Investors have spent years urging central banks to pump more and more money into the financial system to support their risky bets. But in their usual schizophrenia, they are now pointing the finger at central bankers, because this huge windfall of money has helped create an inflationary monster that is being fought by punitive rate hikes, which are hurting the economy and in turn hurting financial markets.
In an excellent article published Monday in The Atlantic, American journalist Derek Thomson aptly illustrates the situation. In the piece, titled "The End of Sponsoring the Millennial Lifestyle," he recounts how his own life as a connected urbanite has been facilitated by the likes of Uber, Peloton, DoorDash, WeWork and company, all of which have been providing services for years that would not have been possible without free money. Companies that are losing billions of dollars every year. "As long as money was cheap and Silicon Valley figured that the next conquering consumer technology company was just one funding round away, the best way for a startup to make money from venture capitalists was to lose money by acquiring billions of customers," Thomson writes. Now it's time to pay up: these companies are caught up in shortages, labor costs and supply costs. As a result, they are raising their prices, but will this be enough to make them profitable? Nothing is less certain.
In any case, "the golden age of the on-demand urban-technology discount is over," says the journalist, and he is probably right. The golden age of unbridled investment is probably also over, even if we should not underestimate the capacity of investors to regularly re-create gas plants that end up exploding in their faces.
Yesterday, Wall Street limited the damage after a black Monday. The S&P500 lost only 0.38%, while the Nasdaq attempted a small incursion into positive territory (+0.21%). Since Monday, investors are almost convinced that the central bank will raise rates by 75 basis points, three times the usual increase. You have to go back to 1994 to find such a hike in one go. The head of the institution, Jerome Powell, is going to have to work on getting a double message across, as ING economist Robert Carnell pointed out this morning: "We are controlling inflation" and "We are not going to push the economy into recession". This seems almost impossible in reality, but the magic of words could make it more or less credible.
So the market is holding its breath. The latest monthly survey of managers by Bank of America shows that they are still a little tetchy and stuck on positions such as cash (immediately available money), health care (security) and commodities (shield against inflation). The most consensual position at the moment is to be exposed to oil, commodities and the rising dollar. The main exotic touch that managers allow themselves is to be exposed to certain emerging markets. Another interesting piece of information from this survey conducted last week is that the "Fed Put", i.e. the level that would push the Fed to adjust its monetary policy to avoid a stock market rout, is at 3453 points on the S&P500, according to the average of the respondents' returns. For information, this is 7.5% below the level of the day (last month, the gap was 13.7% based on a Fed Put at 3529 points).
Today were released the US retail sales for May, which unexpectedly declined, as consumers were hit by 40-year high inflation. They fell by a seasonally adjusted 0.3% between April and May, compared with a 0.7% increase between March and April, the Commerce Department said.
Economic highlights of the day:
Busy day today, with US retail sales, the Empire State index, business inventories, the home price index, and oil inventories. All the macro agenda here. Earlier today, China announced a smaller than expected contraction in retail sales in May, while industrial production recovered.
The dollar rose 0.3% to EUR 0.9610. The ounce of gold rises to USD 1830. Oil remains staggeringly resilient, with North Sea Brent at USD 120.87 per barrel and US WTI light crude at USD 118.55. The yield on 10-year US debt reaches at 3.43% while the 3-month accelerates to 1.75%. Bitcoin is trading at USD 21,350.
* Qualcomm - The European Union's General Court, Europe's second-highest court, on Wednesday overturned a 997 million euro fine imposed on Qualcomm four years ago by the European Commission for securing exclusive chip supply to Apple.
* Baidu - The Chinese search engine giant is in talks to sell its majority stake in IQIYI, a deal that could value the video-on-demand platform at about $7 billion, two people familiar with the matter said. In pre-market trading, Baidu was up 4% and iQIYI was down 4.7%.
* Ford Motor is recalling 2.9 million vehicles because of a malfunction that prevents them from shifting into gear, the National Highway Traffic Safety Administration, the U.S. highway safety agency, said Tuesday.
* Moderna - An expert panel unanimously recommended to the U.S. Food and Drug Administration (FDA) that Moderna's COVID-19 vaccine be approved for use in children and adolescents ages 6 to 17.
* Pfizer announced Tuesday that it will halt enrollment in a clinical trial of its COVID-19 antiviral, Paxlovid, in normal-risk patients after a study showed the treatment was not effective in reducing symptoms in this group.
* Warner Bros Discovery plans to cut nearly 1,000 jobs, or 30 percent of its workforce, in its advertising sales force, a source told Reuters on Tuesday.
* The Boeing Company - U.S. and European civil aviation regulators plan to hold a meeting next week with Boeing over the 777X, which has yet to receive certification, the European Aviation Safety Agency (EASA) said Tuesday.
* Continental Resources - Wells Fargo lowers its recommendation to "weight in line" from "overweight."
* Cryptocurrency stocks may suffer as bitcoin falls to its lowest level since December 2020, $20,079.72. Software maker MicroStrategy is down 7.6 percent in pre-market trading and Coinbase is down 7 percent.
* Hertz announced a new $2 billion share buyback program on Wednesday.
- Alliance Pharma: Berenberg starts tracking as Buy, targeting GBp 145.
- Apple: Morgan Stanley adjusts price target to $185 from $195, reiterates overweight rating.
- Armstrong World: Loop Capital Markets upgrades to buy from hold. PT up 21% to $95.
- Continental Resources: Wells Fargo Securities downgrades to equal-weight from overweight. PT up 10% to $82.
- Cranswick: Jefferies upgrades from hold to buy targeting GBp 3650.
- Darden Restaurants: KeyBanc adjusts price target to $136 from $160, reiterates overweight rating.
- DS Smith: Jefferies remains Buy with a price target reduced from GBp 430 to GBp 400.
- Garmin: Morgan Stanley adjusts price target to $115 from $127, keeps equalweight rating.
- HSBC: Investec upgrades from hold to buy targeting GBp 560.
- Jack Henry: Morgan Stanley reinstated coverage with a recommendation of equal-weight. PT up 7.3t% o $190
- London Stock Exchange: UBS upgrades from neutral to buy targeting GBp 8500.
- Renewi: Oddo BHF starts tracking at Outperform, targeting GBp 949.51.
- Robinhood: Atlantic Equities downgrades to underweight from neutral. PT down 31% to $5.
- Rolls-Royce : Berenberg upgrades from buy to hold, targeting GBp 100.
- Snowflake: Canaccord Genuity upgrades to buy from hold. PT jumps 62% to $185.
- Sonos: Morgan Stanley lowers to equalweight from overweight, price target to $28 from $38.
- Spotify Technology: Wells Fargo upgrades to equal weight from underweight; price target is $124.
- Tapestry: Jefferies raises to buy from hold, price target to $45 from $30.