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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.

Markets are still on a roller coaster ride

11/18/2022 | 08:57am EST
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After yesterday's sell-off session due to hawkish comments from Fed officials, Wall Street returned to the green this morning. This is despite ongoing worries that the Federal Reserve will be forced to raise interest rates higher than originally thought to tame inflation.

St. Louis Federal Reserve President James Bullard said yesterday that the US central bank 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.

Investors have been waiting so long for signs of inflation reduction, which they had with the October consumer and producer prices, and they thought that would meant that the Fed would pivot to a dovish strategy. But Fed officials dashed their hopes.

The Dow Jones finished flat yesterday, while the S&P 500 and the Nasdaq 100 lost some ground. Members of the US central bank repeated all week long that we must stop believing in fairy tales that this is the return of the party on risk assets. What they said was relatively simple: it is too early to say that inflation is cooling. From what I'm reading here and there, many senior economists believe that the Fed will really shift its stance when the labor market shows signs of weakening, which is not the case yet.

We are therefore in a stock market in-between, especially since the Chinese awakening that was supposed to be the second engine of growth is not really happening. The resurgence of Covid cases in several urban areas seems to have cancelled out the positive effect of the announcement of a more flexible health policy. At the same time, the performance of the world's second-largest economy is still unsatisfactory. Even the support measures for the real estate sector seem to have lost their influence on investor sentiment.

Meanwhile, the downsizing continues among tech stars, whether it's via a traditional process at Amazon or in the heat of the moment at Twitter. And let's not forget FTX. I've just read the documents related to the bankruptcy of the crypto platform, which show the other side of the story and the vacuity of the internal control. The new CEO of the group, in charge of managing the bankruptcy, is called John J. Ray III. This is the guy who was in charge of the Enron bankruptcy. Enron is at the top of the list of the most incredible scams in the history of capitalism. Well John explained that with FTX, never in his career has he "seen such a failure of corporate controls and lack of reliable financial information".

In the U.K., the government yesterday unveiled a crisis budget as the country is expected to experience its sharpest fall in living standards in ages. Unlike Liz Truss's plan, this budget didn't unsettle the markets. The pound rose against the dollar, while 10Y Gilt yields rose 5.3bps. The budget includes generalized tax increases and cuts in government spending. M.Hunt blamed economic difficulties on everything including Covid and Russia, but he didn't mention the elephant in the room: Brexit. This is despite members of the Bank of England saying on the same day that they estimated that Brexit was responsible for a fall of 3% of the British productivity and that it had "contributed to an increase in prices and a reduction in income".

 

Economic highlights of the day:

Leading index and Existing Home Sales are on the agenda. All the macro agenda is here. This morning, Japan reported annual inflation of 3.6%, slightly above expectations and at a 40-year high.

The dollar is worth EUR 0.9634 and GBP 0.8388. The ounce of gold is stabilizing at 1761 dollars. Oil remains under pressure, with North Sea Brent at USD 87.84 per barrel and U.S. light crude WTI at USD 79.71. The yield on 10-year US debt is back up to 3.77%. Bitcoin is back around USD 16,800.

 

In corporate news:

* Applied Materials - The semiconductor equipment maker climbed 5% in premarket trading after announcing that it expects better-than-expected revenue for the first quarter of its fiscal year, saying that expected easing of supply chain tensions will help it meet demand from chipmakers.

* Gap jumped 8.6% in premarket trading on better-than-expected third-quarter revenue and profit, which were supported by resilient apparel demand despite high inflation.

* JD.Com - The Wall Street-listed Chinese online retailer gained 5.3% in premarket trading after reporting better-than-expected quarterly sales.

* Foot Locker was up 18% in pre-market trading after it raised its revenue and profit forecasts for this year, driven by resilient demand from affluent consumers.

* Farfetch plunged 10.5% in premarket trading as the online retailer specializing in high-end fashion said it expects to post a negative Ebitda margin of 3-5% this year, compared to its previous guidance of breakeven.

* Ross Stores - The retailer's stock rose 16.7% in premarket trading after announcing a profit above analysts' expectations in the third quarter.

* Meta Platforms - The group's chief executive, Mark Zuckerberg, told employees Thursday that WhatsApp and Messenger would be the next growth driver for the company, which last week announced a plan to cut more than 11,000 jobs.

