The Nasdaq ended the day lower, while the Dow Jones took a small measure of revenge, ending the session up 0.3%, driven by the banking and chemicals sectors. The tech index consolidated by a hefty 1.75% after a series of gains. It was a complicated session for the stars Microsoft, Alphabet, Nvidia, Amazon and Meta, which lost quite a bit of ground. The most widely circulated explanation is profit-taking after a strong start to the year for the Nasdaq, which gained over 30%.

Rate hikes fears have returned, after the Australian and Canadian central banks each decided to raise their key rates by a quarter-point, whereas the majority of economist-bookmakers were betting on a pause. RBA rates are now 4.1% and BOC rates 4.75%. The two central banks have been rather hawkish, and are considering further rate hikes because of sticky inflation and have no other option to get rid of it.

As a result, investors have been thinking that the Fed, which is due to make its decision next week, could be faced with the same problem. Well, at this stage, this hasn't fundamentally changed the outlook for June 15: futures contracts tracked in real time by the CME's FedWatch still give a 73.6% probability of a pause. But this percentage was close to 80% before the double decision in Australia and Canada, a sign that investors are not entirely comfortable. This means de facto that a quarter of the market thinks the Fed will raise rates to the 5.25% to 5.50% range. The yield on 10-year US debt, which had been sluggish until Monday, rose to 3.79% to reflect this slight strengthening of the hawkish camp. The futures market also adjusted for the July meeting: a rate hike is now clearly on the cards, with a probability of 65% at the time of writing.

In concrete terms, this means that the cost of money will remain high for longer, and even increase, putting further pressure on US economic momentum. On the other hand, investors continue to believe that the Fed will not take the risk of rocking the boat by creating side effects that could lead to a fatal chain reaction. For example, by finding itself managing a banking crisis, a real estate crisis and a financing crisis all at the same time.
US equity futures remained unchanged after a higher-than-expected rise in weekly jobless claims. They rose to 261,000 for the week ending June 3, up from 233,000 the previous week, while 235,000 was estimated. The Dow Jones Industrial Average and S&P 500 futures were flat, while Nasdaq futures gained 0.2%.

 

Today's economic highlights;

Two US statistics today: weekly jobless claims and wholesale inventories. The full agenda is here.

The dollar is down against the pound and the euro by 0.3% to EUR 0.90306 and GBP 0.8010. The ounce of gold is worth USD 1957. Oil is slightly up, with North Sea Brent at USD 77.18 a barrel and US light crude WTI at USD 72.80. The yield on 10-year US debt has risen to 3.79%. Bitcoin is trading at USD 26,400.

 

In corporate news:

  • Meta, which lost 2.8% on Wednesday, was down 1% in pre-market trading following reports in the Wall Street Journal that Instagram facilitates the sale and sharing of child pornography.
  • Gamestop, which reported a larger-than-expected quarterly sales decline and loss, announced the dismissal of CEO Matt Furlong and the appointment of investor Ryan Cohen as executive chairman. The video game distributor was down 20% in pre-market trading.
  • Lucid announced that it was preparing to enter the Chinese automotive market, the world's largest. The American manufacturer of luxury electric vehicles gained 2.7% in pre-market trading.
  • T-Mobile US - Wolfe Research raised its recommendation from "perform in line with sector" to "outperform".
  • Coinbase lost 2.7% in premarket trading. Berenberg revised its price target to $55 from $39.
  • Adobe shares were up 2.7% in pre-market trading, with Piper Sandler raising its price target by 20% to $500.

 

Analyst recommendations:

  • Alphabet: Wells Fargo Securities reinstated coverage with a recommendation of equal-weight. PT down 4.5% from last price to $117.
  • Brown-Forman: Evercore ISI raised the recommendation on Brown-Forman Corp. Class B to inline from underperform. PT up 5% to $68.
  • Clarkson: J.P. Morgan upgrades from neutral to overweight, targeting GBp 3840.
  • Dominion Energy: Goldman Sachs reinstated coverage with a recommendation of neutral. PT up 3.7% to $55.
  • Las Vegas Sands: Jefferies downgrades to hold from buy. PT up 11% to $65.
  • Lyft: Wells Fargo Securities reinstated coverage with a recommendation of equal-weight. PT down 13% to $9.
  • Meta Platforms: Wells Fargo Securities reinstated coverage with a recommendation of equal-weight. PT up 4.7% to $276.
  • NextEra ENergy: Goldman Sachs reinstated coverage with a recommendation of buy. PT up 21% to $90.
  • Pets at Home: Jefferies remains Buy with a price target raised from 420 to 455 GBp.
  • Sempra: Goldman Sachs reinstated coverage with a recommendation of buy. PT up 20% to $178.
  • Snap: Wells Fargo Securities reinstated coverage with a recommendation of equal-weight. PT down 1.9% to $10.
  • Victrex: Berenberg remains "Hold" with a price target reduced from 2000 to 1750 GBp.
  • Wynn Resort: Jefferies downgrades to hold from buy. PT up 10% to $114.