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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.

It's all very confusing

11/17/2022 | 10:50am EST
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Mixed economic data is weighing on investor sentiment, with strong results from Nvidia, a disappointing guidance from Target, while Walmart is doing well and the lower-priced retailers seem to be doing better. The many speeches from Fed officials are adding to the confusion.

Yesterday's better-than-expected retail sales spooked some investors, who believe that the Fed might consider that the US economy is strong enough to take more big rate hikes. There are also those that worry that the Fed cure might be worse for the economy than the inflation illness.

In additional, many Fed officials have made conflicting comments yesterday.  The decline prevailed almost everywhere on stock markets yesterday, even in Europe where indexes had looked very bullish in recent days. In the U.S., all three indexes almost methodically sought to erase their previous day's gains. The S&P500 fell 0.83% after gaining 0.87% a day earlier. The Dow Jones made -0.12% after +0.17% and the Nasdaq did even better at the decimal point: -1.45% after +1.45% the day before. So that doesn't stop the one-month performances from remaining solid: +5.75% for the Nasdaq 100, +9.9% for the STOXX Europe 600 and even +10.5% for the S&P500... But something didn't feel right on Wall Street yesterday, as if the brand-new mainstream thinking on the Fed's return to a more accommodative policy had already cracked a bit. This morning, the Nasdaq 100 and the S&P 500 were both down 1.2%.

San Francisco Fed boss Mary Daly said yesterday that the central bank is not yet in a position to consider a pause in the rate hike cycle and is not even discussing it. She is considered to be on the side of the doves, so this was surprising, especially since she had declared at the end of October that the Fed would end up moderating its rate hikes to avoid making a blunder. A few hours earlier, her peer at the Atlanta Fed, Raphael Bostic, also gave a firm speech regarding monetary policy.

To top it all off, St. Louis Federal Reserve President James Bullard said that the Fed needs to continue raising interest rates by at least another full percentage point. He added that the current rate of 3.75% and 4% remains below the "sufficiently restrictive" level the Fed believes is needed to lower inflation to its 2% target. Bullard suggested that the Fed's interest rates could be in a range between 5% and 7%, with the 5% level possibly being the lower bound.

It seems that the Fed is pushing hard to raise hikes, and the economy is showing few signs of weakness, especially with strong retail sales. I don't want to get ahead of myself by over-interpreting every short-term indicator, so let's not jump to conclusions either. Moreover, the bond market is remaining rather stoic by keeping yields lower than they were in recent days: this is a sign that there is still a lot of hesitation about the mechanics at work in the US economy.

However, the other pillar of investor confidence has also taken a hit in recent hours. The news from China, which was rather positive until last weekend, is becoming a little less favorable. Covid cases are rising again and the monetary authorities have sent some nervous signals. The Chinese central bank, for example, has published a quarterly note which seems to rule out any measures to support a flagging economy, even mentioning inflationary fears. At the same time, the regulator asked Chinese banks to disclose their short-term liquidity after the sharp drop in bonds, according to information obtained by Bloomberg. All of this makes investors a little tense...

 

Today's economic highlights:

The final reading of European inflation for October, new weekly jobless claims, the Philly Fed index and the latest US building permits figures are on today's agenda. All the macro agenda is here.

The dollar is up 0.5% against the euro to EUR 0.9675 and up 0.9% against the pound to GBP 0.8474. The ounce of gold is down to 1760 dollars. Oil is contracting, with North Sea Brent crude at USD 91.57 per barrel and US WTI light crude at USD 83.62. The yield on 10-year US debt is falling to 3.72% this morning. Bitcoin is back around 16,500 dollars.

 

In corporate news:

* Nvidia reported quarterly revenue above expectations Wednesday night, driven by solid demand in data centers. In pre-market trading, Nvidia shares were up 2.8%.

* Cisco Systems gained 4% in premarket trading after the company reported better-than-expected quarterly results, raised its annual guidance and announced a restructuring plan that could affect about 5% of its workforce.

* Macy's jumped 8.5% in pre-market trading as the group raised its annual profit forecast, noting resilient demand in high-end products.

* Kohl's gave up 4% in premarket trading as the department store chain dropped its sales and profit forecast for this year, citing an uncertain macroeconomic environment and the departure of CEO Michelle Gass.

* Alibaba dropped 2.4% in pre-market trading after reporting lower-than-expected quarterly sales of 207.18 billion yuan.

* Chevron and ExxonMobil were down 1.2% and 1.9%, respectively, as crude oil prices fell on concerns about Chinese demand, with the country facing an increase in Covid-19 cases.

* Netease fell 5.65% in pre-market trading after the suspension of a licensing agreement on several games with Activision Blizzard in China.