* Amazon announced Thursday that job cuts are expected to continue next year and that adjustments were underway. The New York Times reported Monday that the company plans to lay off 10,000 people this week.

* Tesla will recall nearly 30,000 Model X vehicles for an airbag problem, a filing with the U.S. National Highway Traffic Safety Administration shows.

* Visa announced Thursday that it has promoted Ryan McInerney to chief executive officer effective February, replacing Alfred Kelly Jr, who had led the group since 2016.

* KKR & Co - The U.S. private equity firm is seeking to sell Canadian oil and gas producer Westbrick Energy in a deal valued at C$1.5 billion to C$2.0 billion, two sources close to the matter said Thursday.

 

Analyst recommendations:

  • AbbVie: Credit Suisse reinstated coverage with a recommendation of outperform. PT set to $170.
  • Amgen: Credit Suisse reinstated coverage with a recommendation of underperform. PT set to $240.
  • Bakkavor: HSBC downgrades from buy to hold targeting GBp 90.10.
  • Bristol-Myers: Credit Suisse reinstated coverage with a recommendation of neutral. PT set to $78.
  • Burberry: Jefferies maintains a Hold rating with a price target raised from GBp 1900 to GBp 2100.
  • Dominion Energy:  Evercore ISI analyst Durgesh Chopra downgrades to inline from outperform. PT up 31% to $78.
  • First Foods: Jefferies remains Buy with a price target raised from GBp 120 to GBp 130.
  • Johnson & Johnson: Credit Suisse reinstated coverage with a recommendation of neutral. PT set to $170.
  • Merck & Co: Credit Suisse reinstated coverage with a recommendation of outperform. PT set to $120.
  • Pfizer: Credit Suisse reinstated coverage with a recommendation of outperform. PT set to $55.
  • Virgin Money: Jefferies remains Buy with a price target reduced from GBp 258 to GBp 197.
  • Walgreens Boots: J.P. Morgan raised its recommendation to overweight from neutral. PT up 4.7% to $42.

ę MarketScreener.com 2022
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Stocks mentioned in the article
ChangeLast1st jan.
ABBVIE INC. -0.12% 145.02 Delayed Quote.-10.27%
AMAZON.COM, INC. -1.17% 102.18 Delayed Quote.21.64%
AMGEN INC. -0.54% 243.85 Delayed Quote.-6.65%
APPLIED MATERIALS, INC. -1.91% 117.69 Delayed Quote.23.21%
BAKKAVOR GROUP PLC 4.94% 119 Delayed Quote.23.83%
BRISTOL-MYERS SQUIBB COMPANY 0.11% 74.53 Delayed Quote.3.47%
BURBERRY GROUP PLC -1.90% 2433 Delayed Quote.19.85%
DOMINION ENERGY, INC. 2.47% 61.74 Delayed Quote.0.68%
FARFETCH LIMITED -6.59% 6.52 Delayed Quote.37.84%
FIRST FOODS GROUP, INC. 56.86% 0.04 Delayed Quote.-36.41%
FOOT LOCKER, INC. -1.68% 45.61 Delayed Quote.20.69%
GAPWAVES AB (PUBL) -2.00% 29.4 Delayed Quote.7.72%
JD.COM, INC. -1.56% 56.73 Delayed Quote.1.07%
JOHNSON & JOHNSON -0.76% 163.36 Delayed Quote.-7.52%
KKR & CO. INC. -1.98% 56.02 Delayed Quote.23.12%
MERCK & CO., INC. 1.06% 104.03 Delayed Quote.-6.24%
META PLATFORMS, INC. -0.25% 186.06 Delayed Quote.55.00%
PFIZER, INC. -0.68% 43.76 Delayed Quote.-14.01%
ROSS STORES, INC. 0.34% 115.71 Delayed Quote.-0.31%
TESLA, INC. 2.52% 194.76 Delayed Quote.54.23%
VIRGIN MONEY UK PLC -2.49% 189.7 Delayed Quote.4.17%
VISA, INC. -0.30% 229.44 Delayed Quote.10.44%
WALGREENS BOOTS ALLIANCE, INC. -2.18% 36.28 Delayed Quote.-2.89%
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