Equity markets find themselves in a configuration that we have seen many times before. The intense profit-taking phase underway is being met with a major stop-or-go macroeconomic event: the first monetary policy decision of the US central bank this year. More than the decision itself - there should be no action tonight, just confirmations - it is the tenor of Jerome Powell's accompanying speech that will set the mood for the weeks ahead.
Investors have sort of prepared for the worst, at least from their perspective, which is a very radical stance by central bankers to counter inflation and economic overheating. In the financial jargon, we say that the hawks have overtaken the doves. In Europe, this type of clannism also exists within the ECB, between the orthodox supporters of a traditional, low-interventionist monetary policy (rather those uptight central bankers from the north) and the progressives who militate for a broader mandate (rather those lazy central bankers from the south).
At the Fed, the hawks have gradually outnumbered the doves, who have had to adapt and recognize that they have been sitting on their hands a bit too much while inflation has been accelerating. In their defense, the health hazards of the coronavirus were complicated to manage, as demonstrated, and still demonstrated by the chaos in governmental measures around the world. The president of the American central bank, Jerome Powell, is a dove who has hardened his speech. But how much has it hardened? That's the issue of the evening.
As usual, there are plenty of expert opinions on the matter. I have chosen two that seem relevant this morning. The first one comes from a US trader that I will quote first. This gentleman basically said "a moderately hawkish Powell would be dovish for the market". This means that if this speech is only moderately tough, it will be considered as positive by the market.
Another comment along somewhat similar lines was from a fund investment manager, for whom the Fed faces a classic Keynesian dilemma, with the U.S. economy slowing but inflation continuing to rise. "Should reducing quantitative easing and raising rates take priority over stimulating growth?" asks this professional, who believes the Fed will "very soon" abandon its hawkish rhetoric again and become a dove. The strategy of flight to safety, in short, which would strengthen the camp of those who think that the institution is more concerned with financial markets than with the real economy, because its leaders also have shares when the equity markets are working, the rest of the economy follows.
Meanwhile, the reality is more painful. Yesterday, volatility was still high on Wall Street where the Nasdaq 100 lost 2.5% while preserving the 14,000 point threshold, but without ever being able to continue its rebound. The S&P500 flirted with balance two-thirds of the way through the session after having been very bearish, but it fell back at the end of the day, unlike the day before, when it had come out of the abyss to finish in the green. Technology stocks were again severely attacked, especially in the semiconductor segment. The purges come and go depending on the sector, but it is clear that if they are more violent on the stars of the year 2021, they do not spare companies much more established whose valuation multiples are not necessarily frightening. This is because volatility remains high, with the VIX index having erased 31 points. It has surpassed its peak excitement level of early December 2021, the latest episode of tension.
Corporate earnings releases could provide an anchor this morning as we await the later today. Yesterday, Microsoft and Texas Instruments released good quarterly results, which earned them off-session gains. The agenda is busy, with a few heavyweights in the U.S., including Tesla, Abbott, Intel and The Boeing Company.
Economic highlights of the day:
December wholesale inventories, December new home sales and DOE weekly oil inventories, before the Fed's decision on its monetary policy.
The dollar is trading at EUR 0.8859. The ounce of gold is down to USD 1834. Oil remains firm at USD 89.65 per barrel of Brent and USD 86.88 per barrel of WTI. The yield on 10-year US debt is unchanged at 1.77%. Bitcoin bounces back to USD 38,300
Microsoft - The software giant reported better-than-expected quarterly results Tuesday, benefiting from sustained demand for its cloud business as more companies turn to hybrid work styles due to the COVID-19 pandemic. The stock gained 3.2% in pre-market trading.
* Intel - The European Court of Justice on Wednesday annulled the €1.06 billion fine imposed by the European Commission on Intel 12 years ago for anti-competitive practices. In other news, the semiconductor maker will release its fourth-quarter results after the close of Wall Street.
* Apple - The iPhone maker became the top smartphone seller in China for the first time since 2015, according to a ranking released Wednesday by Counterpoint Research.
* Tesla - The automaker, which is scheduled to report quarterly results after the close of the New York Stock Exchange, is up 4.3% in pre-market trading. Elon Musk, its chief executive, said on Twitter that he had driven around the group's Texas plant a prototype of the Cybertruck, a highly anticipated electric pickup truck whose release has been pushed back to early 2023, according to a source.
* The Boeing Company - The U.S. aircraft maker, which is reporting quarterly results, announced Wednesday that it plans to take a $3.5 billion charge in its fourth-quarter accounts due to longer-than-expected delivery delays of its 787s, which are facing problems. Boeing shares are down 0.7 percent in premarket trading.
* AT&T - The telecommunications and media company reported better-than-expected quarterly revenue Wednesday on strong growth at Warner Media and its HBO streaming platform amid a COVID-19 pandemic that boosted subscriptions to its services. The stock is up 2% in pre-market trading.
* Texas Instruments - The U.S. electronics company on Tuesday forecast better-than-expected sales for the current quarter after posting better-than-expected profit and revenue in the final three months of 2021 on strong chip demand. The stock is up 3.6% in trading before the Wall Street opening.
* Anthem - The U.S. health insurer reported better-than-expected earnings Wednesday on lower COVID-19-related expenses and higher membership.
* Bank of America - The U.S. bank said on Tuesday it would give about 97 percent of its employees special bonuses worth about $1 billion, mostly paid in stock, according to an internal memo seen by Reuters.
* Robinhood - The online brokerage said on Tuesday it had taken steps to avoid limitations on trading and be in a "strong position" to deal with unlikely market events. The group said it has a net capital position of $2.7 billion, more than 25 times the amount currently required by the Securities and Exchange Commission (SEC), the U.S. securities regulator. Robinhood's share price is up 3.1% in pre-market trading.
* Alphabet - Google, a subsidiary of the group, announced on Tuesday its intention to recruit 200 engineers in Brazil this year to improve its security and privacy tools in the Latin American country.
* Palantir Technologies - The data analytics group announced Wednesday that it has appointed Philippe Mathieu as president of Palantir EMEA.
- Alphabet C: UBS retains its positive opinion on the stock with a Buy rating. Previously set at USD 3925, the target price is lowered to USD 3800.
- Avis Budget: J.P. Morgan upgrades to neutral from underweight. PT up 21% to $205
- C.H. Robinson: Barclays cut its recommendation to equal-weight from overweight. PT up 2.7% to $108
- International Business Machines: Societe Generale adjusts PT for IBM to $143 from $133.72, maintains Hold rating
- Intertek: J.P. Morgan upgrades from neutral to overweight targeting GBp 6400.
- J.B. Hunt Transport Services: Barclays upgrades to overweight from equal-weight. PT jumps 20% to $235
- Pinterest: UBS adjusts PT to $32 from $42, maintains Neutral rating
- McDonald's Corporation: Baird adjusts PT to $293 from $268, keeps Outperform rating
- Meta Platforms: UBS retains its positive opinion on the stock with a Buy rating. The target price is reduced from USD 440 to USD 400.
- Moderna: Deutsche Bank upgrades to hold from sell. PT up 15% to $175
- Netflix: Phillip Securities upgrades to buy from accumulate. PT soars 84% to $673
- Schlumberger: Exane BNP Paribas upgrades to outperform from neutral. PT up 16% to $45
- Verizon: J.P. Morgan downgrades to neutral from overweight. PT up 5.9% to $56