As smooth as silk

09/23/2021 | 10:00am

The much-awaited Fed decision did not create any turmoil on markets, while reassuring news from China helped investor sentiment. Yesterday, the Chinese real estate group Evergrande said it would be able to meet a debt deadline today.

However, according to the Wall Street Journal, China has called on local authorities to prepare for a possible bankruptcy of the behemoth.

Evergrande is due to pay $83.5 million in interest on a dollar-denominated bond this Thursday. It is also expected to pay interest next week on another $47.5 million dollar bond.

Back to Fed, its announcements can be seen on a price chart. They form a sort of "M" that took shape when indexes were already high. A burst of acceleration after the press release, a slackening and a new rise during Jerome Powell's speech and then a new reduction of the gains until the bell. A "W" would have been more favorable, but it was a solid rise that took hold.

The result was a 1% gain for each of the three major U.S. indexes, ending a slide of several sessions for the Dow Jones and the S&P500. The rise was driven by oil stocks, industrials and technology heavyweights. With the  exception of Facebook (-4%), which abruptly left the $1,000 billion+ capitalization club during the month and is going through a complicated period. Marck Zuckerberg's company has been criticized by an episodic investigation of the Wall Street Journal, which shows that it has great difficulty in controlling its content. It has just lost its chief innovation officer. And to top it all off, its head of marketing conceded yesterday that Apple's iOS changes are weighing on its revenue. It's a bit incongruous, but Facebook is currently valued lower than The Home Depot based on expected earnings in 2022.

Yesterday, Jerome Powell and his team did not announce a reduction in the asset purchase program at the beginning of this fall, but made it clear that the announcement will take place - barring any unforeseen circumstances - at the next meeting in early November. Implementation is expected to begin shortly thereafter. The dismantling of the coronavirus support package was expected and did not provoke much of a reaction, apart from criticism from those who believe that it should no longer be in place, given the current economic dynamics.

In terms of interest rates, the meeting was more interesting as the probability of a hike in 2022 has increased. The Fed is providing information on the intentions of its members, which shows that nine members now think that a first rate hike is possible in 2022, compared to nine who think that it will happen later. The "hawkish" side has grown from the previous meeting. Those familiar with U.S. monetary policy know that the arrival of the mid-term elections and the renewal of some of the Fed's members could change the situation, but the fact is that the "50/50" mark has been reached.

Another lesson from the Fed meeting was that growth forecasts were lowered a bit for this year and raised for next. Inflation forecasts were, appropriately, raised as well. But the Fed believes that prices will gradually fall into line. Many economists still think the Fed is too low and fear that it will have to raise rates more sharply than expected to deal with this. In other words, the dispute that has been going on for months is not over.

Finally, medium-term rate paths (we are talking about 2023 / 2024) are higher than they were in June. If this makes some commentators cringe, it did not seem to upset investors, which may have remembered that the economy is doing well and that the era of abundant liquidity, fueled by low rates, should last a little longer.

Today's session sees the publication of PMI indicators for the major economies for September. These are leading indicators that are extremely closely followed by the financial community because they are reliable and herald major trends in industry and services. The only thing missing is the Chinese PMI, which will not be announced until next Wednesday.

 

Economic highlights of the day:

Flash PMI indicators for September throughout the day and the Bank of England's decision on its monetary policy are planned today, along with the United States Chicago Fed activity index and new weekly jobless claims, then index of leading indicators.

The dollar is down to EUR 0.8530. The ounce of gold is dropping to USD 1757. Oil is gaining ground, USD 72.25 a barrel WTI and at USD 76.13 a barrel Brent. The T-Bond shows an unchanged yield of 1.30% on 10 years, while the Bund is "remunerated" -0.33%. Bitcoin is trading at USD 43900.

 

On markets:

* Salesforce announced on Thursday that it has raised its revenue forecast for the current fiscal year and presented a forecast for the next fiscal year that is above the Refinitiv-IBES consensus. The stock gained 2.4% in pre-market trading.

* General Motors announced Thursday a $300 million (256 million euro) investment in Chinese startup Momenta to develop autonomous driving technologies for its future models in China. GM stock gains more than 1% in pre-market trading

* Accenture gained 2.5% in premarket trading after announcing a revenue forecast for its current first quarter that beat analysts' expectations.

* General Electric announced Thursday that it has completed its acquisition of BK Medical from Altaris Capital Partners for $1.45 billion.

