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Romain Fournier

Chief Editor
Having worked in the British, French and Swiss financial press, Romain is able to report on local and international issues, as comfortable in French as in the language of Shakespeare, Romain Fournier leads the editorial team at Marketscreener. Fine connoisseur of the English-speaking markets, Romain delivers an editorial every day on US and UK markets.

Good cops, bad cops

09/28/2022 | 11:26am EST
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Now that the Fed has made it clear that it will take a lot rate hikes to curb inflation, investors' hopes of a soft landing have disappeared. The backlash against the UK's "mini-budget" continues, with strong criticism from large financial institutions.

The IMF urged the government to reassess its tax-cutting measures at the November budget event, while Moody's warned that these measures could threaten the country's credibility with investors. As a result of this criticism, the U.K. government tried to reassure investors that it is working with the Bank of England.

The ongoing turmoil on financial markets is far from over and investors took another blow to the head yesterday, with an aborted rebound in the US, which resulted in a sixth session of decline in the S&P500. The sound of capitulation is echoing in the corridors of stock markets. The dollar is soaring, oil is falling and finance is depressed.

Wall Street pretended to recover yesterday, after five consecutive sessions of decline for the S&P500. But the US broad index ended at -0.21%. The Nasdaq managed to score a 0.16% gain at the end of the day, although it was up more than 2% at the beginning of the session... In Europe, it was a bit of a mess at the close, with variations ranging from a gain of 0.5% in Switzerland to a 0.7% drop in Germany. All these variations show that investors don't know who to turn to, since Jerome Powell's hawkish speech. In fact, another representative of the US central bank gave investors more food for thought. James Bullard, one of the hawks used by the Fed to scare investors, insisted on the need to keep raising key rates aggressively. He derailed the rebound and sent the yield on U.S. 10-year debt flirting with 4%.

This is what traders call the "good cop, bad cop" game. Basically, you get the bad cops/hawks to defend the hard line, and sometimes you get the good cops/doves to smooth things over. It's almost storytelling and it's closely followed by the pros.

You may recall that markets had four big rebound sessions from September 7 to 12. The reason? Soothing comments from Fed Vice Chair Lael Brainard about future monetary policy. Of course, this was against global sentiment, so it was welcomed. But it didn't last and it even turned into a trap (9 declines in 11 sessions). "The bulls swallowed Lael's pro-market sales pitch of September 7. They swallowed it all: the hook, the line and even the sinker, only to get crushed," said a manager on a closely followed Wall Street trade thread.

The same manager also advised to look ahead to the weekend with the return of the "good cops" on Friday: Lael Brainard and another central banker who is considered soft, John Williams, will be participating in events to give their opinion. They are not the only ones and it could turn into a cacophony: Jerome Powell, Christine Lagarde, James Bullard (again!) and other less glamorous names are also on the agenda by the end of the week.

Speaking of indicators, yesterday's data raised more questions than it answered in the US. Already, US consumer confidence has rebounded in September, despite all the current turmoil. In addition, new home sales were much stronger than expected in August. But durable goods orders slowed again. So the signals continue to flash in different directions. One of two things is true: it's either that American consumers are wealthy and optimistic enough that they are going to withstand rate hikes without too much trouble. Or they are still a bit oblivious and a reality check is coming. Given the state of equity markets at the moment, it is the second option that investors have in mind.

In the foreign exchange market, the dollar has been strengthening steadily amidst risk aversion. It strengthened even more yesterday as the White House ruled out the prospect of a coordinated international effort to lower the greenback, as happened in 1985 and 1987. In other news, the Nord Stream pipelines were clearly sabotaged, causing gas prices in Europe to soar yesterday. Who benefits from the crime? The question remains open…

 

Economic highlights of the day:

US wholesale inventories and US housing data are the two main statistics expected today. All the macro agenda here.

The euro continues to sink. The ounce of gold is down to USD 1624 .Oil erases its gains from the previous day. The yield on 10-year U.S. debt is now flirting with 4%. The 5-year is at 4.21% but the 2-year is down 4.28%. Bitcoin is falling back to under $19,000.

 

In corporate news:

* Apple has scrapped plans to increase production of its new iPhones after expectations of demand failed to materialize, Bloomberg reports, citing sources close to the matter. The stock is down 3.3% in pre-market trading.

