What prompted some of the losses yesterday were the fiscal measures announced by the Truss government in the UK. The fallout from the mini budget was strong, with the pound falling to its lowest against the USD, trading at $1.05.
Investors expressed doubts that the UK was able to finance the close to £45bn stimulus unveiled by the government, especially as central bank increase their rates across the world.
This led the Bank of England to issue a statement yesterday. It said “it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government’s announcements, and the fall in sterling, and act accordingly”, and that it will “not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term”.
According to analysts at Berenberg, the government’s new ‘Growth Plan’ is “not as misguided as the initial negative market reaction suggests”, but “because the UK has damaged its once strong credibility with a poorly managed Brexit and persistent threats of a UK-EU trade war, it no longer enjoys the benefit of the doubt.”
The price of Gilts, the British government bonds, plummeted. The yield on the 10-year bond rose to 4.24% (bond prices and yields are moving in opposite directions).
The market is still buzzing with rumors of emergency intervention by the Bank of England to support its currency, although it must be said that the institution's aggressive rate hike has not had much impact so far.
After yesterday’s poor performance, all three Wall Street indexes bounced back at the open today, and so did the sterling.
But investors have ongoing concerns about the pace of rate hikes and how it will affect the economy. Chicago Fed President Charles Evans said on Tuesday that the U.S. Federal Reserve will have to raise interest rates by at least another percentage point this year. Meanwhile, the dollar goes from strength to strength, which could weigh on American activity as it penalizes exports, while promoting imports.
Economic highlights of the day:
On the agenda today, durable Goods Orders, FHFA Home Price Index, Conference Board Consumer Confidence Index, Richmond Fed Manufacturing Index and New Home Sales. All the macro agenda here.
The dollar is trading slightly lower at EUR 1.0380 and GBP 0.9255. The ounce of gold remains under pressure at USD 1636. So is oil, with North Sea Brent crude at USD 85.65 per barrel and U.S. light crude WTI at USD 78.04. The yield on 10-year U.S. debt continues to climb to 3.87%. The 5-year is at 4.13% and the 2-year at 4.30%. Bitcoin is back up to USD 20,000.
In corporate news:
* Tesla gained 2.1% in pre-market trading in the expected wake of the equity market rebound. Two sources said the automaker was expecting its Shanghai plant to be at about 93% capacity through the end of the year.
* Exxon and Chevron Oil Groups are up about 1.4% each in premarket trading as oil prices rebounded Tuesday from a nine-month low.
* The U.S. Department of Transportation on Monday proposed that fees for baggage, ticket changes and seat selection on airlines be presented to consumers at the outset of their reservations.
* Biogen, accused by a whistleblower of bribing doctors to prescribe multiple sclerosis treatments, reached a $900 million settlement with the U.S. Department of Justice, the department announced Monday.
* Uber - Stellantis' car-sharing division, Free2move, and Uber announced Tuesday an agreement to accelerate the U.S. ride-hailing giant's transition to electric vehicles in France.
* Grab Holdings - The Asian VTC and meal delivery services specialist expects to break even on an adjusted EBITDA basis by the second half of 2024, its executives said Tuesday. Grab shares are up 1.1% in pre-market trading.
* Nautilus - The home fitness equipment maker is up 8% in premarket trading in reaction to Monday's announcement of a strategic review that could lead to the sale of the group.
* Splunk - The software company is down 1.4% in after-hours trading after announcing the departure of its CEO Jason Child, who will take over Arm, the semiconductor subsidiary of Japanese conglomerate SoftBank Group.
- 888: Jefferies remains Buy with a price target reduced from 370 to 280 GBp.
- Accenture: BNP Paribas Examen adjusts price target to $275 from $320, maintains neutral rating.
- ACM Research: Credit Suisse downgrades to neutral from outperform, adjusts price target to $15.80 from $23.
- Adobe: BNP Paribas Exane adjusts price target to $330 from $450, maintains outperform rating.
- Alaska Air Group: Seaport Global Securities adjusts price target to $53 from $63, maintains buy rating.
- Devolver Digital: Berenberg downgrades from buy to hold, targeting GBp 80.
- Fedex: Morgan Stanley lowers price target to $125 from $250, equalweight rating kept
- Inchcape: Berenberg starts tracking as Buy, targeting GBp1035.
- Johnson Matthey: Berenberg remains Buy with a price target reduced from 2550 to 2200 GBp.
- Keurig DR Pepper: Goldman Sachs downgrades to neutral from buy. PT down 0.8% to $37.
- Micron Technology: Evercore ISI adjusts price target to $70 from $85, keeps outperform rating.
- QinetiQ: Jefferies remains Buy with a price target reduced from GBp411 to GBp400.
- Snap: Piper Sandler lifts price target to $12 from $11, maintains neutral rating.
- United Airlines: Seaport Global Securities adjusts price target to $44 from $58, maintains buy rating.