As expected, the Federal Reserve raised its key interest rate by another 0.75 percentage points. This is the fourth increase of this magnitude since May, and brings the Fed Funds rate to between 3.75% and 4%.

More hikes are likely in the coming months, but Jerome Powell hinted at a slight change in its very hawkish stance. “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments”, the statement said.

However, this wasn’t enough for markets, since Wall Street ended deep in the red. Investors had hoped that there would be a clearer message that the Fed would ease the pace of its rate hikes very soon, but Powell dampened the mood when he said it was "very premature" to think about a pause.

Still, he did say that future decisions will take into account cumulative tightening, which indicates that monetary policy should start to ease in December, bar any unforeseen circumstances.

The main message is that the rate hike cycle is not over, although the pace of tightening may be moderating. Investors were expecting to be a little more mollycoddled.

From a purely statistical point of view, Wall Street usually ends in the green when the Fed makes a monetary policy decision. This is because the U.S. central bank often butters investors up, or at least investors generally find the Fed's communication to be to their liking. But yesterday, the S&P 500 lost 2.5% and the Nasdaq 100 fell 3.4%.

Investors have a hard time digesting the fact that Powell said the rate increase could be higher than what the market anticipates. And he cemented his position by reminding us that there is still a long way to go to claim a victory over inflation and that it will take more monetary tightening to get there. Not necessarily moves as large as 75 basis points, but more hikes nonetheless.

In the end, the speech was too far from investors expectations. The message is that there will still be blood and tears on the road to fighting the price boom and that the Fed doesn't yet know how far it will have to go. There have been some signs of a softer stance, but not enough to constitute the famous "pivot" in the discourse that investors were hoping for.

The job market is still very strong, with the number of Americans filing new claims for unemployment benefits unexpectedly falling last week.

The quarterly earnings season is still in full swing with a host of figures, from ConocoPhillips to Amgen, Starbucks and PayPal.

The Bank of England just joined the Fed in raising rates by 75 basis points today.

 

Economic highlights of the day:

The second reading of the services PMI indicators will be published throughout the day for the major economies. We also have the Challenger employment survey, weekly jobless claims, industrial orders and ISM services. The whole macro agenda is here. This morning, Caixin announced that its Chinese services PMI deteriorated to 48.4 points, in contraction territory for the second consecutive month.

The dollar is up 0.6% to EUR 1.0254 and up 1.8% to GBP 0.8945. The ounce of gold falls back to 1623 dollars. Oil is losing ground, with North Sea Brent at USD 94.66 a barrel and U.S. light crude WTI at USD 88.14. The yield on 10-year U.S. debt is climbing back up 4.10 gold%. Bitcoin is trading around USD 20,150.

 

In corporate news:

* Qualcomm expects revenue for the final quarter of the year to be about $2 billion below analysts' expectations due to a slowdown in smartphone sales. The chipmaker's stock was losing 8.06 percent in pre-market trading.

* Kellogg raised its sales and profit forecast for the year, betting on solid demand despite a series of price increases.

* Moderna fell 15% in premarket trading after the company lowered its COVID-19 vaccine sales forecast for this year due to supply issues. The group also reported lower-than-expected third-quarter sales.

* Ebay reported above-expectations quarterly results on Wednesday on the strength of demand for second-hand items but also the success of its luxury goods offering.

* Marathon Oil reported strong quarterly profit growth, supported by soaring crude prices. The group also announced an agreement to buy natural gas assets from Ensign Natural Resources for $3 billion.

* ConocoPhillips reported Thursday a rise in third-quarter profit on the back of soaring energy prices and robust demand.

* Adobe - The Justice Department is preparing to open an investigation into Adobe's $20 billion takeover of Figma, Politico reported Wednesday, citing four people close to the matter and a document it has seen.

* Marriott International on Thursday raised its annual profit forecast, helped by higher fares and a solid rebound in leisure and business travel amid the lifting of health restrictions related to the COVID-19 pandemic.

* MetLife reported a 53% drop in third-quarter profit as deteriorating economic conditions and declining global markets hurt the U.S. insurer's returns on investments.

* Cigna gained 1.5% in premarket trading after raising its full-year adjusted earnings per share forecast and reporting better-than-expected quarterly revenue.

* Intercontinental Exchange reported higher third-quarter adjusted earnings on Thursday, supported by strong trading volumes that helped offset a lull in IPOs.

* Under Armour on Thursday cut its annual revenue and profit forecasts amid a rising dollar and slowing consumer demand ahead of the crucial holiday shopping season.

* Royal Caribbean beat market expectations for third-quarter revenue, buoyed by increased bookings and spending on its cruise ships.

* Teva Pharmaceuticals will pay up to $4.2 billion to end claims related to its involvement in the U.S. opioid crisis, New York State Attorney General Letitia James said Thursday.

* Peloton Interactive said Thursday it expects its fiscal second-quarter sales to fall short of Wall Street expectations. The stock was down 13.7 percent in premarket trading.

* Robinhood - The online broker reported a smaller-than-expected quarterly loss thanks to the performance of its trading business and market volatility. Its stock was up 4.5% in pre-market trading.

* Roku fell about 20 percent in premarket trading as the video-on-demand platform said it expects quarterly revenue to fall short of expectations due to lower advertising budgets from advertisers.

* Altice USA reported a 7% decline in third-quarter revenue to $2.39 billion, below the Refinitiv consensus of $2.45 billion. In pre-market trading, the stock was down 23.3%.

 

Analyst recommendations:

  • Amazon: Tigress Financial cuts price target to $192 from $232, retains buy rating.
  • BP Plc: Berenberg remains Buy with a price target raised from GBp 500 to GBp 560.
  • Cedar Fair: B Riley Securities lowers PT to $58 from $68. Maintains buy rating.
  • Cognizant: Societe Generale downgrades to hold from buy. PT up 16% to $70.
  • Hiscox: Berenberg remains "Hold" with a price target raised from GBp 990 to GBp 1015.
  • Hubspot: Oppenheimer & Co downgrade to market perform from outperform. PT up 42% to $375.
  • Keysight: Wells Fargo Securities initiated coverage with a recommendation of overweight. PT up 20% to $200.
  • Lincoln National: Morgan Stanley downgrades to equal-weight from overweight. PT up 3.6% to $54.
  • Pets at Home: Berenberg remains Buy with a price target reduced from GBp 470 to GBp 370.
  • Radware: Jefferies downgrades to hold from buy. PT up 11% to $22.
  • Roku: Guggenheim Securities downgrades to neutral from buy.
  • Skyline Champion: RBC Capital Markets downgrades to sector perform from outperform. PT up 14% to $54.
  • The Estee Lauder Co: Wells Fargo Securities lowers PT to $215 from $270. Maintains overweight rating.
  • Zillow: Canaccord Genuity downgrades to hold from buy. PT up 16% to $34.