. Labor Department reports a drop in weekly jobless claims, with new applications for unemployment benefits sliding by 16,000 to a seasonally adjusted 207,000 for the week ending January 25. This figure outperformed economists' predictions of 220,000 claims. Yet, despite this seemingly rosy picture, consumer confidence in job availability is taking a hit. A Conference Board survey reveals a dip in the perception of jobs being "plentiful" and a rise in those viewing jobs as "hard-to-get."

Across the pond, the European Central Bank (ECB) is on a rate-cutting spree, marking its fifth reduction since June, with hints of more to come. This move is driven by sluggish economic growth concerns, despite inflation's fiery ascent. The market's reaction? Germany's 10-year bond yield dipped, and the euro also nudged down. The consensus of analysts suggests that we'll see additional rate cuts, with the deposit rate potentially hitting 2% by June. The ECB remains data-driven, ready to slash rates further if economic risks loom large.

Yesterday's U.S. stock market session was about as exciting as watching paint dry. The quarterly corporate results released before the opening bell failed to ignite any enthusiasm, and the Federal Reserve's rate decision was as neutral as Switzerland. Consequently, the dollar barely budged, U.S. bond yields were as still as a pond, and indices showed little movement. Wall Street did slip a bit, with the S&P 500 dipping 0.47%, which was twice the decline of the Nasdaq 100 at 0.24%. In an ironic twist, the buzz generated by DeepSeek in the artificial intelligence arena allowed Apple to reclaim its crown as the world's largest company by market capitalization. Previously criticized for lagging in AI, Apple capitalized on the market's shift away from Nvidia and Microsoft, showcasing a curious case of market dynamics. Across the Atlantic, European markets were mostly in the green, except for Paris. There, LVMH's underwhelming results cast a shadow over the luxury goods sector, just as it was beginning to regain confidence following Compagnie Financière Richemont's unexpectedly strong sales.

All eyes were on the US central bank, and the Federal Reserve did what everyone expected: nothing. Jerome Powell and his team of central bankers decided to keep interest rates steady, opting for a cautious approach as they wait to see how the new White House administration's policies play out. Futures contracts, which traders use to predict market movements, suggest that the possibility of two rate cuts this year remains alive—unless, of course, inflation data heats up due to the new policies. A quick refresher on the Fed's moves and their ripple effects: when the central bank raises interest rates, it slows down the economy by making borrowing more expensive. This means households are less likely to take out loans, companies may delay investments, and Wall Street tends to frown. Growth stocks, particularly in the tech sector, are expected to take a hit, while the dollar strengthens, drawing capital away from emerging markets. However, this is a bit of an oversimplification. It's mainly the tech companies that require significant financing and aren't yet profitable that feel the pinch, along with mid-sized companies that face tougher financing conditions and generally carry more debt. The big players on the Nasdaq have shown they're not really hindered by higher interest rates.

When the Federal Reserve decides to lower interest rates, it’s like giving the economy a shot of espresso—consumption and investment get a jolt. But beware, this caffeine fix can lead to inflation and speculative bubbles. Risky assets, from stocks to cryptocurrencies, tend to skyrocket, while the dollar takes a backseat, offering a lifeline to weaker currencies and economies. The art of monetary policy is all about striking the right balance. 

In corporate earnings, the floodgates have opened. Yesterday, after the U.S. markets closed, Microsoft faced some criticism due to a slowdown in its cloud growth. Meanwhile, Tesla reported disappointing results but kept investors hopeful with promises of more affordable vehicles and future robot taxis. Meta's numbers were met with mild approval. However, it was IBM that stole the spotlight, benefiting from the ongoing AI boom. This morning in Europe, a slew of companies, including Roche, Sanofi, Deutsche Bank, STMicroelectronics, and Nokia, released their earnings reports. They will soon be joined by a host of American companies, with Apple set to report later in the evening. In the Asia-Pacific region, Japan's stock market saw a modest gain of 0.15% this morning. India and Australia fared slightly better, with increases of 0.2% and 0.5%, respectively. Markets remain closed for the Lunar New Year in China, Hong Kong, Taiwan, South Korea, and Singapore. European indices and futures on Wall Street are mostly bullish.

