Yesterday's US inflation figures for November gave a boost to investors' preferred scenario, in which overheating consumer prices continue to moderate in an economy that appears to be holding up well. As a result, the U.S. central bank will be able to slow the pace of its rate hikes to a peak in the spring. It could even start cutting them again in the second half of 2023, in order to accompany an economic recovery, or so they believe.

That's the theory, which might be overly optimistic, but we have to admit that the data published recently is quite consistent with this scenario. Let's do some arithmetic to illustrate this. The upper bound of US rates is currently at 4%. At the end of the session, it will probably be at 4.5%, if the expected 50 basis point tightening is confirmed. The market believes that the peak rate will be around 4.85% by May. If macroeconomic data continues to go in the right direction, this means that the Fed will only have to go 50 more basis points to reach the presumed optimum, to be spread between the meetings at the end of January, mid-March and early May.

Despite this favorable scenario, investors tempered their initial buying fever yesterday, in a rather surprising move. After the release of inflation figures, the Nasdaq leading indicators were up by 4%. At the close, the US technology index only gained 1.1%. The S&P500 was up around 0.7% and the Dow Jones barely 0.3%. In Europe, gains were solid (+1.3% for the Stoxx Europe 600), but far from the session peak (+2.2% for the same Stoxx Europe 600). So frankly, I don't have a good explanation, except that investors are keeping their foot on the brake while waiting for the Fed's clarification of its monetary policy this afternoon.

It is likely that Jerome Powell will try to cool the market down a bit by explaining that the road to ending overinflation is still full of pitfalls.

I mentioned two major issues in my introduction, so here is the second one. This is China, which has opened the floodgates wide to get out of the zero-covid policy, as you've heard enough about since the beginning of the month. Obviously, the number of coronavirus cases is exploding. This was expected, but we should not underestimate the psychological impact and the shock of reality that this constitutes. The markets have welcomed this more flexible health policy, as it is supposed to accelerate the economic dynamics of China and therefore of the world. But in the coming days and weeks, the country will be confronted with a situation that we have experienced in the West. But it is unprecedented there, where the mass contamination of the beginning was quickly contained by very restrictive policies. We must therefore be wary of reactions, or even of new strategic U-turns, which would dent the beautiful scenario of a progressive reopening of the country. As someone once said, things always go according to plan. Until they don't. So, watch out, after the initial period of enthusiasm. From the look of the Chinese indices, I would say that investors seem to be well aware of this.

We move on to the third topic of the day. Where is the predicted fallout after the FTX bankruptcy? Objectively, the domino effect on crypto-currencies has not really happened and bitcoin has firmly held its recent levels. I wonder if this is because the occult despots in the industry acted to protect the system while the storm passed, or if it's a sign that FTX really was the black sheep of the flock. Or perhaps the fallout will come later. In any case, something is happening at Binance as well, with record withdrawals in the last 24 hours. Withdrawals obviously related to the rumors that appeared on Monday about a supposed investigation by the US authorities. The boss of Binance is multiplying statements on Twitter to reassure his community. But it goes without saying that the U.S. justice system, in unrolling the FTX / Alameda ball, may make some discoveries about a nascent industry, structured lightly, whose consanguinity is sometimes confusing. As for FTX's boss, Sam Bankman-Fried, he has been indicted on eight counts, including conspiracy against his clients and money laundering. He was arrested in the Bahamas yesterday. The U.S. attorney in charge of the case said he was facing "one of the largest financial frauds in American history." No kidding.

 

Today's economic highlights:

October's European industrial production, the Fed's rate decision and the US central bank's economic projections are today's main events. All the macro agenda is here.

The dollar is down 0.1% against the EUR 0.9394 and down 0.2% against the pound to GBP 0.8073. The ounce of gold is flirting with 1810 dollars. Oil also rallied, with North Sea Brent crude at USD 81.95 per barrel and US WTI light crude at USD 76.79. The yield on 10-year US debt falls back to 3.49%. Bitcoin is trading around 18,000 dollars.

 

In corporate news:

  • Tesla - The electric-car maker's stock was down nearly 1 percent to $159.28 in pre-market trading after Goldman Sachs lowered its price target to $235 from $305 because of a change in the stock's valuation methodology.
  • Delta Air Lines said Wednesday it expects adjusted earnings to nearly double next year to $5-6 per share (from $3.07-$3.12 expected this year) on "strong" travel demand and lower operating costs, excluding fuel.
  • Carlyle Group - The private equity group is having trouble raising the $22 billion it is targeting for its largest fund, the Financial Times reported Wednesday, citing three sources who said the March 2023 deadline for the deal is unlikely to be met.
  • Pfizer - The U.S. federal government will pay the pharmaceutical company nearly $2 billion to buy 3.7 billion more doses of Paxlovid, its COVID-19 treatment.
  • Morgan Stanley - Several of the banks that lent a total of $13 billion to Elon Musk to finance the Twitter buyout are preparing to partially write down those claims in their fourth-quarter accounts, three sources close to the matter said.

 

Analyst recommendations:

  • Marriott International: Citi lowers its recommendation to "neutral".
  • Moderna: Chardan downgrades to Neutral from Buy, adjusts price target to USD 191 from USD 186.
  • Nike: Telsey Advisory Group lowers price target to USD 110 from USD 130, keeps Outperform rating.
  • Tesla: Goldman Sachs lowers price target to USD 235 from USD 305, keeps Buy rating.