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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.

The end of "bad news is good news"?

11/16/2022 | 10:19am EST
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Investors were trading cautiously in per-market trading today, ahead of the release of retail sales data. The market wasn't sure if it wanted strong retail sales or weak ones, and the reaction was initially muted after the US Census Bureau posted better-than-expected figures.

Since the Fed started to raise rates aggressively this year, investors have been hoping for weak economic data, as they believed it would force the central bank to ease its monetary policy to avoid destroying the economy. Bad news became good news, and vice-versa.

But now that several indicators released last week signaled that inflation is cooling, the bad news is good news trend is starting to reverse. While many investors would still have preferred softer sales, part of the market is now concerned about a hard landing, and is starting to look for signs that the economy is resilient.

US retail sales rose by 1.3% in October to $694.5 billion, while economists expected a 1% gain. Total sales for the August 2022 through October 2022 period were up 8.9% from the same period a year ago.

Torn between the fear of a hard landing and worries that strong economic data would delay the Fed's pivot to a more dovish monetary policy, investors sent indexes up and down after the release of retail sales, and then further down at the open.

In a research note, Wells Fargo remains cautious: "It is tempting to cheer on the "resilience" of the consumer, but the staying power of spending gives businesses no incentive to forgo price increases, thereby making the task of getting inflation in check more difficult for policymakers."

It also warns that while there is continued consumer resilience, some cracks are slowing forming in the foundation, as households have increasingly relied on credit to spend and increased overall debt, so this near-term resilience will come at a further deterioration in household finances.

In other news, after a missile hit Poland, markets were relieved to learn that it was not sent by Russia, but by Ukraine as it tried to intercept a Russian projectile.

Yesterday, this explosion in Poland on the sidelines of the Russian-Ukrainian conflict sent indexes down, ending efforts to erase Monday's setback. Two people were killed in a Polish village near the Ukrainian border. Initial indications were that a rocket fire was involved, which opened the speculation box. Poland has suggested that the device was Russian-made, but investigations now indicate this was a Ukrainian anti-missile projectile.

 

 

Economic highlights of the day:

Another busy day in the US with retail sales, industrial production for October and the NAHB house prices for November. All the macro agenda is here. Earlier today, UK inflation came in at 11.1% in October, a further acceleration.

The dollar is down again against the euro to EUR 0.9618. Gold remains near its recent highs at 1,774 dollars. Oil is stabilizing, with North Sea Brent crude at USD 92.37 per barrel and U.S. light crude WTI at USD 85.09. The yield on 10-year US debt fell to 3.77% yesterday, but is climbing back up to around 3.82% today. Bitcoin is down to USD 16,421.

 

In corporate news:

* Target said Wednesday it expects sales to decline in the holiday quarter due to high inflation and "dramatic changes" in consumer behavior. The company plans to cut costs by two to three billion dollars over three years. The stock was plunging 14% in trading before the Wall Street opening.

* Lowe's Companies - The home improvement retailer raised its annual profit forecast to reflect higher selling prices and strong demand. The stock gained 3.4% in pre-market trading.

* Estee Lauder announced Tuesday that it has bought fashion brand Tom Ford for $2.8 billion, its largest acquisition to date.

* Digital World Acquisition, which is to merge with Trump Media & Technology Group, jumped 10.4% in premarket trading after Donald Trump announced his candidacy for the 2024 U.S. presidential election.

* Boeing - The Boeing-built Space Launch System (SLS) rocket took off Wednesday morning from Cape Canaveral, Florida, on the first test flight of NASA's Artemis lunar exploration program.

* Tesla notified the U.S. National Highway Traffic Safety Administration (NHTSA) of two more fatal incidents involving the Autopilot system in its cars as of Oct. 15, according to government data released Tuesday.

* Carnival plunged 12% in after-hours trading as the cruise operator considers a capital increase via a $1 billion five-year convertible bond issue.

 

Analyst recommendations:

  • Advanced Micro Devices (AMD) - Credit Suisse upgrades the stock to Outperform with a price target of $90.
  • Cabot Corp: Deutsche Bank upgrades to buy from hold. PT up 24% to $90.
  • Future Plc: J.P. Morgan initiated coverage with a recommendation of overweight. PT rises 61% to 2,500 pence.
  • GlobalFoundries - Credit Suisse upgrades the stock to Outperform with a price target of $78.
  • Qualcomm: Credit Suisse initiated coverage with a recommendation of outperform.
  • Intel - Credit Suisse initiated a "neutral" rating on the stock with a price target of $28.
  • National Grid: Societe Generale upgrades from hold to buy, targeting GBp 1210.
  • NVidia - Credit Suisse initiated an "Outperform" rating on the stock with a price target of $210. Magellan: Wolfe Research downgrades to underperform from peerperform. PT down 5.9% to $49.
  • Marvell Technology - Credit Suisse upgrades the stock to "Outperform" with a price target of $56.
  • Medtronic: Deutsche Bank downgraded to hold from buy. PT up 1.9% to $85.
  • Micron Technology - Credit Suisse upgraded the stock to "Outperform" with a price target of $78.
  • Texas Instruments - Credit Suisse rates the stock "Neutral" with a price target of $205.
  • Vodafone: UBS still considers the stock as a Buy opportunity. The target price has been modified and is now set at GBX 129 compared to GBX 131.

 


ę MarketScreener.com 2022
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Stocks mentioned in the article
ChangeLast1st jan.
ADVANCED MICRO DEVICES, INC. 2.66% 85.91 Delayed Quote.29.20%
BOEING 3.84% 214.76 Delayed Quote.8.57%
CABOT CORPORATION -0.21% 74.54 Delayed Quote.11.52%
CARNIVAL CORPORATION 2.70% 12.19 Delayed Quote.47.27%
DIGITAL WORLD ACQUISITION CORP. -1.93% 15.73 Delayed Quote.4.87%
ESTEE LAUDER -0.06% 261.01 Delayed Quote.5.26%
FUTURE PLC -5.20% 1603 Delayed Quote.26.52%
GLOBALFOUNDRIES INC. 2.46% 63 Delayed Quote.16.90%
INTEL CORPORATION 1.25% 29.05 Delayed Quote.8.55%
LOWE'S COMPANIES, INC. -0.53% 214.73 Delayed Quote.8.35%
MARVELL TECHNOLOGY GROUP LTD 3.89% 46.78 Delayed Quote.21.57%
MEDTRONIC PLC 1.57% 86.58 Delayed Quote.11.40%
MICRON TECHNOLOGY, INC. 3.58% 62.13 Delayed Quote.20.01%
NATIONAL GRID PLC -0.43% 1035.5 Delayed Quote.3.82%
NVIDIA CORPORATION 5.14% 221.73 Delayed Quote.51.72%
QUALCOMM, INC. 2.78% 136.63 Delayed Quote.24.28%
TARGET CORPORATION 0.53% 174.76 Delayed Quote.16.64%
TESLA, INC. 1.05% 196.81 Delayed Quote.58.11%
TEXAS INSTRUMENTS 1.38% 183.49 Delayed Quote.9.55%
VODAFONE GROUP PLC 0.92% 91.49 Delayed Quote.8.61%
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