Caterpillar maker missed quarterly earnings due to higher manufacturing costs, while McDonald's warned of short-term inflationary pressures and Pfizer revealed that Covid-19 products didn’t sell as much as planned.

This put a damper on Wall Street’ optimism after a good start to the year. So far, investors have been behaving as if earnings season was about to be exceptional and the Fed was gonna turn dovish any minute, but the latest results reminded them that businesses are operating in a difficult environment and things are perhaps not so rosy.

Some 140 S&P 500 companies had reported their fourth-quarter results by Monday, and earnings are expected to be 3% lower than the same quarter last year, according to Refinitiv data.

Defensive stocks took their revenge yesterday, after having gone through a complicated period. By the game of communicating vessels, the more audacious bets have been abandoned. Given the exceptional rise recorded during the month of January by equities, it is difficult to blame investors for securing some gains before the main source of volatility of the week, the decision of the U.S. central bank on its rates tomorrow. The U.S. Nasdaq returned more than 2%, which took the balance of January's rise below 10%.

Macroeconomics will be the focus today and tomorrow, despite the continuation of corporate earnings releases. Overnight, the International Monetary Fund slightly raised its growth forecast for the global economy this year. The worst-case scenario has not materialized. The UK seems to be the only G7 country to slip into recession. Even Russia is expected to escape it. But these are only forecasts. Like central bankers, investment bankers, financial commentators and any stock market trader, the major international organizations are speculating. The chief economist of the IMF had this cryptic statement, "we have to be sort of prepared to expect the unexpected". The good thing about this kind of thinking, besides being able to win the annual open door contest, is that it allows you to be right all the time. Until the next update.

As we await the central banks, with the Fed tomorrow and the ECB, Bank of England duo on Thursday, there will be a slew of macroeconomic statistics today. The day did not start too badly from this point of view with improving figures in Japan and China. In particular, official Chinese PMI indicators returned to the expansion zone, by the smallest of margins for manufacturing, and more vigorously in services. The end of the main Covid restrictions has boosted the outlook for economic activity. This is part of what is driving the current Western optimism, along with the moderation in inflation, and has been cited by the IMF as a reason for raising its forecast.

So far this morning, futures are slightly up for the Nasdaq, the S&P 500 and the Dow Jones.


Economic highlights of the day:

There will be a lot of macroeconomic indicators today, especially in Europe with preliminary inflation figures in France and Germany or the latest Eurozone GDP. In the United States, we have housing prices (9:00 am) and the Chicago PMI (9:45 am) and the Conference Board's January consumer confidence index (10:00 am). All the agenda is here. Overnight, Japan reported stronger-than-expected industrial production and retail sales for the past month, while China released its official PMI indicators, with manufacturing activity growing slightly, in line with expectations, and a more robust-than-expected services PMI well anchored in the expansion zone.

The dollar is flat against the euro at EUR 0.9217 and is up 0.2% against the pound to GBP 0.8118. Gold is trading at USD 1,917 per ounce. Oil is losing further ground, with North Sea Brent at USD 84.05 per barrel and U.S. light crude WTI at USD 77.63. The yield on 10-year US debt is up to 3.54%. Bitcoin is hovering at 23,000 dollars.


In corporate news:

* General Motors reported higher fourth-quarter net income and expects to post a larger-than-expected profit for the full year 2023, sending the U.S. automaker's stock up more than 5% in pre-market trading.

* Pharmaceutical company Pfizer expects annual sales of its COVID-19 vaccine and antiviral to fall more than expected, reinforcing market concerns about demand for its products as government orders slow. In pre-market trading, the stock was down more than 3%.

* Caterpillar, the world's largest construction equipment company, reported a lower-than-expected quarterly profit as higher manufacturing and transportation costs weighed on its margins.

* Exxon Mobil reported a $56 billion profit in 2022, setting a record in the Western oil industry.

* McDonald’s beat market expectations for like-for-like quarterly sales but warned of continued inflationary pressures in the near term. The fast-food group was down 1.5% in pre-market trading.

* Tesla expects increased capital spending next year as the electric vehicle maker ramps up production of a new battery cell and its Semi truck.

* UPS was gaining 2.2% in pre-market trading after reporting adjusted quarterly profit above expectations after prioritizing high-margin shipments and maintaining tight control of expenses. The company also announced a 6.6% increase in its quarterly dividend and a new share buyback program.

* Semiconductor makers Intel, Qualcomm, NVidia were losing 0.8% to 1.5% in pre-opening trade as South Korean rival Samsung Electronics said it had no plans to cut chip investments this year.

* Marathon Petroleum reported a better-than-expected quarterly profit on soaring refining margins.

* Nike filed a lawsuit Monday against Lululemon Athletica, saying at least four of the Canadian group's shoe designs infringe on its patents.

* Whirlpool - The U.S. appliance maker reported better-than-expected annual profit Monday, helped by cost savings and lower raw material prices.

* American International Group - The insurance group announced Monday that it fired interim CFO Mark Lyons on charges of violating company confidentiality rules.

* Paramount Global announced Monday that it will integrate the Showtime pay channel into its Paramount+ video-on-demand platform later this year.


Analyst recommendations:

  • BAE Systems: UBS upgrades from neutral to buy targeting GBp1050.
  • Bank of America: Atlantic Equities downgrades to neutral from overweight. PT up 13% to $40.
  • Compass: HSBC upgrades from hold to buy targeting GBp 2320.
  • Frontier Developments: Jefferies downgrades from buy to hold targeting GBp 493.
  • Haleon: Jefferies maintains a Hold rating with a price target raised to GBp 335 from GBp 270.
  • Intel: Fubon Securities downgrades to sell from neutral. PT down 21% to $22.
  • Keywords Studios: Jefferies remains Buy with a price target raised from GBp 3200 to GBp 3600.
  • RELX: Barclays moves from Overweight to Equal weight targeting 2585 GBp.
  • Team17: Jefferies upgrades from Underperform to Hold, targeting GBp 475.
  • The Restaurant Group: HSBC downgrades from buy to hold, targeting GBp 35.
  • Williams Co: US Capital Advisors upgrades to overweight from hold. PT up 16% to $36.
  • WPP: Barclays upgrades from in-line to overweight targeting GBp 1200.