To gauge the reaction of U.S. investors to a Fed monetary policy decision, one usually only has to look at the color of the indexes at the close. In this case, Wall Street lost ground yesterday, with the Nasdaq 100 at -0.8% and the S&P500 at -0.6%. A look at the day's chart gives some insight: indexes were gaining ground until 2:00 PM sharp, at which point they fell several floors at a time. This corresponds to the time of the release of the US central bank's decision. There was a small rebound during the Fed's choice presentation conference that followed, but it was short-lived. In the end, Wall Street ended lower, but not on its lows either.

 

What can we learn from this? Well, first of all, the restraint shown by investors on Tuesday on the announcement of less unfavorable than expected inflation in the United States was rather welcome. Usually, the market tends to overreact, but not this time. The Fed's tone proved them right. According to commentators, it did what the market expected, which was to raise rates by half a point to between 4.25 and 4.50%. That's still a hefty hike, but less than the previous four, which were 75 basis points. But at the same time, the speech remained hawkish. Investors were hoping for a more neutral tone.

Basically, the Fed did moderate the pace of its rate hikes but it also warned that the number of rate hikes to come is higher than the market thinks. It also adjusted its economic projections: less growth and more inflation in 2023 compared to the forecasts made in September. I told you on Monday that investors like to look at the predictions of the members of the monetary policy committee that are released every quarter. The ones that were revealed yesterday are interesting. The median peak that the members of the committee are considering for the next year is 5.125% while the market was betting on 4.875%. But if 10 Fed members agree on this point, only 2 think it will be lower. The other 7 see it higher. Moreover, as Powell said during the conference, there should be no rate cut next year, while part of the market was betting on this scenario, which is naturally more favorable to risky assets, and therefore to stocks.

Today, the Bank of England, the European Central Bank and the Swiss National Bank also lifted their bank rate by 50 bps, in line with the market’s expectations. 

In the rest of the world, China released some rather disappointing statistics earlier today. In particular, a contraction in retail sales of 5.9% in November, which was much more marked than expected (-3.9%). The increase in industrial production was limited to 2.2%, where the market was hoping for 3.4%. I'm rambling, but let's be wary of the backlash from the transition from "zero-covid" to "zero-constraint" in a country where an explosion of contamination could cause new economic disorders and affect still-fragile supply chains.

 

Economic highlights of the day:

Along with three central bank decisions: in Switzerland, in Great Britain and in Europe, we have  the US Empire Manufacturing index, the Philly Fed index, weekly jobless claims and retail sales, as well as industrial production and wholesale inventories. All the macro agenda is here. https://www.marketscreener.com/stock-exchange/calendar/economic/

The dollar rose against the euro and the pound. The ounce of gold is back down to USD 1,779. Oil is consolidating its recent gains, with North Sea Brent crude at USD 82.51 a barrel and U.S. light crude WTI at USD 77.12. The yield on 10-year US debt is holding steady around 3.49%. Bitcoin is still trading around 17,700 USD.

 

In corporate news:

* Tesla is down 3% in pre-market trading on Thursday after Elon Musk announced an additional $3.6 billion in stock sales of the automaker he owns, a move that brings his total year-to-date stock sales to nearly $40 billion. This is the second largest sale of Elon Musk since the announcement of the purchase of Twitter in October for $ 44 billion.

* Apple and Amazon, sensitive to credit costs, fell about 1 percent in premarket trading Thursday on the heels of the U.S. Federal Reserve's decisions to suggest that interest rates will remain high for an extended period after a limited 50-basis-point hike in fed funds to 4.25 percent-4.5 percent.

* Microsoft announced Thursday that its European Union customers using cloud services will be able to process and store some of their data on servers located in the region starting Jan. 1.

* Warner Bros Discovery, which was formed by the merger of Discovery and AT&T's WarnerMedia division, on Wednesday raised its forecast for costs related to the abandonment of certain content projects by $1 billion, estimating that they could now represent a charge of up to $3.5 billion.

* A group of five banks, including JPMorgan and Citi, were among the investors in the round that raised $24 million for risk control specialist Acin.

* GE Healthcare, the healthcare division of conglomerate General Electric, and Siemens Healthineers are considering a buyout of two spun-off businesses of medical equipment maker Medtronic, Bloomberg reported Thursday, citing sources close to the matter.

* Novavax fell 11% in after-hours trading as the company sought to raise $125 million via convertible bonds due in 2027.

* The Ebola virus vaccines developed by Johnson & Johnson and Merck & Co produce antibodies and appear to be safe for children and adults, according to data from two studies released Wednesday.

* Ford Motor and China's Contemporary Amperex Technology Group (CATL) are considering building a battery plant in Michigan or Virginia to take advantage of tax subsidies despite Sino-US tensions, Bloomberg reported Wednesday, citing sources close to the matter.

 

Analyst recommendations:

  • Aviva: Investec downgrades to hold from buy. PT up 2.8% to 460 pence.
  • Big Yellow: Goldman Sachs upgrades from neutral to buy targeting GBp 1250.
  • Blackrock: Wells Fargo Securities initiated coverage with a recommendation of overweight. PT up 15% to $820.
  • Cognizant: J.P. Morgan downgrades to underweight from neutral. PT up 6.5% to $62.
  • Federal Realty: Piper Sandler downgrades to neutral from overweight. PT up 3% to $112.
  • Marriott:  Barclays downgrades to equal-weight from overweight. PT up 6.7% to $170.
  • Murphy USA: RBC Capital Markets initiated coverage with a recommendation of sector perform. PT up 28% to $360.
  • Nvidia: HSBC initiated coverage with a recommendation of reduce. PT down 23% to $136.
  • Snowflake:  CTBC Securities Investment Service initiated coverage with a recommendation of add. PT up 19% to $178.
  • T. Rowe: Wells Fargo Securities reinstated coverage with a recommendation of equal-weight. PT up 5.4% from last price to $125.
  • VeriSign: Baird upgrades to outperform from neutral. PT up 32% to $265.
  • The Wendy's: Jefferies initiated coverage with a recommendation of hold. PT set to $25.
  • Western Digital: Goldman Sachs downgrades to sell from neutral. PT down 13% to $31.