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Romain Fournier

Chief Editor
Having worked in the British, French and Swiss financial press, Romain is able to report on local and international issues, as comfortable in French as in the language of Shakespeare, Romain Fournier leads the editorial team at Marketscreener. Fine connoisseur of the English-speaking markets, Romain delivers an editorial every day on US and UK markets.

That was a close call

07/15/2022 | 08:55am EDT
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Yesterday's session started with lots of negativity. After the release of worse-than-expected US inflation data, everybody was convinced that the Fed would raise rates by 100 basis points. Poor results from JPMorgan and Morgan Stanley only made things worse. But later, Fed Governor Waller and St. Louis Fed President Bullard both said that a 0.75% hike was the most likely scenario at the July FOMC meeting, not 1.0%. However, they did say ultimately, the FOMC decision will be dependent on incoming data.

This is why today, investors were eagerly awaiting retail sales numbers, which were forecast to rise by 0.9% between May and June. A bad reading could have again fuel fears of a 1.0% rate hike. However, they increased by 1.0%, which is roughly in line with expectations (Or only slightly above). Data for May was revised up to show sales falling 0.1% instead of 0.3% as previously reported. In addition, the June import price index rose less than expected, at 0.2%, vs 0.7% forecast, which is a good sign.

The S&P 500 and the Dow ended the session slightly lower, while the Nasdaq inched up 0.3%. The 10-year US Treasury yield did not go up, but the 2y and 10y part of the yield curve, which is inverted, has worsened. The gap between the two maturities has not been so wide since 2000. The inversion of 2- and 10-year rates is a traditional warning sign of a recession.

After the cold shower of inflation on Wednesday, investors also digested the US June producer prices, which rose by 1.1% last month, an increase of 11.3% on an annual basis. In this risk-averse environment, the US dollar has strengthened against the euro to the point where the single currency has occasionally fallen below parity.

China also just published disappointing data. The country's GDP grew by 0.4% in the second quarter, according to official statistics published today, much less than expected (1.2% according to surveys). Chinese GDP even contracted by 2.6% compared to the previous quarter. In reality, this is not really a surprise: China has to deal with major bottlenecks, with persistent troubles in supply chains, and the restrictions to combat the surge in Covid-19. The Chinese authorities are well aware that the country's economy is in turmoil, and have urged local governments to support infrastructure investment. It will take time for this stimulus to work its way through the economy, although the very strong growth in lending in June, which was reported earlier this week, gives cause for optimism. Experts also noted this morning that consumption and production were quite strong. Retail sales rose by 3.1% last month, way above expectations of a 0.3% growth.

Today, along with retail sales, the focus will also be on the flurry of corporate earnings reports, including UnitedHealth, Wells Fargo, BlackRock and Citigroup. Wells Fargo already published its results, and became the third major U.S. bank to report disappointing earnings, after JPMorgan and Morgan Stanley, which missed analysts' expectations yesterday.

 

Economic highlights of the day:

On the agenda today, we have US retail sales and Empire State index (8:30 am), Capacity Utilization rate and Industrial Production at 9:15 am, before University of Michigan Sentiment at 10:00 am. All the macro agenda here.

The dollar is still flirting with parity with the euro. The ounce of gold is losing ground at USD 1701. Oil is stabilizing with North Sea Brent at USD 99.60 per barrel and US WTI light crude at USD 95.97. U.S. debt has a 10-year yield at 2.94%. Bitcoin is trading at USD 20800.

 

On markets:

* Citigroup reported a 27 percent drop in second-quarter profit on Friday. The third-largest U.S. bank increased its provisions for potentially suspect loans and its investment banking business suffered from a slowdown in corporate transactions. The stock was up 1% in pre-market trading.

* Wells Fargo - The U.S. bank announced Friday a decline in its second quarter profit. It has increased its provisions for bad debts while the rise in interest rates is slowing down its real estate lending activities. The stock lost 3.2% in pre-market trading after the release of its second quarter results.

* BlackRock - The world's No. 1 asset manager reported a 30 percent drop in second-quarter profit on Friday in a period marked by renewed risk aversion among investors amid the Fed's tightening of monetary policy.

* UnitedHealth again raised its 2022 earnings guidance, buoyed by strong sales at its Optum healthcare services division.

* The U.S. Semi-Conductor sector may benefit from Taiwanese chipmaker TSMC's better-than-expected quarterly profit, with analysts also optimistic about the company's prospects.

* Pinterest gained 14% before the opening of the U.S. markets, as the Wall Street Journal reported that activist fund Elliott Management holds a stake of more than 9% in the image sharing platform.

* Virgin Galactic, Richard Branson's space tourism company, announced that it will create a new factory in the Greater Phoenix area, Arizona, to manufacture Delta-class spacecraft. The stock was up 1.2% in pre-market trading.

