The vertical slope taken by stock market indices yesterday leaves no room for doubt: the market has buried the US central bank's monetary tightening cycle. October's inflation figures acted as the final nail in the coffin. U.S. consumer prices continued to fall beyond expectations, and look likely to return to the safe zone in the months ahead.

Well, not everybody agrees. JPMorgan Chase CEO Jamie Dimon told Bloomberg: "Personally, I think people are overreacting to short-term numbers and they should stop doing that… I think inflation's probably a little stickier than that shows."

Of course, the economy is anything but an exact science, but investors swept away doubts and stepped up their buying, accentuating a trend that began two weeks ago.

All stock markets celebrated the announcement. The end of rate hikes and possible rate cuts mean cheaper money and more available liquidity, which would likely lead to economic recovery and improved corporate earnings. The Nasdaq 100 gained over 2%, the S&P500 1.9% and the Dow Jones 1.4%. But the index that best illustrates the paradigm shift the market is contemplating is the Russell 2000, the index of small and mid-cap US stocks, which soared by 5.4%. With the end of the rate hike cycle in sight, this is the type of portfolio that historically offers the best returns. Without going into detail, this is because access to better financing conditions is a powerful lever for companies of this size.

A few words on the evolution of US consumer prices in October. In the US, gross inflation slowed to 3.2% year-on-year in October, and core inflation to 4%. Both figures were lower than had been feared, which reinforced the steroid-induced start to November for Wall Street equities, and pushed the yield on T-Bonds down by more than 20 points. The concomitant fall in rents, gasoline, car prices and other items explains this trend, which economists believe is set to last, as the effect of high rates begins to weigh heavily on certain areas of economic activity. The Fed must have breathed a sigh of relief, for all this looks very much like the situation it had hoped to see develop. Finally, the central bank's scenario and that of investors are converging, which explains the renewed appetite for risk assets. I imagine that the US central bank's job will be to ensure that this renewed appetite doesn't turn into inflation again, which would once again lead to a divergence of interests.

What has fundamentally changed, however, is that the Fed now has a better basis for eventually lowering rates if the economy shows too many signs of weakness, or if the soft landing goes badly. And the market understands this. It even believes that three or four quarter-point rate cuts are possible in the course of next year. As for the skeptics, they are increasingly isolated. Bets on a final rate hike at the December and January meetings are capped at 5.5% according to futures contracts. In other words, it's the best bet at the moment. On the other hand, there is now a narrow majority in favor of a rate cut as early as the May 2024 meeting.

The market got another boost today after British annual consumer price inflation also came in lower than expected, at 4.6% in October from 6.7% in September. The consensus was for a 4.8% reading. The increase in consumer prices was the smallest since October 2021. Annual core inflation fell to 5.7% from 6.1%.

We stay in the macroeconomic field, with U.S. retail sales, which fell 0.1% in October, although this is a smaller drop than the 0.3% anticipated by economists. This comes after months of strong gains. This is another sign that the economy is cooling and further strengthens the scenario of an end to rate hikes. Futures on all three Wall Street indexes were up in premarket trading.

In China, a lot happened overnight. Well, during the day there. The National Bureau of Statistics released a battery of macroeconomic data and - surprise - they're not all depressing. The market's main focus is on the acceleration in retail sales, up 7.6% year-on-year, against average expectations of 7%. Industrial production was also slightly outperformed, rising by 4.6% (4.5% expected). Investment in capital goods was also up, but slightly below projections (+2.9% vs. 3.1% expected). The big black spot remains real estate, with investment and sales continuing to fall. Putting all this in a box and giving it a good shake, specialists are coming away with a slight positive bias, especially after the big pile of disappointments accumulated recently. All the more so as, at the same time, China's central bank, the PBOC, made its biggest cash injection into the financial system since 2016, a sign that the authorities are getting restless to spur on an apathetic economy. A meeting between Chinese President Xi Jinping and Joe Biden will take place today in San Francisco.

Economic highlights of the day:

UK October inflation, second reading of French inflation, European industrial production, US producer prices, Empire Manufacturing and retail sales, as well as business inventories and DOE crude inventories are on the agenda.

