Fed verdict is imminent

09/22/2021 | 09:42am

There is a lot going on today. For example, China Evergrande seems to have gotten its hands on some cash to meet a bond payment. There is also feverish anticipation ahead of the US central bank's monetary policy decision later today. It will be accompanied by new macroeconomic projections that are highly anticipated.

Have markets already put China Evergrande on the chopping block? That is the question today, as we wait for the US central bank to release its monetary policy decision and new macroeconomic projections.

For now, It would appear that Hurricane Evergrande has been downgraded to the lower category. In other words, we have gone from a worldwide event, symptomatic of the excesses of finance, to a Chinese crisis. But we should be wary of the pendulum effect: the returns are often painful. In reality, the easing seen this morning is based on the fact that Evergrande's main subsidiary will honor a bond maturity on September 23 as planned.

In the chapter of good news with no guarantee that they will last, we must also include the favorable vote of the House of Representatives on the increase of the federal spending and debt ceiling until December 3. The country has a chronic need to adjust its spending authority for the administration, which results in a ruthless bipartisan battle. The House of Representatives' bill will probably be rejected in the Senate, so it will have to go through the usual dealings, which are a source of instability for markets. In the recent past, civil servants had their wages frozen because of the delay in reaching a compromise. So watch out.

Investors are obviously waiting for the US central bank's verdict on its monetary policy later today. Many commentators believe that the monetary policy committee will pave the way for a decision on the reduction of the economic support plan at the November meeting. The content of Jerome Powell's speech will be analyzed in depth to try to find out if the Fed's first rate hike will come sooner than currently expected by economists. The interpretation could vary depending on the new growth and inflation projections that the institution is expected to announce in parallel. Investors will remain nervous today, even if the Evergrande announcement reduced volatility a bit (the VIX index is losing altitude after approaching May peaks yesterday).

 

Economic highlights of the day:

Along with the Fed's decision on its monetary policy and the conference to present the decision, today’s agenda includes the US housing figures for August and the DOE's weekly oil inventories. Earlier today, the Bank of Japan left its monetary policy unchanged, highlighting the supply constraints weighing on the economy.

The dollar/euro pair is stable at EUR 0.8525. Gold is trading at USD 1773 per ounce. Brent is up to USD 75.57 and WTI to USD 71.63 per barrel. The yield on US 10-year bond debt is up slightly to 1.32%, while the Bund yield is unchanged at -0.32%. Bitcoin is recovering 5% to USD 42,300.

 

On markets:

* U.S. gaming and betting group DraftKings submitted a $22.4 billion takeover offer to Britain's Entain on Tuesday after U.S. casino operator MGM Resorts rejected an $11 billion bid earlier this year.

* FedEx fell 6 percent in premarket trading after announcing Tuesday that it had lowered its full-year forecast for the current fiscal year due to a labor shortage, which is causing slowdowns in package delivery and higher costs.

* United Parcel Service, which is scheduled to report third-quarter results at the end of October, fell 2.3% in premarket trading, trailing FedEx.

* Adobe dropped 3.6% in premarket trading on disappointing fourth-quarter sales expectations. Citigroup, Jefferies, JP Morgan, Oppenheimer and Piper Sandle, however, raised their price targets on the Photoshop company's stock.

* Liberty Global sold cable operator UPC Poland to Iliad's Polish subsidiary Play for an enterprise value of 7.0 billion zlotys (approximately $1.8 billion).

* General Electric - EDF announced on Wednesday that it has opened discussions with the U.S. group on a possible deal for the nuclear activities of its subsidiary GE Steam Power.

* Facebook told Australian media operators it was ending negotiations on licensing deals, six months after the passage of a law that requires online platforms to pay for publishing news content, shows an email to the industry seen by Reuters.

* The U.S. plans to give several countries around the world an additional 500 million doses of the COVID-19 vaccine developed by Pfizer and BioNtech, for a total of more than 1 billion doses, according to a source close to the matter.

* Incyte is down 2.5% in pre-market trading. The FDA approved the drugmaker's eczema treatment Opzelura on Tuesday night but attached warnings, including the risk of serious infections, an increased risk of heart attack and a risk of stroke.

* Hyatt Hotels is down 2.9% in pre-market trading after the launch of the planned capital increase to fund the buyout of Apple Leisure Group.

 

Analyst recommendations:

  • AO World: Davy starts tracking at neutral, targeting GBp 200.
  • Blackstone : UBS lifts  group's price target to $135 from $110, keeps buy rating
  • Burberry: Oddo BHF resumes tracking at Underperform targeting GBp 1848. Barclays starts tracking with an in-line weighting. Societe Generale upgrades its rating from Hold to Buy, targeting GBP 2,270.
  • Canadian National Railway : Desjardins adjusts pt to ca$163 from ca$162, maintains hold rating
  • FedEx: price target was lowered to $250 from $270 at Morgan Stanley
  • Hershey: Morgan Stanley lowers pt to $180 from $182, maintains equal weight rating
  • GXO Logistics : Oppenheimer adjusts pt to $91 from $78, maintains outperform rating
  • Kellogg: Morgan Stanley adjusts pt to $64 from $66, maintains equal weight rating
  • Lam Research: UBS drops price target to $715 from $780, keeps buy rating
  • The Kraft Heinz Company: Morgan Stanley adjusts price target to $37 from $38, maintains equalweight rating
  • Micron Technology: UBS lowers price target to $95 from $100, keeps buy rating
  • Regeneron Pharmaceuticals: BMO Capital raises price target to $706 from $669, keeps outperform rating
  • ServiceNow: New coverage, rated New Buy at DZ Bank; PT $725
  • Thermo Fisher Scientific: UBS lifts Price Target to $670 from $595, Keeps Buy Rating
  • Tod's: Barclays starts tracking at Underweight. 
  • Truist Financial : Odeon Capital lowers truist financial pt to $52.90 from $62.30, maintains hold rating

 

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