Calm prevails ahead of inflation data

08/09/2022 | 09:24am

Investors are taking a wait-and-see attitude ahead of US inflation data due tomorrow. They are looking for clues whether the Fedís efforts to curb inflation started to bear fruits, or if it needs to be more aggressive.

According to the CME FedWatch tool, there’s a 69.5% chance of the Fed raising rates by 75 basis points in September.

In the meantime, there are still a few corporate results to look forward to. Stronger-than-expected earnings have been a positive, with 77.5% of S&P 500 companies exceeding earnings estimates, according to I/B/E/S data from Refinitiv.

I wouldn't go so far as to say that investors have returned to their slightly dodgy pre-2022 nonchalance. But it is clear that they no longer get depressed at the slightest bit of bad news: falling quarterly profits, bad weather, or the announcement of an acquisition by Elon Musk. We are even seeing a resurgence in the United States of foolish passions for stocks with no future and crudely manipulated, as in the heyday of the year 2000. Well, it's not a party either, but July's gains have awakened the libido of a part of the market and silenced the prophets of doom.

Stock markets are less volatile and generally close higher. The economic and geopolitical situation has become more complex lately, but valuations have fallen, sometimes sharply.

However, the yield on 10-year debt fell to 2.76% yesterday, while the yield on shorter maturities rose. The 2-year is at 3.20% and the 6-month at 2.98%. This is what is known as an inverted yield curve, since short maturities are better paid than long ones. The gap between the 2 year and the 10 year is the widest seen in the last 20 years and illustrates the markets' fears about the economic dynamic.

But there will come a time when investors believe that inflation will gradually decline and the Fed and other central banks will be able to help the economy again by easing their policies. That will be the real turning point. That is, if Beijing does not embark on a blockade of Taiwan, if Moscow and Kiev avoid blowing up a nuclear power plant and if Europe can feed and heat its most vulnerable population next winter...


Economic highlights of the day:

Nonfarm productivity and Unit Labor Costs figures are today’s main data. The full macro agenda is here

The dollar is trading at EUR 0.9767. The ounce of gold rises slightly to USD 1793. Oil is up, with North Sea Brent at USD 97.86 a barrel and US WTI light crude at USD 91.92. The yield on US 10-year debt eases to 2.75%. Bitcoin is trading around USD 23,200.


Analyst recommendations:

* The Boeing Company - The U.S. Federal Aviation Administration (FAA) on Monday gave the official green light for the first delivery of a Boeing 787 Dreamliner since April 2021. The company has a total of 120 787s awaiting delivery. The stock gained 0.7% in pre-market trading.

* Tesla - The electric car maker sold 28,217 vehicles assembled in China in July, just over a third of the volume delivered in June, as upgrades to its production lines to increase their capacity required them to be shut down for several days.

* Micron Technology - The computer memory maker said Tuesday that it expects to report negative free cash flow in the first quarter of its next fiscal year and that its current-quarter revenue may be below the bottom of the guidance range given on June 30 ($7.2 billion plus or minus $400 million). The stock was down 4% in pre-market trading.

* Occidental Petroleum – Berkshire Hathaway, the group led by Warren Buffett, announced on Monday evening that it had again increased its stake in the oil company and now owns more than 20%. The stock gained 2.2% in pre-market trading.

* Ralph Lauren reported better-than-expected quarterly sales despite high inflation.

* Spirit gained 1% in premarket trading after reporting better-than-expected second-quarter results on increased flight volumes.

* Novavax halved its full-year sales forecast due to lower demand for its COVID-19 vaccine in low- and middle-income countries. The company was down 32.5% in pre-market trading.

* Take-Two - The video game publisher's stock was down nearly 7% in after-hours trading Monday after it reported quarterly earnings, saying it expected full-year sales to be below market consensus.

* Capri Holdings - The group that owns Michael Kors and Versace, among others, reported better-than-expected quarterly results on Tuesday.

* American International Group - The insurer reported a better-than-expected quarterly profit on Monday evening, as higher sales offset a decline in the performance of its investment portfolio.

* Sofi Technologies - The Japanese conglomerate SoftBank announced its intention to sell its stake in the US online bank. The stock was down 4% in pre-market trading.


Analyst recommendations:

  • Avalara: Mizuho Securities downgrades to neutral from buy. PT is $93.5.
  • Ball: Morgan Stanley maintains equal-weight rating. PT down to $56 from $75.
  • Brunswick: BMO Capital Markets raised the recommendation to outperform from market perform. PT up 38% to $110.
  • Charles River Laboratories: Deutsche bank cut the target to $270 from $290. Maintains buy rating.
  • CRISPR Therapeutics: Chardan Research adjusts price target to $154 from $164. Reiterates buy rating.
  • Idexx Laboratories: Piper Sandler maintains overweight rating. PT up to $500 from $420.
  • Karuna Therapeutics: JPM Securities adjusts price target to $315 from $190. Maintains market outperform rating.
  • Liberty Broadband: Rosenblatt Securitie downgrades to $163 from $184.
  • Linde: Baader Helvea downgrades to reduce from add. PT up 5% to $316.45.
  • Match Group: DA Davidson adjusts price target to $90 from $100. Reiterates buy rating.
  • Nike: Exane BNP Paribas cut the recommendation to neutral from outperform. PT up 3.5% to $118.
  • NVidia: Craig-Hallum downgrades to hold from buy. Lowers price target to $180 from $210.
  • Republic Services: Raymon James maintains outperform rating. PT up to $155 from $143.
  • TreeHouse Foods: Stifel raised the target to $45 from $38. Maintains hold rating.
  • Trimble: Piper Sandler cut the target to $82 from $100. Maintains overweight rating.
  • Tyson Foods: Piper Sandler upgrades to neutral from underweight. PT set to $79.
  • Western Digital: Stifel maintains buy rating. PT down to $70 from $77.
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