The dollar is up to EUR 0.9211 and GBP 0.8037. An ounce of gold is trading at USD 1966. Oil is firm, with North Sea Brent at USD 81.78 a barrel and US light crude WTI at USD 77.48. The yield on 10-year US debt falls to 4.43%. Bitcoin hovers around USD 36,160.

In corporate news:

  • Target on Wednesday forecast a profit well ahead of Wall Street expectations for the current holiday quarter, as the retailer benefited from lower supply chain costs and efforts to control inventory, sending the stock up 10% in pre-market trading. In its wake, competitor Walmart gained 0.7%.
  • Berkshire Hathaway announced on Tuesday evening that it had sold its stakes in General Motors and Procter & Gamble, and reduced its stake in AMAZON to 5% in order to increase its liquidity. On the other hand, the conglomerate controlled by billionaire Warren Buffett took a stake in Sirius XM Holdings, boosting the latter by 3.9% in pre-market trading.
  • Wells Fargo will cut around 50 positions in its investment banking division as part of a year-end restructuring, a source informed of the matter said on Tuesday.
  • Spirit Airlines jumps 4.2% in pre-market trading after announcing the extension of its revolving credit facility to September 30, 2025.
  • JD.com advanced 2.9% in premarket trading as the Wall Street-listed Chinese e-commerce group reported a jump in earnings amid easing supply chain tensions.
  • Getty Images fell 6% in after-hours trading after lowering its full-year sales forecast due to difficult market conditions and the impact of the Hollywood strikes.
  • Canoo climbed 8.7% in pre-market trading, as the electric vehicle manufacturer scaled back its spending plans for the second half of the year amid a slowdown in the market. The group also expects a smaller-than-expected operating loss during this period.

Analyst recommendations:

  • Aflac Incorporated: Morgan Stanley maintains its market weight recommendation and raises the target price from USD 75 to USD 80.
  • Altria Group, Inc.: Jefferies maintains its buy recommendation and reduces the target price from USD 56 to USD 50.
  • Ameriprise Financial, Inc.: Morgan Stanley maintains its market weight recommendation and raises the target price from USD 360 to USD 365.
  • B&M European Value Retail S.A.: Berenberg maintains its buy recommendation and reduces the target price from GBX 645 to GBX 630.
  • Biomarin Pharmaceutical Inc.: Wells Fargo initiates an overweight recommendation with a target price of USD 100.
  • Celanese Corporation: Jefferies maintains its hold recommendation and raises the target price from USD 125 to USD 135.
  • Compass Group Plc: Deutsche Bank upgrades to buy from hold with a price target raised from GBX 2106 to GBX 2400.
  • Datadog, Inc.: CICC initiates an Outperform recommendation with a target price of USD 116.
  • Devon Energy Corporation: RBC Capital maintains its sector perform recommendation and reduces the target price from USD 60 to USD 55.
  • Eog Resources, Inc.: Mizuho Securities maintains its buy recommendation and reduces the target price from USD 158 to USD 150.
  • Equifax Inc.: Jefferies maintains its hold recommendation with a price target raised from USD 180 to USD 200.
  • Fair Isaac Corporation: Jefferies maintains its buy recommendation and raises the target price from USD 1035 to USD 1210.
  • Hsbc Holdings Plc: Shore Capital maintains its buy recommendation and raises the target price from GBX 870 to GBX 890.
  • Imperial Brands Plc: Jefferies maintains its hold recommendation with a price target reduced from 1670 to GBX 1636.
  • Intertek Group Plc: Stifel maintains its sell recommendation with a price target reduced from 3700 to GBX 3400.
  • Kraft Heinz: Bernstein upgrades to outperform from market perform with a target price of USD 40.
  • Standard Chartered Plc: Shore Capital maintains its buy recommendation and reduces the target price from GBX 1030 to GBX 1000.
  • The Home Depot, Inc.: Guggenheim maintains its buy recommendation and reduces the target price from USD 360 to USD 340.
  • The Jm Smucker Company: Bernstein downgrades to market perform from underperform with a price target reduced from USD 123 to USD 119.
  • Vertex Pharmaceuticals Incorporated: Daiwa Securities maintains its buy recommendation and raises the target price from USD 410 to USD 430.
  • Warner Music Group Corp.: Wells Fargo initiates an Equalweight recommendation with a target price of USD 35.
  • Wise Plc: Liberum maintains its sell recommendation and raises the target price from 585 to GBX 615.