The rally that occurred on Wednesday after the FOMC decision quickly ended as investors started to worry about the impact on the economy. Several central banks followed in the Fed footsteps and raised their rates: Taiwan by 12.5 bps, the Bank of England by 25 basis points and the Swiss National Bank by 50 basis points.
With a 4% drop yesterday, the US Nasdaq is now down 33% on its November records, which looks an awful lot like a stock market crash. The return of central banks to forced monetary orthodoxy is frightening investors, who fear an uncontrolled slippage of the economic dynamics.
Investors are now pretty convinced that the austerity policy led by the Fed to curb inflation will lead to a recession in the US. Except for Joe Biden, who said that an economic contraction "is not inevitable". Note the double negation. This hawkish turn comes at a rather bad time for POTUS, in the run-up to the mid-term elections in early November. The truth is that most economists foresee a recession, whether this year or the next.
The Fed is currently the focus of criticism, since we all like to find a scapegoat. And it probably bears its share of responsibility: it rested on its laurels after having won the battles of 2008 and 2020, then allowed itself to be intoxicated by easy money before falling asleep while letting inflation slip away. Now it is being accused of overreacting in the other direction. And investors are worried that they will be wrong a second time by being off the mark, so there is a lot of criticism from economists that they are making a policy mistake.
This is why the indexes are falling further: investors see the demand shock coming and see that the Fed is deploying an arsenal that will stifle any recovery in that demand. I also feel that the Swiss central bank's decision yesterday to raise rates against all odds has done some damage to investor sentiment. The SNB is rather stingy with surprises, but when it does, it's usually a big surprise and it means that times are exceptional. Add to this the fact that the purge of speculative pockets is not yet complete, and that commodities are no longer cushioning anything since, in the event of a recession, demand for energy, metals and minerals is likely to fall.
Today, Powell spoke again and spooked investors by saying that bringing inflation down is essential for the global financial system. “The Federal Reserve’s strong commitment to our price stability mandate contributes to the widespread confidence in the dollar as a store of value. To that end, my colleagues and I are acutely focused on returning inflation to our 2 percent objective,” Powell said, quoted by CNBC. He also mentioned the status of dollar as the world’s reserve currency, “Looking forward, rapid changes are taking place in the global monetary system that may affect the international role of the dollar in the future,” Powell added.
To finish, let's add that today is what is known as Quadruple witching day on Wall Street. It occurs on the third Friday of the month of every quarter and is a source of volatility at times during the session, since several derivatives contracts expire at the same time.
Economic highlights of the day:
Weekly unemployment figures, building permits and the Philly Fed index are the main indicators of the day. All the macro agenda here. This morning, the Bank of Japan left its monetary policy unchanged, as expected.
The dollar is up to EUR 0.9527. The ounce of gold is worth USD 1849. Oil remains close to its previous day's levels, with North Sea Brent crude at USD 118.30 per barrel and U.S. light crude WTI at USD 115.95. The yield on 10-year U.S. debt is calming at 3.24%. Bitcoin is trading at USD 20,500.
* Adobe fell 3.4% in pre-market trading after it issued quarterly and full-year revenue guidance Thursday that fell short of market expectations.
* Revlon - Indian conglomerate Reliance Industries is reportedly considering buying the cosmetics maker, days after it filed for U.S. bankruptcy protection, ET Now reported Friday, citing sources. Revlon's stock was up 57 percent in pre-market trading.
* Alibaba was up 8% in premarket trading after a Reuters report that the People's Bank of China approved Alibaba subsidiary Ant Group's application to form a financial holding company.
* Centene raised its annual profit forecast, betting on an increase in premiums for the Medicaid program. The health insurer gained 2.3% in pre-market trading.
* Alphabet - Google's Russian subsidiary filed for bankruptcy, Interfax agency reported Friday, citing court documents.
* Snap was up 2.7 percent before the open after announcing it was testing a new subscription service, Snapchat+.
* Targa Resources - The oil and gas infrastructure company agreed to buy natural gas processing company Lucid Energy Group for $3.55 billion in cash.
* Tesla has raised the selling price of some Model Y cars for the Chinese market, the auto company's website showed Friday.
* DigitalBridge Group announced Thursday that it would sell a 27 percent stake in DataBank, its data center platform, to subsidiaries of Swiss Life Asset Management and EDF Invest for about $1.2 billion in cash.
* CVS Health, Walmart and Rite Aid plan to provide COVID-19 vaccines to young children in the U.S. if approved by authorities, the three companies announced Thursday.
* WWE said Friday it has opened an investigation into its chairman and CEO Vince McMahon following accusations of misconduct. His daughter Stephanie is taking over as interim CEO.
* The U.S. Transportation Secretary urged airline executives to ensure summer flight schedules are kept after a recent wave of cancellations, a source told Reuters.
- American Eagle: B Riley Securities downgrades to neutral from buy. PT up 9.6% to $13.
- American Express: Baird upgrades to outperform from neutral. PT up 27% to $175.
- Bank of America: Goldman Sachs lowers price target to $41 from $45, maintains buy.
- Capital One: Baird upgrades to outperform from neutral. PT rises 42% to $145.
- Citigroup: Goldman Sachs Lowers Price Target for Citigroup to $54 From $58, Maintains Buy Rating.
- CVS Health: Loop Capital Markets initiated coverage with a recommendation of buy. PT up 34% to $120.
- Diageo: Jefferies remains Buy with a price target reduced from GBp 4400 to GBp 4000.
- Ferrari: Intesa Sanpaolo upgrades to add from hold. PT up 18% to $205.31.
- Fifth Third: Baird upgrades to outperform from neutral. PT jumps 32% to $44.
- Hammerson: Societe Generale upgrades from sell to hold with a target of GBP 2180.
- Hargreaves Lansdown: Berenberg remains "Hold" with a price target reduced from GBp 1250 to GBp 925.
- M.D.C. Holdings: Wells Fargo Securities downgrades to underweight from equal-weight. PT down 8.9% to $27.
- Meritage Homes: Wells Fargo Securities downgrades to underweight from equal-weight. PT down 2.7% to $65.
- Molina Healthcare: Loop Capital Markets initiated coverage with a recommendation of hold. PT set to $310.
- Morgan Stanley: Goldman Sachs lowers price target to $87 from $94, maintains buy rating.
- M&T Bank: Baird upgrades to outperform from neutral. PT jumps 25% to $200.
- Toll Brothers: Wells Fargo Securities downgrades to equal-weight from overweight. PT up 15% to $48.
- UnitedHealth: Loop Capital Markets initiated coverage with a recommendation of buy. PT up 26% to $575.
- Urban Outfitters: B Riley Securities downgrades to neutral from buy. PT up 13% to $23.