Wall Street ended yesterday’s session in the green, with gains ranging from 0.06% for the Nasdaq 100 to 0.33% for the S&P500, thanks to an acceleration at the end of the day. The first earnings reports cheered investors, economic statistics are holding up well and almost everyone seems comfortable with the new Fed rate hike that is coming on May 3. The odds of a 25-basis point rate hike on that date have risen to 87% in CME's benchmark FedWatch tool.

But the Fed is not the topic of the day. The big story so far is the Chinese growth for the first quarter, which was published last night. It is 4.5% year-on-year, which is an acceleration from the previous quarter (2.9%) and a high level compared to expectations (4% according to the consensus). The biggest surprise on the upside was consumption, while the recovery in investment and production was a bit disappointing. It is well known that the Chinese economy remains an important driver, even since equity markets have used bank failures as fuel for their records rather than as a warning for the future. The Chinese recovery is based on the country's reopening after Covid-related restrictions. Moreover, the biggest contributor to the positive GDP surprise was the restaurant industry.

However, the market is not totally satisfied, and the devil is once again in the details, for two main reasons and not necessarily connected. First, it's all very well to go out and eat and drink, but economists would have preferred an acceleration based on industry or investment that lasts longer than the time it takes to digest. Secondly, the relatively dynamic published growth (4.5% if you have been following) and the good trajectory of consumption postpone the famous stimulus plan that everyone is talking about and that we never see. The one that investors think would give a boost to their Chinese bets. But this plan is a bit like the recession in the West: those who wave the red flag are starting to get cramps.

With macroeconomic news relatively sparse, it is the quarterly corporate results that are the focus today. A few large names today with banks (Bank of America and Goldman Sachs) and industrial companies (Johnson & Johnson or Lockheed Martin). Goldman Sachs saw first-quarter profit fell to $3.09 billion from $3.83 billion a year earlier, as a drop in global M&A activity to the lowest level in more than a decade eroded net banking income from its investment business. The stock lost nearly 2% in pre-market trading. However, Bank of America saw its profit grow in the first quarter, benefiting from the Federal Reserve's rate hikes. Johnson & Johnson advanced 2% in premarket trading after raising its annual profit forecast, betting on its new cancer treatments and multiple myeloma drug Darzalex to offset declining sales of some of its older drugs.

I'm starting to read comments about how the earnings season. It was predicted to be "bad", but it might be "good". This is all because expectations have been largely slashed by analysts. This is the usual pendulum effect: excesses in one direction or another are corrected by even greater excesses. We are talking about relative values here, of course: results are judged more by expectations than by year-on-year trends. However, we will have to wait a little while before we have an overall view, as the earnings reports have only just begun.

 

Economic highlights of the day:

The Zew survey of German financial sentiment in April and US building permits are today’s main indicators. All the agenda is here.

The dollar is down 0.4% against the euro to EUR 0.9116 and down 0.5% against the pound to GBP 0.8042. The gold ounce is hovering around 2000 dollars. Oil is stabilizing with North Sea Brent crude at USD 84.23 per barrel and U.S. light crude WTI at USD 80.55. The yield on 10-year US debt is trading at 3.59%. Bitcoin is trading around USD 30,000.

 

In corporate news:

  • Lockheed Martin reported better-than-expected results as geopolitical tensions fueled demand from U.S. and international customers.
  • Alibaba - Chinese regulators are expected to cut the more than $1 billion fine on Ant Group by a quarter and lower the charges against the Alibaba subsidiary, sources told Reuters. In pre-market trading, the stock gained 2%.
  • Apple - About 300 people lined up Tuesday in front of Apple's first store in India, in Mumbai, inaugurated in the presence of the group's CEO, Tim Cook. A second store is scheduled to open Thursday in New Delhi as Apple seeks to make India an alternative to China.
  • Alphabet - Nine U.S. states, including Michigan and Nebraska, have joined a Justice Department lawsuit against Alphabet subsidiary Google, accused of violating antitrust law in the management of its digital advertising business.
  • Amazon and British American Tobacco are under investigation in Italy as regulators suspect both groups of misleading advertising on the Glo Hyper X2 tobacco warmer, the Italian Competition Authority announced Tuesday.
  • Netflix and United Airlines will release their quarterly earnings after the close on Wall Street.

 

Analyst recommendations:

  • CarMax: Baptista Research initiated coverage with a recommendation of hold. PT set to $77.
  • Carnival: Baptista Research initiated coverage with a recommendation of hold. PT set to $11.
  • Comcast: Atlantic Equities upgrades to overweight from neutral. PT up 16% to $44.
  • Conagra Brands: Baptista Research initiated coverage with a recommendation of hold. PT set to $39.90.
  • Emerson Electric: Wolfe Research upgrades to outperform from peerperform. PT up 19% to $103.
  • Global Payments: J.P. Morgan downgrades to neutral from rating suspended. PT up 13% to $124.
  • Halfords: N+1 Singer upgrades to buy from hold. PT up 22% to 225 pence.
  • Incyte: Baptista Research initiated coverage with a recommendation of hold. PT up 11% to $82.90.
  • Marathon Petroleum: Wells Fargo downgrades to equal-weight from overweight. PT up 4.4% to $135.
  • Nike: Baptista Research initiated coverage of Nike Inc. Class B with a recommendation of hold. PT set to $138.
  • Nvidia: HSBC upgrades to buy from reduce. PT up 31% to $355.
  • Valero Energy: Wells Fargo downgrades to equal-weight from overweight. PT up 5.2% to $135.
  • VF Corp: Baptista Research initiated coverage with a recommendation of hold. PT set to $24.40.
  • Walgreens Boots: Baptista Research initiated coverage with a recommendation of hold. PT set to $39.