* Alibaba - Executives from Alibaba's cloud computing division were summoned by authorities in Shanghai after police data on nearly 1 billion Chinese citizens was leaked, the Wall Street Journal reported. Hong Kong-listed Alibaba shares lost 6 percent, their biggest drop in a month.

* Amazon has begun cutting back on the number of products sold under its own brands due to weak sales, the Wall Street Journal reported.

* Warner Bros. Discovery announced it has extended the contracts of its CFO Gunnar Wiedenfels and chief strategy officer Bruce Campbell through 2026 and 2025, respectively.

 

Analyst recommendations:

  • Adobe: Bernstein raises price target to $600 from $500, maintains outperform rating.
  • Ameriprise: Wolfe Research downgrades to peerperform from outperform. PT up 13% to $253.
  • Amgen: Morgan Stanley remains neutral but upgrades its target to $253 from $239.
  • Cardinal Health: Morgan Stanley is still long but with a reduced price target of USD 74 to USD 70.
  • Chegg: Goldman Sachs starts at neutral with $20 price target.
  • Cisco Systems: KGI Securities downgrades to neutral from outperform. PT up 39% to $59.
  • CSX: Stifel raised its recommendation to buy from hold. PT up 31% to $37.
  • Direct Line Insurance Group: Berenberg upgrades from hold to buy with a price target of GBp 277.
  • Dollar General: Gordon Haskett raises to buy from hold, price target to $280 from $210.
  • Duke Realty: Baird lowers to neutral from outperform, price target to $74 from $78.
  • EasyJet PLC: JP Morgan downgrades from neutral to underperform with a GBp 310 price target.
  • Freeport-McMoRan: Goldman Sachs remains Buy but with a price target reduced from $54 to $46.
  • Linde PLC: UBS remains Buy but adjusts its target from USD 385 to USD 330.
  • Microsoft: Bernstein is still long with a price target raised from USD 365 to USD 400.
  • Norfolk: Stifel upgrades to buy from hold. PT up 24% to $275.
  • Wizz Air Holdings: HSBC upgrades from Hold to Light with a GBp 1350 price target.

© MarketScreener.com 2022
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Stocks mentioned in the article
ChangeLast1st jan.
ADOBE INC. 0.22% 277.57 Delayed Quote.-51.16%
ALIBABA GROUP HOLDING LIMITED -1.32% 77.87 Delayed Quote.-33.57%
AMAZON.COM, INC. -0.64% 114.41 Delayed Quote.-31.37%
AMERIPRISE FINANCIAL, INC. -0.25% 252.52 Delayed Quote.-16.08%
AMGEN INC. -0.39% 225.99 Delayed Quote.0.45%
BLACKROCK, INC. -1.03% 578.6 Delayed Quote.-36.80%
CARDINAL HEALTH, INC. 0.67% 66.21 Delayed Quote.28.59%
CHEGG, INC. -0.77% 20.51 Delayed Quote.-33.19%
CISCO SYSTEMS, INC. -0.15% 40.52 Delayed Quote.-35.96%
CITIGROUP INC. -0.93% 42.59 Delayed Quote.-29.48%
CSX CORPORATION -0.77% 27.22 Delayed Quote.-27.05%
DIRECT LINE INSURANCE GROUP PLC -2.63% 185.35 Delayed Quote.-33.57%
DOLLAR GENERAL CORPORATION -1.09% 235.85 Delayed Quote.0.01%
DUKE REALTY CORPORATION -1.76% 48.43 Delayed Quote.-24.89%
EASYJET PLC -0.27% 300.8 Delayed Quote.-45.90%
FREEPORT-MCMORAN INC. 1.40% 26.87 Delayed Quote.-35.61%
JPMORGAN CHASE & CO. -0.88% 105.85 Delayed Quote.-32.56%
LINDE PLC 0.36% 265.2 Delayed Quote.-23.72%
MICROSOFT CORPORATION -0.44% 236.41 Delayed Quote.-29.40%
MORGAN STANLEY -0.35% 79.48 Delayed Quote.-19.03%
NORFOLK SOUTHERN CORPORATION -0.43% 213.84 Delayed Quote.-28.17%
PINTEREST, INC. -0.75% 22.64 Delayed Quote.-37.72%
UNITEDHEALTH GROUP 0.00% 508.37 Delayed Quote.1.24%
VIRGIN GALACTIC HOLDINGS, INC. 0.20% 4.89 Delayed Quote.-63.53%
WARNER BROS. DISCOVERY, INC. -3.22% 11.41 End-of-day quote.-51.53%
WELLS FARGO & COMPANY 0.05% 40.03 Delayed Quote.-16.57%
WIZZ AIR HOLDINGS PLC -3.28% 1681.5 Delayed Quote.-59.85%
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