Let us remember the scenario that investors fear for the coming months: that price increases sparked by the economic recovery become so great that the Fed is forced to change its monetary policy timetable, accelerating the reduction of its financing plans, or even being forced to raise its key rates. Less money in circulation, less liquidity on markets, less potential for equities and new macroeconomic issues emerging, especially on bond markets. A forced normalization.
However, the Fed believes that the inflation spike that is building up will be temporary and will not require any particular monetary response.
The U.S. central bank, keeping its stance, seems quite optimistic on this point. This is despite the rise in prices being already visible on an international scale, and it is difficult to see how it could not be passed on to the consumer. Logistics costs are skyrocketing due to a lack of sea freight capacity. The North American real estate boom is leading to shortages of lumber, the price of which has skyrocketed. Agricultural commodities are soaring, as are industrial metals. Electronics and automotive companies are struggling to obtain the precious chips that are essential to the operation of their products, which are being rationed by lack of production capacity. If you are a business owner in industry or construction, you know that prices are rising and that your margins will suffer.
Listed companies are obviously aware of these developments. Bank of America Merrill Lynch noted that the term "inflation" is three times more prevalent in earnings conference calls than it was a year ago. And projections for product price increases are at a 10-year high.
It's the weight of these converging realities that the Fed must shoulder. Not an easy task. Once again, inflation is not inevitable, nor is the rise in bond yields. As is often the case in economics, the danger lies in the brutality of movements and in imbalances.
Today's economic highlights
On the agenda, French consumer confidence index, wholesale inventories and weekly oil inventories in the United States.
The dollar rose slightly to USD 0.8284. The ounce of gold dipped to USD 1767. Oil increases, with Brent at USD 66.8 and WTI at USD 63.4. The yield on the 10-year US government bond is up slightly to 1.62%. Bitcoin is back over USD 55,000.
* The Boeing Company reported a smaller-than-expected quarterly loss on Wednesday, buoyed by increased aircraft deliveries with the return to service of the 737 max and the expected recovery in air traffic this summer. However, the aerospace and defense group lost 1.1% in pre-market trading.
* Alphabet, Google's parent company, reported Tuesday a better-than-expected revenue for the first quarter of 2021 and announced a share buyback program of 50 billion dollars. The stock is up more than 5% in pre-market trading. Several analysts have raised their price target.
* Tesla lost 1.2 percent in premarket trading after announcing on Wednesday a $27 million (€22.4 million) write-down on its bitcoin investment in the first quarter.
* Microsoft reported Tuesday revenue in line with wall street expectations and better-than-expected earnings, but the stock is losing 2.4% in premarket trading due to one-time items included in the results and disappointed expectations for a more substantial revenue increase given the company's high valuation.
* Advanced Micro Devices gained more than 4% in premarket trading after reporting better-than-expected quarterly results and raising its revenue forecast for the year, betting on strong demand for its chips and supply chain improvements despite a global semiconductor shortage.
* Texas Instruments reported better-than-expected quarterly sales thanks to strong demand for its chips used in computers.
* Starbucks lost 2 percent in after-hours trading after reporting lower-than-expected first-quarter sales, even as the coffee chain raised its annual sales and profit forecasts on the bet that customers will return with vaccinations.
* Mondelez warned of a price increase to reflect the rising cost of raw materials after reporting good quarterly results. The stock is trading at a one-year high, up 2.5%, in pre-market trading.
* Visa reported better-than-expected earnings as increased online purchases offset weak travel spending. The stock gained 1.4% in pre-market trading.
* Amgen’s first-quarter sales and profit fell due to a 7% drop in net drug prices and the impact of the covid-19 pandemic. The biotech is losing 3.6% in pre-market trading.
* Spotify said it expects lower-than-expected paid subscribers for the current quarter in the face of competition from Apple music and Amazon music, an announcement that sent the stock down 9.5% in pre-market trading.