* Roku was down 1.8 percent in premarket trading in reaction to a plan to cut 200 jobs in the U.S., or about 5 percent of the streaming platform's workforce, the U.S. Securities and Exchange Commission (SEC) said in a notice.

* Meta Platforms announced Thursday the appointment of Sandhya Devanathan to head its India operations, days after Ajit Mohan left for rival SNAP.

* Blackstone - The U.S. private equity firm announced Thursday that it plans to acquire a 52 percent stake in Indian IT services group R Systems International for $359 million.

* Diamondback Energy - The oil and gas producer announced Wednesday night that it will buy all the assets of Lario Permian, a subsidiary of Lario Oil & Gas Company, for about $1.5 billion.

 

Analyst recommendations:

  • Advance Auto: Citi downgrades to neutral from buy. PT up 3% to $161.
  • Applied Materials: KGI Securities raises Applied Materials' Price Target to $100 from $87, maintains Neutral rating
  • Edgewell: Canaccord Genuity initiated coverage with a recommendation of buy. PT set to $48.
  • Energizer Holdings: Canaccord Genuity initiated coverage with a recommendation of hold. PT set to $34.
  • Estee Lauder: Canaccord Genuity initiated coverage with a recommendation of hold. PT set to $228.
  • Flutter: Jefferies remains Buy with a price target raised from GBp 12,900 to GBp 15,000.
  • Helen of Troy: Canaccord Genuity initiated coverage with a recommendation of buy. PT set to $120.
  • Quest Diagnostics: Citi downgrades to sell from neutral. PT set to $125.
  • Norwegian Cruise: Credit Suisse downgrades to underperform from outperform. PT set to $14.
  • Nvidia: Fubon Securities upgrades to buy from neutral. PT up 16% to $185.
  • Principal Financial Group: Morgan Stanley downgrades to underweight from equal-weight. PT down 15% to $79.
  • Sage: Jefferies remains Buy with a price target raised from GBp 780 to GBp 950.
  • Target: Deutsche Bank downgrades to hold from buy. PT down 7.4% to $144.
  • Whirlpool: Goldman Sachs downgrades to neutral from not rated. PT up 7.2% to $160.

ę MarketScreener.com 2022
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Stocks mentioned in the article
ChangeLast1st jan.
ADVANCE AUTO PARTS, INC. 0.80% 151.1299 Delayed Quote.1.94%
ALIBABA GROUP HOLDING LIMITED 0.23% 111.36 Delayed Quote.26.23%
APPLIED MATERIALS, INC. 2.16% 110.38 Delayed Quote.15.53%
BLACKSTONE INC. 0.13% 95.0279 Delayed Quote.29.21%
CHEVRON CORPORATION -0.54% 173.32 Delayed Quote.-0.02%
CISCO SYSTEMS, INC. 0.00% 48.2199 Delayed Quote.1.22%
DIAMONDBACK ENERGY, INC. 0.68% 146.35 Delayed Quote.6.26%
EDGEWELL PERSONAL CARE COMPANY 2.13% 42.21 Delayed Quote.7.24%
ENERGIZER HOLDINGS, INC. 0.80% 36.43 Delayed Quote.7.69%
ESTEE LAUDER 0.39% 272.28 Delayed Quote.9.31%
FLUTTER ENTERTAINMENT PLC 0.76% 12570 Delayed Quote.10.50%
HELEN OF TROY LIMITED 1.24% 110.64 Delayed Quote.-0.06%
KOHL'S CORPORATION 1.69% 31.934 Delayed Quote.24.44%
MACY'S, INC. 1.27% 23.61 Delayed Quote.12.93%
META PLATFORMS, INC. 0.53% 147.7587 Delayed Quote.22.20%
NETEASE, INC. -0.09% 89.455 Delayed Quote.26.19%
NORWEGIAN CRUISE LINE HOLDINGS LTD. 1.72% 15.09 Delayed Quote.21.24%
NVIDIA CORPORATION 1.82% 195.0465 Delayed Quote.31.12%
PRINCIPAL FINANCIAL GROUP, INC. -2.88% 90.71 Delayed Quote.10.88%
QUEST DIAGNOSTICS INCORPORATED 0.73% 146.8066 Delayed Quote.-6.83%
ROKU, INC. 4.81% 56.575 Delayed Quote.32.68%
SAGE GROUP PLC 0.23% 775.556 Delayed Quote.3.78%
TARGET CORPORATION 0.92% 170.17 Delayed Quote.13.06%
WHIRLPOOL CORPORATION -0.11% 153.375 Delayed Quote.8.94%
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