It's hard to find any logic in the evolution of financial markets at the moment. Investors are loaded with indicators to predict market trends, but in reality, more than prediction, these indicators allow us to build reasonable hypotheses, by reducing to a maximum the risk of choosing the wrong strategy. When we talk about the evolution of policy rates, we almost always know what the market expects, especially because central banks have started providing long-term projections after the 2008 financial crisis. CME's FedWatch yesterday gave a 95% probability to a double rate hike by the US central bank on May 4. This was before a statement by Jerome Powell supporting this analysis, which raised the probability to 99.6% last night.

Put another way, it was "almost certain" that the Fed would raise rates aggressively, i.e. by more than the usual quarter-point rate at a time. Now we are "almost totally sure." This did not prevent bond rates from reacting upwards yesterday and US equity indexes from falling after Powell's speech. As if investors suddenly found out. The Nasdaq lost 2%. The marker of Wall Street's appetite for growth stocks, Cathie Wood's very aggressive ARK Innovation fund, is falling back to its lowest levels of the year after losing 10% this week.

Wall Street was mixed at the open on Friday, with Apple and Microsoft inching lower, as investors move away from growth stocks ahead of the expected double rate hike. Yields on five-year notes advanced past 3%.

 

Economic highlights of the day:

S&P releases the final services PMI indices of the major economies throughout the day.

The dollar inches up 0.1% against the euro to EUR 0.9245. The ounce of gold is trading USD 1935. Oil is also stagnant, with North Sea Brent crude at $106.60 a barrel and U.S. light crude WTI at $102.32. The yield on 10-year US debt rebounds to 2.95%. Bitcoin is falling back to around USD 40,500.

 

On markets:

* Gap - The ready-to-wear group, which will publish its quarterly results on May 26, lowered its sales forecast for the first three months of the year on Thursday, citing execution problems with its Old Navy brand. The stock fell 12.5% in pre-market trading.

* American Express reported quarterly earnings on Friday that beat Wall Street expectations on the back of a sharp rise in consumer spending. The stock gained 1.5% in premarket trading.

* Schlumberger reported higher quarterly earnings on Friday as soaring oil prices supported demand for services and equipment in the sector. The stock is up 2.9 percent in premarket trading.

* Twitter - Tesla CEO Elon Musk is discussing with private equity firm Thoma Bravo a partnership to launch a possible bid for the social network's stock, the New York Post reported Thursday, citing two sources close to the matter.

* Snap - The social network said Thursday it anticipates active users on Snapchat to exceed Wall Street expectations in the second quarter but believes high inflation and supply chain strains could hurt advertising demand. The stock is down 1.9% in after-hours trading.

* Verizon - The stock is down 2% after the group lowered its annual adjusted profit forecast to the lower end of the range initially communicated.

* Pfizer - The World Health Organization (WHO) on Thursday approved the use of Pfizer's oral COVID-19 treatment in high-risk patients, saying it significantly reduces the risk of hospitalization.

* McDonald's said Thursday that Carl Icahn's proposal that the fast-food chain no longer source meat from farmers who keep pigs in cages was logistically unfeasible and cost prohibitive.

* Humana announced Thursday that it intends to sell a 60% stake in its hospice and personal care divisions of its Kindred at Home subsidiary for $2.8 billion to Clayton, Dubilier & Rice. Humana shares were up 2% in after-hours trading.

* Rite Aid - The U.S. drugstore chain announced Thursday that it had rejected an offer of about $3.6 billion from private equity firm Spear Point Capital Management, saying it was not credible because of a lack of financing guarantees.

* Walt Disney - The Florida legislature passed a bill Thursday revoking the group's special status around the Orlando theme park, reportedly in response to the entertainment giant's opposition to a new law limiting the teaching of LGBTQ content in schools.

* Expedia Group - An Australian court on Friday fined Expedia subsidiary Trivago A$44.7 million for misleading consumers about hotel room rates.

* Honeywell International plans to invest about $200 million in Egypt in petrochemicals and the production of green aviation fuels, according to the Egyptian Ministry of Oil.

 

Analyst recommendations:

  • Anglo American: RBC upgrades from Outperform to Sector Perform, targeting GBp 3,400.
  • American Airlines: J.P. Morgan upgrades to neutral from underweight. PT up 29% to $26.
  • Berkeley: Jefferies upgrades from hold to buy targeting GBp 5587.
  • Boston Properties: Mizuho Securities upgrades to buy from neutral. PT up 6.2% to $135.
  • Crown Castle International: KeyBanc adjusts price target to $219 from $202, reiterates overweight rating.
  • Electronic Arts: Bernstein initiated coverage with a recommendation of outperform. PT up 27% to $157.
  • Equifax: Needham adjusts price target to $275 from $335, reiterates buy rating
  • Hawaiian Holdings: Deutsche Bank downgrades to hold from buy. PT up 11% to $23.
  • Intuitive Surgical: Piper Sandler adjusts price target to $316 from $310, reiterates overweight rating.
  • JetBlue: Deutsche Bank downgrades to hold from buy. PT up 18% to $16.
  • Medical Properties: Jefferies analyst downgrades to hold from buy. PT down 1.6% to $20.
  • NatWest: HSBC upgrades from hold to buy targeting GBp 260.
  • Snap: Piper Sandler adjusts price target to $50 from $53, reiterates overweight rating
  • Take-Two: Bernstein initiated coverage with a recommendation of outperform. PT set to $173.
  • Tesla: Industrial Securities initiated coverage with a recommendation of outperform. PT set to $1,322.
  • United Airlines: JPMorgan double upgrades to overweight from underweight; price target is $76.