* Tesla - Tesla CEO Elon Musk's lawyers have asked a U.S. appeals court to ease a 2018 Securities and Exchange Commission (SEC) order to regulate the billionaire's tweets.

* Biogen and Eisai announced Wednesday that their experimental Alzheimer's treatment showed a significant slowdown in cognitive decline in a large clinical trial in patients still in the early stages of the disease. Biogen shares jumped 50% in pre-market trading as Baird raised its recommendation to "outperform".

* The U.S. financial regulator on Tuesday fined 16 banks worldwide, including Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley, for using personal apps and their own devices to discuss transactions or conduct financial transactions.

* Lyft - The VTC services group announced on Tuesday that it would freeze hiring in the United States until the end of the year as fears of an economic recession in the country grow.

* Blackberry fell 4% in after-hours trading as the company reported second-quarter revenue of $168 million, down 4% from the same period a year ago.

 

Analyst recommendations:

Lockheed Martin - Wells Fargo lowered its recommendation to "underweight" from "in-line weight".

Accenture: Wedbush adjusts price target to $300 from $350; outperform rating kept.

AGCO: Baird initiated coverage with a recommendation of outperform. PT rises 65% to $156.

Biogen: BMO Capital Markets upgrades to outperform from market perform. PT jumps 82% to $360.

CVS Group: Jefferies remains Buy with a price target reduced from 2110 to 1970 GBp.

Dechra Pharmaceuticals: Jefferies maintains a Hold rating with a price target reduced from 3,630 to 2,880 GBp.

Endava: Wedbush adjusts price target to $90 from $120, outperform rating kept.

Fedex: Bernstein lowers price target to $212 from $316, maintains outperform rating.

Games Workshop: Jefferies remains Buy with a price target reduced from 9700 to 8700 GBp.

Lennar: Goldman Sachs raises price target to $90 from $89, maintains buy rating.

Micron Technology: Bernstein lowers price target to $90 from $94, maintains outperform rating.

Netflix: Atlantic Equities raised its recommendation to overweight from neutral. PT gains 26% to $283.

Philip Morris: Credit Suisse reinstated coverage with a recommendation of neutral. PT jumps 23% to $107.

SouthState Corp: Piper Sandler upgrades to overweight from neutral. PT up 24% to $96.

Treatt: HSBC starts tracking at hold, targeting GBp 600.

Truist Financial: Piper Sandler upgraded to overweight from neutral. PT up 28% to $55.

 


ę MarketScreener.com 2022
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Stocks mentioned in the article
ChangeLast1st jan.
ACCENTURE PLC -1.28% 288.41 Delayed Quote.-30.43%
AGCO CORPORATION -1.77% 132.73 Delayed Quote.16.46%
APPLE INC. -0.34% 142.16 Delayed Quote.-19.94%
BIOGEN INC. -1.29% 285.37 Delayed Quote.20.50%
BLACKBERRY LIMITED 0.50% 6 Delayed Quote.-49.24%
CVS GROUP PLC 3.01% 2052 Delayed Quote.-8.39%
DECHRA PHARMACEUTICALS PLC 1.57% 2718 Delayed Quote.-48.96%
EISAI CO., LTD. -0.89% 9543 Delayed Quote.46.12%
ENDAVA PLC 1.78% 79.3 Delayed Quote.-52.78%
FEDEX CORPORATION 0.92% 172.33 Delayed Quote.-33.53%
GAMES WORKSHOP GROUP PLC 0.69% 7335 Delayed Quote.-26.43%
LENNAR CORPORATION -1.04% 88.5 Delayed Quote.-23.01%
LOCKHEED MARTIN CORPORATION -0.37% 483.58 Delayed Quote.36.06%
LYFT, INC. 2.91% 10.95 Delayed Quote.-75.10%
MICRON TECHNOLOGY, INC. -0.60% 54.87 Delayed Quote.-40.74%
NETFLIX, INC. 3.14% 320.01 Delayed Quote.-46.88%
PHILIP MORRIS INTERNATIONAL, INC. 0.03% 102.09 Delayed Quote.7.43%
SOUTHSTATE CORPORATION -1.39% 79.66 Delayed Quote.0.84%
TESLA, INC. 3.23% 179.05 Delayed Quote.-49.17%
TREATT PLC 1.71% 655 Delayed Quote.-49.03%
TRUIST FINANCIAL CORPORATION 0.05% 42.08 Delayed Quote.-28.16%
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