Today's economic highlights:

On the calendar today, we have German Q4 2024 GDP, Eurozone economic confidence and the unemployment rate, the ECB rate announcement and US annualized GDP, as well as new jobless claims and  monthly housing resales. The full calendar is here.

• Dollar: EUR 0.9559 GBP 0.8017 
• Gold: $2,784
• Oil: Brent: $75.35 WTI: 72.19
• US 10Y Cash: $4.52
• Bitcoin (BTC/USD): $104,895

In corporate news:

• Cigna Group's stock took a 9.7% nosedive after disappointing Q4 earnings.
• Dynatrace shares soared by 8.5% on the back of strong fiscal Q3 results and a sunny fiscal 2025 outlook.
• Lazard's stock rose by 8% after posting higher Q4 adjusted net income and revenue.
• Caterpillar's stock stumbled by 3.4% due to lower Q4 earnings and revenue
• PulteGroup's shares climbed by 3.4% following a $1.50 billion boost to its stock buyback plan.
• Trump administration officials consider imposing new restrictions on the sale of Nvidia chips to China.
• Whirlpool intends to reduce its stake in its Indian subsidiary to around 20% by 2025.

Today's main earnings reports: Apple, Visa, MasterCard, Thermo Fisher, Caterpillar, Comcast, Blackstone, United Parcel Service, Marsh & McLennan, Altria, KLA Corporation, Trane Technologies plc, Intel, The Sherwin-Williams Company, Cigna, Northrop Grumman, Canadian National Railway, Atlassian, Valero Energy, Baker Hughes, L3Harris Technologies...

Analyst Recommendations:

• Corning Incorporated: HSBC upgrades to buy from hold with a price target raised from USD 51 to USD 60.
• Cvs Health Corporation: Edward Jones upgrades to buy from hold.
• Edwards Lifesciences Corporation: Stifel upgrades to buy from hold with a price target raised from USD 75 to USD 90.
• Everest Group, Ltd.: BMO Capital Markets downgrades to market perform from outperform with a target price reduced from USD 453 to USD 375.
• Floor & Decor Holdings, Inc.: Goldman Sachs downgrades to sell from neutral with a target price of USD 79.
• Kkr & Co. Inc.: HSBC downgrades to hold from buy with a price target raised from USD 153 to USD 173.
• Lam Research Corporation: Bernstein upgrades to outperform from market perform with a price target raised from USD 85 to USD 91.
• Nvidia Corporation: Punto Research downgrades to sell from hold with a price target reduced from USD 140 to USD 112.
• Sei Investments Company: Raymond James upgrades to outperform from market perform with a target price of USD 99.
• Starbucks Corporation: Punto Research upgrades to buy from hold with a price target raised from USD 100 to USD 115.
• The Coca-Cola Company: Jefferies upgrades to buy from hold with a target price raised from USD 69 to USD 75.
• Verizon Communications, Inc.: Baptista Research upgrades to outperform from hold with a target price of USD 46.50.
• Vertex Pharmaceuticals Incorporated: Wells Fargo downgrades to equalweight from overweight with a target price of USD 460.
• Bill Holdings, Inc.: Oppenheimer maintains its outperform recommendation and raises the target price from USD 83 to USD 110.
• Hess Midstream Lp: Raymond James maintains its outperform rating and raises the target price from USD 39 to USD 48.
• Meta Platforms, Inc.: Oppenheimer maintains its outperform recommendation and raises the target price from USD 650 to USD 800.
• Reddit, Inc.: Bernstein maintains its underperform recommendation and raises the target price from USD 85 to USD 150.
• Royal Caribbean Group: Redburn Atlantic maintains its neutral recommendation with a price target raised from 210 to USD 260.
• Servicenow, Inc.: Cantor Fitzgerald maintains its overweight recommendation and reduces the target price from USD 1332 to USD 1048.
• Tetra Tech, Inc.: Baird maintains its neutral recommendation with a price target reduced from 44 to USD 34.
• Tko Group Holdings, Inc.: Roth Capital Partners maintains its buy recommendation and raises the target price from USD 148 to USD 185.
• V.f. Corporation: Telsey Advisory Group maintains its market perform recommendation with a price target raised from 21 to USD 27.
• Williams-Sonoma, Inc.: Goldman Sachs maintains its neutral recommendation with a price target raised from 170 to USD 224.