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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.

There are two ways to look at Powell's speech

12/01/2022 | 10:35am EST
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Fed chair Jerome Powell reassured investors in his speech yesterday, which led Wall Street indexes to new highs. He hinted that the December rate hike could be more moderate than in November, while reiterating that more efforts are needed. ôThe time for moderating the pace of rate increases may come as soon as the December meetingö, he said.

It seems like Powell is back to his good cop role after several months of playing bad cop. Not only he openly mentioned the possibility of a reduction in the pace of rate hikes at the December meeting, but he also hinted at the possibility of a soft landing and the fact that the institution does not want to go too far in monetary tightening. He told the market what it almost wanted to hear. So, the market now considers that the Fed has reached its "pivot", the moment when it turns dovish. And the market is probably right.

After the speech, risk assets recovered significantly, with the Nasdaq 100 closing up 4.6% and the S&P 500 up over 3%. Sector-wise, everyone benefited, led by technology. The Ark Innovation fund, an excellent indicator of investors' appetite for risk, jumped 7.7% yesterday. Energy stocks lagged quite logically, but advanced nonetheless.  The Dow jumped more than 700 points and exited the bear market.

Powell's stance has set in motion a classic and fairly consistent mechanism. First, the dollar has fallen, since the currency weakens when monetary policy is more accommodative than expected. Secondly, the yield on US government bonds fell, as the market anticipates a lower than feared peak in rates. Indeed, the implied federal funds futures rate for next May fell to 4.925%, down from close to 5% and above that level a month ago. Meanwhile, the CME's FedWatch tool, which forecasts upcoming monetary policy decisions, gives a 78.2% chance of a 50-basis point rate hike by the Fed on December 14, to 21.8% for a 75-basis point increase. A month ago, the market was almost 50/50 between the two scenarios., In addition, gold has resumed its rise amid a falling dollar and bond yields.

However, the Fed's policy trajectory remains dependent on data showing that inflation is continuing to cool down. And investors were reassured to learn today that the Personal Consumption Expenditures (PCE) price index rose 6% in October compared to a year earlier, down from the 6.3% annual increase reported for September.

Barring food and energy, core PCE rose 5% over the last 12 months and 0.2% month on month. That compares to September’s 5.2% annual increase and a month-on-month jump of 0.5%.

Investors will also be monitoring the nonfarm payrolls survey, which will be published tomorrow.

At the same time, Beijing continues to send signals that it is easing its health policy and European inflation has not soared as much as expected. The stars seem to be aligning again.

It seems like China is quietly doing a U-turn on its zero-covid policy. The Chinese authorities won't say they are abandoning their hard line, but they are unraveling a number of existing bans as they go along. For example, some people infected with the virus will be able to isolate themselves at home, while the use of vaccination seems to be expanding.

However, today, all three Wall Street indexes are down. There's a bit of profit-taking, but could it also be that investors realized that Powell had many reservations in his speech yesterday?  After all, he said that "despite the tighter policy and slower growth over the past year, we have not seen clear progress on slowing inflation (…) It is likely that restoring price stability will require holding policy at a restrictive level for some time.”

 

Economic highlights of the day:

The final manufacturing PMI indicators for November are being published throughout the day. In the US, we also have the Challenger Employment survey, personal income and spending, weekly jobless claims and PCE inflation, the ISM manufacturing and construction spending. All the macro agenda is here.

The dollar is down 0.9% against the euro to EUR 0.9495. The ounce of gold is gaining momentum around 1802 dollars. Oil rallies, with North Sea Brent at USD 88.82 per barrel and US WTI light crude at USD 82.75. The yield on 10-year US debt falls to 3.61%. Bitcoin is trading around USD 17,000.

 

In corporate news:

* Salesforce announced the resignation of its co-CEO and vice president, Bret Taylor, and that co-founder Marc Benioff would remain as sole CEO of the customer relationship software company. The stock was down 6.4% in pre-market trading.

* Kroger, on the strength of demand, raised its annual sales and like-for-like profit forecasts, sending the retail group's stock up 4.5% in pre-market trading.

* Johnson & Johnson announced that its chief executive officer, Joaquin Duato, will additionally serve as chairman of the board of directors starting in January.

* Tesla will release software updates for more than 435,000 vehicles in China to correct a problem with side marker lights that could, under extreme circumstances, lead to a crash, Chinese authorities announced.

* Hewlett Packard Enterprise has expressed interest in buying Nutanix, a cloud software company, Bloomberg reports.

