Are we still in the Goldilocks zone?

01/27/2022 | 09:09am

The Fed's first monetary policy decision for 2022 was well anticipated by investors in need of a reference point. The heavy profit-taking that has affected US equities for the past three weeks is a sign of increased nervousness, illustrated by a VIX volatility index at a one-year high.

What did investors expect from the Fed? Let's say the usual balanced speech, a marshmallow grip in a velvet glove. Of course, Jerome Powell, the chairman of the central bank, has been a little less marshmallowy lately, concerned about the galloping inflation which, in one year, has increased the price of energy by 29%, of food by 6% or of used cars by 37%. But on the whole, the market had subscribed to what some economists have called the "Goldilocks scenario", with a soup served neither too hot nor too cold, just perfect. Without metaphor, this would result in a cycle of rate hikes and reduced monetary support capable of curbing inflation with a moderate impact on growth.

The content of the Fed's statement was in line with Goldilocks, at least on paper. The problem was that Jerome Powell launched into a few improvisations during the press conference that followed the announcement of the decision. First, he confused investors on the pace and speed of rate hikes, suggesting that the agenda is not completely set and emphasizing that the Fed has plenty of room to maneuver without affecting the labor market. Investors translated this into: a double rate hike in March is not taboo and the scenario of five rate hikes as early as this year cannot be excluded.

Economist Joachim Klement believes that the mention of leeway over the labor market is a "rookie mistake" comparable to the one Powell made in 2018. He adds that the Fed boss committed another one when he casually dropped to conclude the conference that "asset prices are somewhat high." Klement thinks Fed members will have to do some backpedaling in the coming weeks in their various public outings, just to cover the boss' blunders. This is especially silly, the economist believes, since Powell made it clear at the beginning of the conference that the FOMC is very satisfied with its communication with the market, which means that he confirmed that rate expectations were pretty much correct. Expectations of a 25 point rate hike for sure in March, followed by two to three more rate hikes by the end of the year.

Today, futures on Wall Street are all in the green after having been in the red. As in every episode of this type, reactions are initially exacerbated, before the agitation calms down and gives way to more rational approaches. After all, Powell may not have made a mistake and may have just wanted to show the Fed's determination, just to make up for lost time in the fight against rising prices?


Economic highlights of the day:

Big macroeconomic news in the US with durable goods orders, the first estimate of Q4 GDP and weekly jobless claims. Durable goods fell in December for the first time in three months, by  0.9% from November, reflecting a drop in orders for commercial aircraft and communications equipment.

The dollar is up to 0.8975. The ounce of gold is down to $1803. Oil consolidates after its new highs, with Brent at USD 90.69 and WTI at USD 88.10. The US 10-year yield rises to 1.85%. Bitcoin is trading at USD 36843.


On markets:

* Comcast - The U.S. media company reported quarterly revenue Thursday that beat Wall Street expectations, driven by its NBCUniversal division. The stock is up 1.3% in premarket trading.

* McDonald’s Corporation: reported lower-than-expected quarterly revenue and profit, with disappointing performances in Australia and China due to pandemic-related restrictions outweighing U.S. sales growth in the fourth quarter. The fast-food group's stock lost 3% in pre-market trading.

* Tesla - The automaker said Wednesday night it expects vehicle deliveries this year to grow above 50 percent despite supply problems that Tesla expects to ease only next year.

* Apple - The iPhone maker, which is due to report its fiscal first-quarter results after the close of the New York Stock Exchange on Thursday, plans to turn its smartphones into payment terminals for small businesses, Bloomberg reported, citing sources close to the matter.

* Intel - The U.S. semiconductor maker reported record fourth-quarter revenue Wednesday but announced a profit forecast below Wall Street expectations for the current quarter.

* Netflix - Billionaire William Ackman, via his Pershing Square Capital Management fund, has taken a new stake in Netflix worth more than $1 billion since the stock fell on Thursday on what was seen as a disappointing fourth-quarter number of new subscribers. The stock is up 4.5% in pre-market trading.

* Moderna - The U.S. drugmaker is gaining 4% in premarket trading after announcing Wednesday that it will begin clinical trials of its COVID-19 vaccine specifically targeting the Omicron variant of the coronavirus in a booster dose.

* Blackstone - The U.S. investment fund reported record quarterly earnings on Thursday, up 55%. The stock jumped 4.5% in pre-market trading.

* Southwest Airlines - The airline said Thursday it posted its first quarterly profit in two years in the last three months of 2021 and expects to be profitable for all of 2022, despite an anticipated net loss in the current quarter due to the Omicron variant of COVID-19.

* Dow gained 1.4% in pre-market trading after reporting a better-than-expected sales forecast for the current quarter on higher prices..

* Textron - The aerospace and defense group reported lower-than-expected fourth-quarter sales Thursday due to labor and supply shortages.

* Valero Energy - The U.S. oil company posted a quarterly profit well above analysts' expectations, with margins nearly tripling as demand surged with the economic recovery. It gained nearly 3% in pre-market trading.

* Bank of America - The U.S. bank has decided to increase the salaries of its top executives to retain them, according to a source close to the matter.

* Advanced Micro Devices (AMD) - China's market regulator announced Thursday that it has given a conditional green light to AMD's proposed $35 billion buyout of XILINX. Xilinx gained 5.5% in pre-market trading.

* Micron Technology - The semiconductor manufacturer announced Wednesday that it plans to close its DRAM chip design site in Shanghai by the end of the year.


Analyst recommendations:

  • Albemarle: HSBC upgrades to buy from hold. PT up 36% to $280
  • Berkshire Hathaway: UBS adjusts PT to $530,294 from $520,652, maintains Buy rating
  • Beyond Meat: Mizuho Securities initiated coverage with a recommendation of neutral. PT down 2% to $59.
  • Derwent London: Exane BNP Paribas upgrades from neutral to outperform, targeting GBp 3820.
  • Fresnillo: Berenberg remains a Hold with a reduced target of GBp 1,000 to GBp 700.
  • Hershey: Mizuho Securities initiated coverage with a recommendation of neutral. PT up 1% to $196
  • HSBC: Exane BNP upgrades from neutral to outperform with a target of GBp 650.
  • Intel: Credit Suisse keeps Buy rating. The target price is lowered from USD 80 to USD 70.
  • Microsoft: Citigroup adjusts Microsoft's PT to $386 from $376, keeps Buy rating
  • Occidental Petroleum: Citigroup adjusts Occidental Petroleum's PT to $40 from $38, keeps Buy rating
  • PayPal: Citigroup adjusts PT to $235 from $250, keeps Buy rating
  • Prudential: Jefferies remains Buy with a price target raised from GBp 1,750 to GBp 1,800 .
  • Raytheon Technologies: Morgan Stanley adjusts PT to $118 from $110, maintains Overweight rating
  • Rentokil: Exane BNP Paribas downgrades from Outperform to Neutral with a target price of GBp 550.
  • Sage: Jefferies remains Buy with a price target reduced from GBp 900 to GBp 890.
  • ServiceNow: Piper Sandler upgrades to overweight from neutral. PT up 34% to $650
  • Superdry: Berenberg remains Hold with a target reduced from GBp 280 to GBp 265.
  • Tesla: JP Morgan keeps its Sell rating on the stock. The target price is reviewed upwards from USD 295 to USD 325.
  • The Boeing Company: Goldman Sachs still consider the stock as a Buy opportunity. The target price is now set at USD 307 compared to USD 300.
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