After the noise and fury of the previous week, stock markets have wisely fallen back into line to await the US central bank's monetary policy decision later today. Even US central bankers seemed to keep a low profile in recent days. They had largely paved the way beforehand to explain that they were going to raise key rates at an aggressive pace until the economic and inflationary overheating calmed down. And ideally, without going too far, i.e. without causing too much damage to businesses, households and other parts of society. To show its determination, the Fed will raise its key rates by 50 basis points at once, i.e. twice as fast as usual. This is the compensation for the delay in fighting inflation.
At the same time, the institution is working to deflate the economic support mechanisms that have kept stock market indices on steroids in recent years. It is expected to announce the timing of its quantitative tightening, i.e. how it will deflate the huge pocket of debt that has been bought up in recent years to keep the economy's stock markets stable and fluid. The same buybacks that have helped create exotic valuations on certain assets by creating an almost endless supply of free money. The prospect of them drying up is obviously not unrelated to the evaporation of $4 trillion in capitalization on the Nasdaq since November.
We are entering a phase where the narrative will once again matter greatly for equity markets. Beyond the direct consequences of tighter monetary policy, such as higher funding costs and a shrinking ocean of available liquidity, investors will speculate on how many rate hikes it will take for the Fed to regain control. For the time being, in a period of intense depression, they are looking at the worst-case scenario. Long story short, this means full rate hike, big financial turmoil, recession and all the rest. This is where the narrative comes in. If Jerome Powell manages to leave a reasonable doubt that the Fed will not need to go as far as the market thinks to curb inflation, there could be a positive reaction. This is conditional, of course, but it's a tactic that the Fed has been using every which way for years, with some success.
Economic highlights of the day:
The PMI services index of the major economies for April will be published throughout the day. In the US, a busy day ahead of the Fed's rate decision, with the ADP employment survey, trade balance, ISM services and the DOE weekly oil inventories.
The dollar/euro pair is stagnating around EUR 0.9488. The ounce of gold is down to USD 1865. Oil is up, with North Sea Brent at USD 108.48 per barrel and US light crude WTI at USD 106.25. The yield on 10-year U.S. debt stands at 2.97%. Bitcoin is trading around USD 39,000.
* Moderna reported $6 billion in first-quarter sales of its COVID-19 vaccine.
* Regeneron reported a 13% drop in first-quarter profit as sales of its COVID-19 monoclonal antibody cocktail were affected by the U.S. Food and Drug Administration's decision to restrict its use due to its lack of efficacy against the Omicron variant.
* CVS Health raised its full-year earnings forecast after reporting better-than-expected first-quarter results on the strength of its insurance business and sales growth in its drugstores.
* Uber reported better-than-expected quarterly results and a better-than-expected quarterly Ebitda target, saying that unlike competitor Lyft it did not need to increase spending to attract new drivers.
* Lyft plunged 26% in premarket trading as the ride-hailing group reported a much lower-than-expected quarterly gross operating profit forecast due to additional costs.
* Starbucks - The coffee chain gained 6.4% in premarket trading after reporting strong quarterly results, despite suspending its annual guidance due to health restrictions in China and inflation, among other issues.
* Advanced Micro Devices - The semiconductor maker reported better-than-expected quarterly results Tuesday and expects revenue growth to beat market expectations for the second quarter and 2022 on demand for data center chips. In pre-market trading, the stock was up 5.8%.
* Twitter - Elon Musk said Tuesday that the social network, which accepted the billionaire's takeover bid, may charge "light" fees to business and government users.
* Marriott International - The hotel group on Wednesday reported a first-quarter profit, after a loss in the same period last year, thanks to a recovery in travel.
* Yum Brands' quarterly results came in worse than expected, as lower U.S. sales at the Pizza Hut chain due to a staffing shortage overshadowed sales growth at KFC and Taco Bell.
* Insurer AIG reported a 17% increase in quarterly profit, above market expectations, thanks to growth in sales and lower losses from natural disasters.
* Airbnb expects second-quarter revenue to beat market expectations, anticipating strong demand this summer globally. In pre-market trading, it was up nearly 5%.
* Match announced Tuesday the resignation of its CEO, Shar Dubey, who will be replaced at the end of the month by Bernard Kim, the current president of mobile games specialist Zynga.
- Akamai: Baird downgrades to neutral from outperform. PT down 10% to $102.
- Anglo American: Liberum downgrades from buy to hold targeting GBp 3400.
- Ford Motor: Argus lowers price target for ford motor to $23 from $29, maintains buy rating.
- Herbalife: Jefferies downgrades to hold from buy. PT down 5.7% to $26.
- Johnson Matthey: Jefferies upgrades from hold to buy targeting GBp 2600.
- Lyft: Wedbush lowers PT to $32 From $50, Outperform rating kept.
- Moody's: Stifel Nicolaus lowers price target for moody's to $307 from $353, maintains hold rating.
- NXP Semiconductors: Piper Sandler adjusts price target on nxp semiconductors to $175 from $210, maintains neutral rating.
- Pegasystems: Goldman Sachs reinstated coverage with a recommendation of neutral. PT set to $86.
- Rio Tinto: Liberum downgrades from hold to sell targeting GBp 4700
- Shopify: Loop Capital adjusts price target to $460 from $660, keeps hold rating.
- Stanley Black & Decker: UBS adjusts price target to $204 from $225, maintains buy rating.
- The Goldman Sachs Group: Oppenheimer adjusts price target to $519 from $549, maintains outperform rating.
- The Scotts Miracle-Gro Co: Stifel downgrades to hold from buy. PT up 9.5% to $116.
- Travis Perkins: Jefferies remains at Hold with a price target reduced from GBp 1416 to GBp 1359.
- Vornado Realty: Piper Sandler downgrades to underweight from neutral. PT down 9.6% to $35.
- WesBanco: Piper Sandler downgrades to underweight from neutral. PT up 2.6% to $34.
- Zimmer Biomet Holdings: Piper Sandler adjusts price target to $130 from $110, maintains neutral rating.