 

Analyst recommendations:

  • Biogen: Stifel adjusts Price Target on Biogen to $331 from $299, maintains Buy rating.
  • British American Tobacco: JP Morgan maintains its Buy rating on the stock. Previously set at GBp 4500, the target price is lowered to GBp 4000.
  • Consolidated Edison: BofA upgrades to Neutral from Underperform, raises PT to $95 from $78.
  • Expeditors: Exane BNP Paribas initiated coverage with a recommendation of neutral. PT set to $107.
  • Hubbell: Wolfe Research downgrades to underperform from peerperform. PT down 7.5% to $235.
  • Liberty Global: J.P. Morgan downgrades to neutral from overweight. PT up 15% to $23.
  • Pentair: Barclays upgrades to overweight from equal-weight. PT up 20% to $55.
  • Primary Health: Barclays downgrades to underweight from overweight. PT down 5.7% to 105 pence.
  • Zebra Tech: Wolfe Research downgrades to underperform from peerperform. PT down 1.6% to $266.

ę MarketScreener.com 2022
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Stocks mentioned in the article
ChangeLast1st jan.
ARK INNOVATION ETF ACC - USD -3.42% 38.9801 Delayed Quote.29.29%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) -0.40% 0.6509 Delayed Quote.2.69%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.58% 0.70661 Delayed Quote.4.32%
BARCLAYS PLC 0.47% 186.66 Delayed Quote.17.20%
BIOGEN INC. -1.32% 286.3 Delayed Quote.4.75%
BITCOIN (BTC/EUR) 3.05% 21847.5 End-of-day quote.40.97%
BITCOIN (BTC/USD) 3.11% 23747.3 End-of-day quote.42.94%
BNP PARIBAS 0.13% 62.11 Real-time Quote.16.49%
BRENT OIL -2.74% 84.68 Delayed Quote.0.12%
BRITISH AMERICAN TOBACCO (MALAYSIA) 1.46% 12.48 End-of-day quote.11.23%
BRITISH AMERICAN TOBACCO PLC 1.00% 3067 Delayed Quote.-7.47%
BRITISH POUND / EURO (GBP/EUR) -0.14% 1.13854 Delayed Quote.0.96%
BRITISH POUND / US DOLLAR (GBP/USD) -0.33% 1.23568 Delayed Quote.2.50%
CANADIAN DOLLAR / EURO (CAD/EUR) -0.29% 0.689451 Delayed Quote.0.25%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.47% 0.7477 Delayed Quote.1.72%
CME GROUP -14.29% 0.03 End-of-day quote.0.00%
CONSOLIDATED EDISON, INC. 0.63% 95.51 Delayed Quote.-0.42%
EURO / US DOLLAR (EUR/USD) -0.16% 1.08529 Delayed Quote.1.57%
EXPEDITORS INTERNATIONAL OF WASHINGTON INC. -1.25% 106.44 Delayed Quote.3.66%
HEWLETT PACKARD ENTERPRISE COMPANY -0.71% 16.035 Delayed Quote.1.13%
HUBBELL INCORPORATED 0.65% 232.525 Delayed Quote.-1.56%
INDIAN RUPEE / EURO (INR/EUR) 0.11% 0.011301 Delayed Quote.-0.06%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.05% 0.012277 Delayed Quote.1.48%
JOHNSON & JOHNSON -3.39% 162.4342 Delayed Quote.-4.77%
KROGER CO. (THE) -1.68% 44.33 Delayed Quote.1.05%
LIBERTY GLOBAL PLC -0.30% 21.32 Delayed Quote.13.00%
NASDAQ 100 -1.64% 11964.56 Real-time Quote.11.21%
NASDAQ COMPOSITE -1.50% 11445.32 Real-time Quote.11.04%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.18% 0.6477 Delayed Quote.2.27%
NUTANIX, INC. -1.00% 27.71 Delayed Quote.7.41%
PENTAIR PLC -0.82% 51.095 Delayed Quote.14.56%
PRIMARY HEALTH PROPERTIES PLC 0.44% 114.6 Delayed Quote.2.98%
S&P GSCI CRUDE OIL INDEX -1.76% 429.0254 Real-time Quote.-0.72%
SALESFORCE.COM, INC. 0.66% 165.62 Delayed Quote.24.08%
TESLA, INC. -4.55% 169.835 Delayed Quote.44.42%
US DOLLAR / EURO (USD/EUR) 0.15% 0.921413 Delayed Quote.-1.51%
WTI -2.66% 78.311 Delayed Quote.-1.29%
ZEBRA TECHNOLOGIES CORPORATION -1.77% 311.16 Delayed Quote.23.67%
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