* Dell Technologies announced Thursday it is launching a share repurchase program of up to $5 billion and said it plans to begin paying a quarterly dividend in the first quarter of its 2023 fiscal year.

* Alphabet announced on Thursday that it has filed a lawsuit against the Competition Commission of India (CCI) following the release of a confidential report by the authority regarding an investigation into competition issues posed by the U.S. group in the country. The Times of India newspaper, then Reuters, had reported on Saturday that an investigation by the CCI had revealed that Google abused the dominant position of its operating system Android in India.

* Facebook announced Thursday that it has reduced the distribution of certain content considered "sensationalist" or of poor quality on its news feed. The announcement comes after the Wall Street Journal reported last week that Facebook's changes to the algorithm that manages content, intended to stimulate "social interaction," had contributed to the prominence of outrageous or sensationalist posts.

In addition, a U.S. federal judge on Thursday ordered Facebook to hand over to investigators - seeking to prosecute Burma for crimes against the Rohingya Muslim minority - information about accounts linked to violence against this population that had been closed.

* Pfizer - The U.S. Food and Drug Administration (FDA) on Wednesday approved a booster dose of the COVID-19 vaccine developed by Pfizer and BioNTech for people aged 65 and older, for all people at high risk of severe disease as well as for others regularly exposed to the virus.

The European Medicines Agency (EMA) is expected to decide in early October whether to use Pfizer and BioNTech's COVID-19 vaccine for the European booster campaign, according to a source at Reuters.

* Apple - The European Commission on Thursday presented a proposal to introduce a common charging port for cell phones, tablets and headsets, a world first that would impact the iPhone maker in particular.

* Exxon Mobil and Chevron have failed to comply with a transparency rule established by the Extractive Industries Transparency Initiative (EITI), a global anti-corruption body on which both companies sit. The companies have refused to publicly disclose taxes and other payments they have made to the governments of countries where they operate that are not members of the EITI, the organization said Thursday.

* HoneyWell and consulting and engineering firm Wood will launch a technology solution to limit the carbon intensity of the sustainable aviation fuel manufacturing process, the two groups announced Thursday.

* Cigna announced Thursday the appointment of Eric Palmer as CEO of its pharmacy benefit management subsidiary Evernorth.

* Best - The New York-listed stock of the Chinese logistics specialist, whose largest shareholder is Alibaba, is up 7.7 percent in after-hours trading after news reports that the group is considering selling its express delivery division for $1 billion.

 

Analyst recommendations:

  • Amgen: Daiwa Securities downgrades to neutral from outperform. PT up 3% to $220
  • Apple: Tigress Financial raises Apple PT to $198 from $182, maintains Strong Buy rating
  • AstraZeneca: Credit Suisse retains its positive opinion on the stock with a Buy rating. The target price remains unchanged at GBp 9000.
  • AvalonBay: Goldman Sachs reinstated coverage with a recommendation of buy. PT raised 15% to $257
  • Brookfield Renewable Partners: Raymond James upgrades to Outperform from Market Perform, adjusts PT to $44 from $41
  • Camden Property: Goldman Sachs reinstated coverage with a recommendation of buy. PT up 14% to $172
  • Discovery : UBS adjusts price target on discovery to $27 from $38, maintains neutral rating
  • Equity Residential: Goldman Sachs reinstated coverage with a recommendation of neutral. PT up 5.7% to $86
  • FedEx : UBS adjusts price target on fedex to $369 from $380, maintains buy rating
  • InnovAge : Goldman Sachs adjusts PT to $17 From $28, maintains Buy rating
  • Mid-America: Goldman Sachs reinstated coverage with a recommendation of neutral. PT up 6.2% to $202
  • Pentair: Oppenheimer adjusts PT to $84 From $80, maintains Outperform rating
  • Raymond James Financial : Morgan Stanley adjusts Price Target to $66.67 from $100, maintains Overweight rating
  • Rolls-Royce: Berenberg has maintained his recommendation on the stock with a Buy rating. The target price is reviewed upwards from GBp 150 to GBp 160.
  • T-Mobile U.S.: Goldman Sachs retains its positive opinion on the stock with a Buy rating. The target price remains unchanged at USD 160.
  • Trimble: Morgan Stanley downgrades to underweight from equal-weight. PT down 18% to $74
  • UDR: Goldman Sachs reinstated coverage with a recommendation of buy. PT raised 12% to $60
  • Vodafone: Goldman Sachs keeps its Buy rating on the stock. The target price is still set at GBp 180.
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