Investors received clues that tend to confirm their favorite scenario, in which the US central bank is taking control of inflation by capping its key rates at 5% in June 2023, without totally destroying economic growth. The scenario also includes the end of the Fed's monetary tightening cycle, which means that economic conditions would be more predictable, and from that point on, the cost of money would stabilize and possibly go down.

For the Fed to turn dovish, two main ingredients must be present: slowing inflation and economic activity in the U.S. that shows enough signs of weakness to help keep inflation from spiking again.  The first ingredient seems to be present. As for economic activity, US indicators in industry and services are under pressure, but household consumption and the labor market are still robust.

But on Friday, three indicators came in to support the second point mentioned above, in particular the December employment report. Well, at first glance, with job creation up and unemployment down from 3.7% to 3.5%, it didn't look like a win. Here's where it gets subtle. With a little digging, economists have found evidence that an inflection is underway. Companies are shedding temp workers as they sense the tide is turning and wage growth is slowing. The job report was followed by a plummeting services activity index (ISM services), and a drop in factory orders (even though this indicator is considered secondary by Wall Street).

I may have lost you along the way, but the important thing to remember is that the market thinks that the Fed will not have to go much further in its rate hikes to bend inflation and return to a more flexible policy. That's also what the bond market is saying, as the yield on 10-year debt fell to 3.56%. And the currency market, which saw the dollar take a hit. This narrative helped the S&P500, the Dow Jones and Nasdaq gain more than 2% Friday night. To reinforce it, there will be Thursday's US inflation figures for December. But beware, Fed boss Jerome Powell will eventually have the opportunity to refocus the debate in a speech scheduled for Tuesday. It is known that the central bank has recently sought to calm investors' appetite for risky assets. Powell's message will carry weight. 

In the end, the first trading week of 2023 resulted in gains of 1.45% for the S&P500 and 4.6% for its European counterpart, the Stoxx Europe 600.

The first corporate results for Q1 are already on the horizon with Sika (Wednesday) and Tesco (Thursday) in Europe. In the United States, it is the session of Friday, January 13 that will kick off earnings season, with JPMorgan Chase, UnitedHealth, Bank of America, Wells Fargo, BlackRock, Citigroup and Delta Air Lines.


Economic highlights of the day:

No big indicator in sight today.

The dollar is down 0.6% to EUR 0.9320 and 0.5% to GBP 0.8215. The ounce of gold is up to 1878 dollars. Oil is firm, with North Sea Brent at USD 80.62 a barrel and US WTI light crude at USD 76.08. The yield on 10-year US debt fell to 3.56%. Bitcoin is back up around USD 17,200.


In corporate news:

* Goldman Sachs will begin cutting thousands of jobs worldwide on Wednesday, two sources familiar with the group's plans said, as it prepares for a challenging economic environment.

* Alibaba gained 5 percent in premarket trading after the Chinese online retail giant announced that its founder, Jack Ma, would give up control of financial subsidiary Ant Group.

* Tesla. The carmaker announced Monday an extension of delivery times for some of its Y models in China, a sign of increased demand after the recent price cut. The stock was up 3.3% in pre-market trading.

* Chevron and Exxon Mobil were up about 1.5% in premarket trading as oil prices rose following the reopening of China's borders on Sunday.

* Macy's expects to report lower-than-expected fourth-quarter sales and limited spending in 2023 due to inflation, the department store chain said Friday, with its shares down 4% in premarket trading.

* Salesforce is looking to save $3 billion to $5 billion, CEO Marc Benioff told employees, Fortune magazine reported Friday, citing an audio recording of the meeting.

* Moderna - COVID-19 vaccine sales were $18.4 billion in 2022, in line with the group's forecast.

* CVS expects to post annual sales above its expectations of $309 billion to $314 billion and adjusted earnings per share at the high end of its guidance.

* Abercrombie & Fitch raised its sales guidance for the last three months of 2022, sending the stock up 3% in pre-market trading.

* Lululemon Athletica lost 10% in premarket trading after announcing it expects gross margins to decline in the fourth quarter, hurt by inflation.

* Pfizer - China will not include Pfizer's COVID-19 antiviral Paxlovid on its list of treatments covered by medical insurance plans because of its high price, China's health care safety administration announced Sunday.

* Biopharmaceutical company Cincor is to be bought by AstraZeneca for up to $1.8 billion, the Anglo-Swedish company announced Monday.


Analyst recommendations:

  • BT Group: Citigroup upgrades from neutral to buy targeting GBp 160.
  • Chubb: Jefferies downgrades to hold from buy. PT up 7.5% to $246.
  • Consolidated Edison: Mizuho Securities downgrades to neutral from buy. PT inches up 0.2% to $98.
  • Fiserv: Wells Fargo Securities downgrades to underweight from equal-weight. PT down 1.2% to $101.
  • Hilton Worldwide: Jefferies downgrades to hold from buy. PT up 2.9% to $134.
  • J.B. Hunt: Susquehanna Financial downgrades to neutral from positive. PT down 4.6% to $168.
  • Knight-Swift: Susquehanna Financial downgrades to neutral from positive. PT up 8.2% to $60.
  • Marriott International: Jefferies downgrades to hold from buy. PT up 8.2% to $166.
  • Marsh & McLennan: Jefferies downgrades to hold from buy. PT up 4.1% to $178.
  • MetLife: Goldman Sachs downgrades to neutral from buy. PT up 6% to $78.
  • Mondi: Jefferies remains Buy with a price target reduced from GBp 1750 to GBp 1730.
  • Prudential Financial: Goldman Sachs downgrades to sell from neutral. PT down to 5% to $96.
  • Rathbones: Jefferies upgrades from Hold to Underperform with a target of GBp 1720.
  • Saia: Susquehanna Financial downgrades to neutral from positive. PT down 1.2% to $220.
  • Stryker: RBC Capital Markets upgrades to outperform from sector perform. PT up 11% to $284.
  • Werner Enterprises: Susquehanna Financial downgrades to neutral from positive. PT up 4.2% to $45.
  • YouGov: HSBC starts tracking to buy, targeting GBp 1225.
  • Zimmer Biomet: RBC Capital Markets upgrades to outperform from sector perform. PT up 12% to $141.