The U.S. central bank seems to have taken control of the macroeconomic narrative, after several months of criticism for initially ignoring the warning signs of an inflationary explosion. Getting back into the narrative doesn't mean that equity markets like the story it's telling. Quite the opposite, in fact. Last week, the Fed left rates unchanged, warning that current levels are here to stay and could even rise further, depending on how inflation behaves. Until now, investors thought that the central bank would become more accommodative sooner rather than later. They still think so, but are less sure. Expensive money therefore continues to weigh.

More Fed members than before think monetary policy should remain restrictive for longer. The majority sees the benchmark overnight interest rate ending this year at 5.6%, which means that another rate hike is needed by the end of the year. They also expect the rate to be at 5.1% by the end of 2024. The longer rates remain high, the greater the risk of negative chain reactions in the real economy. Yet, according to CME’s Fedtwatch tool, a majority of investors don’t believe the Fed and sees no rate hike tis year.

Meanwhile, worries over the China outlook triggered by weekend developments in the Evergrande debt crisis put pressure on stocks. The property developer said it would not be able to implement the debt restructuring plan that it desperately needs to survive. The company will face a hearing on October 30 at a Hong Kong court, which may force it into liquidation. Adding it all up, equity markets fell last week and bond yields rose.

In the coming days investors will be closely looking at macroeconomic data to refine their scenarios. We have the Conference Board's US consumer confidence index (Tuesday) and then durable goods orders and a speech by Jerome Powell on Wednesday. On Friday, European September preliminary inflation and US PCE inflation will share the limelight.

US equity futures were slightly down as investors also keep an eye on the budget discussion in the Congress. Over the weekend, US lawmakers warned that there is a chance a deal on government spending will not be reached. The federal government is set to run out of funding for its operations by Oct. 1.

Today's economic highlights:

The IFO business climate index and the Chicago Fed's national activity index are today’s main indicators. The full agenda is here. 

The dollar is up 0.2% against the euro and the pound to EUR 0.9413 and GBP 0.8187. The ounce of gold is trading at USD 1925. Oil has lost some of its recent advance, with North Sea Brent at USD 91.78 a barrel and US light crude WTI at USD 89.45. The yield on 10-year US debt reached 4.46%. Bitcoin is trading at USD 26,150.

In corporate news:

  • Apple, Microsoft, Tesla and Meta Platforms, the main behemoths on Wall Street, remain under pressure, losing 0.2% to 0.4% in pre-market trading, in the wake of the continuing rise in bond yields, with the ten-year at a 16-year high. Pegatron, one of Apple's suppliers, also temporarily halted iPhone assembly at its plant in southern India following a fire on Sunday night, three sources told Reuters.
  • HP inc - The PC manufacturer fell by 2.5% before the opening, Berkshire Hathaway having sold nearly 4.8 million shares of the company's stock for around $129.2 million, according to a document filed with the Securities and Exchange Commission (SEC).
  • Ford Motor said on Sunday that it still had "significant gaps to fill" before it could conclude a new labor agreement with the United Auto Workers union. The UAW nevertheless reported "real progress" in negotiations with Ford, while extending its strikes against General Motors and Stellantis to 38 parts distribution centers across the US.
  • Amazon.com gains 1.1% after announcing on Monday its intention to invest up to four billion dollars in the startup Anthropic, in order to strengthen its position in artificial intelligence.
  • Chinese biotech company I-MAB said on Friday that AbbVie had terminated a 2020 agreement to co-develop and commercialize lemzoparlimab, I-Mab's lead anti-cancer drug.
  • Oracle paid $104.1 million for chips made by Ampere Computing after already investing $400 million in the startup in its fiscal year 2023, documents show.
  • Enovis, a manufacturer of orthotics and orthopedic insoles, is to acquire Italian surgical implant maker LimaCorporate for around 800 million euros, including debt, according to sources close to the deal.

Analyst recommendations:

  • Airbnb: Baptista Research downgrades to underperform from hold with a price target raised from USD 136 to USD 143.60.
  • Akamai: Baptista Research maintains its hold recommendation with a price target raised from USD 100.90 to USD 120.
  • Alphabet inc-a: Societe Generale maintains its buy recommendation with a price target raised from USD 132 to USD 158.
  • Alphabet inc-c: Societe Generale maintains its buy recommendation with a price target raised from USD 132 to USD 158.
  • Bank of montreal: RBC Capital maintains its outperform rating and reduces the target price from CAD 138 to CAD 134.
  • Dunelm group: Jefferies maintains its hold recommendation with a price target reduced from GBX 1250 to GBX 1200.
  • Entain plc: Numis maintains its buy recommendation and reduces the target price from GBX 1850 to GBX 1650.
  • Eog resources: Baptista Research upgrades to outperform from hold with a price target raised from USD 135.10 to USD 144.50.
  • Fedex corp: Daiwa Securities maintains its neutral recommendation with a price target raised from USD 240 to USD 275.
  • Imperial brands: Goldman Sachs maintains its buy recommendation and reduces the target price from GBX 2500 to GBX 2250.
  • M&t bank corp: Piper Sandler & Co maintains its overweight recommendation and reduces the target price from USD 160 to USD 145.
  • Melrose industries: Kepler Cheuvreux maintains its buy recommendation and raises the target price from GBX 600 to GBX 620.
  • Monster beverage: Baptista Research maintains its hold recommendation with a price target reduced from USD 64.90 to USD 62.40.
  • Nike inc -cl b: JP Morgan maintains its overweight rating and reduces the target price from USD 142 to USD 136.
  • Palantir: Baptista Research downgrades to hold from underperform with a price target raised from USD 14 to USD 15.40.
  • Royal Caribbean: Melius Research LLC maintains its buy recommendation and raises the target price from USD 105 to USD 123.
  • Southwest air: Bernstein maintains its market perform recommendation with a target price reduced from USD 32 to USD 29.
  • Starbucks corp: Citi maintains its neutral recommendation with a price target reduced from USD 112 to USD 104.
  • United airlines: Bernstein maintains its outperform rating with a price target reduced from USD 71 to USD 68.