The Federal Reserve made expected decisions during its monetary policy meeting. It maintained the Fed Funds rate in the range of 5 to 5.25%, without raising it for the first time since March 2022. However, it adopted a firm tone regarding future monetary policy. It signaled the expectation of two additional quarter-point rate hikes this year following the pause in June. Moreover, it emphasized that none of its members are considering a rate cut in 2023 and raised its core inflation forecast.

The market had not anticipated a rate cut this year but had hoped that the upward trend in interest rates would end. Consequently, the Fed's confirmation of no rate cut and the scenario of a tightening in July aligned with market expectations. The possibility of further tightening by the end of the year was also left open.

While the financial community was not greatly surprised, some economists questioned why the Fed is pausing if it is concerned about a resurgence in inflation. The Fed explained that it will base its monetary policy decisions on the latest macroeconomic data available. This led to a late rally in the stock indexes, with the S&P500 up 0.08% and the Nasdaq 100 rising 0.7%. The prospect of high-interest rates persisting for a longer period did not seem to dampen investor enthusiasm, particularly among those interested in artificial intelligence. However, it is advisable to wait for further analysis once the situation stabilizes. The bond market had a more nuanced reaction, with long-term rates slightly rising while short-term rates fell, reinforcing the inversion of the yield curve seen in recent months. This indicated that bond traders remained cautious about the possibility of a recession. Futures contracts only partially embraced the Fed's rhetoric, factoring in one rate hike for now rather than two.

The Dow Jones index experienced a decline of 0.68% yesterday, contrary to the overall trend. This was largely attributed to UnitedHealth, the largest capitalization on the index, which announced higher-than-expected costs in the second quarter due to a surge in non-urgent operations that were postponed during the pandemic. The company's share price dropped by 6.4%, impacting the index negatively.

European markets, on the other hand, generally gained ground ahead of the Fed's announcements. Paris and Frankfurt saw increases of 0.5%, while London's gain was modest at 0.1%. Zurich's SMI, however, fell by 0.43% due to a 2% decline in Roche's stock and a significant 12.5% drop in Logitech following the surprise resignation of its CEO. Wall Street initially started positively, but the indexes experienced a sudden sell-off following the Fed's update on monetary policy. Nonetheless, the US markets closed higher overall, except for the Dow Jones.

In terms of other central bank actions, China's central bank cut its one-year lending rate by 10 basis points to 2.65%, a move that was widely anticipated. While this offered some support to local markets, there was some disappointment that Beijing did not implement a more substantial stimulus package. China also released mixed economic data, with industrial production in May rising by 3.5% year-on-year, meeting expectations, but the rebound in retail sales and investment falling below economists' forecasts. The European Central Bank (ECB) is expected to adjust its monetary policy, with a hike in the Refi rate from 3.75% to 4% at 8:15 am. In comparison to the US, the Eurozone continues to face higher inflation.

In the Asia-Pacific markets, Japan saw a 0.3% gain for the fifth consecutive session in positive territory. Hong Kong experienced stronger gains (+0.9%) compared to Shanghai (+0.6%). However, South Korea struggled with a decline of 0.3%, while India and Australia both gained 0.2%. European leading indicators showed a slight decrease, with the CAC40 down 0.3% at 7306 points shortly after the market opened.

 

      Today's economic highlights:

      In the US, retail sales (8:30 am.), the Philly Fed and Empire Manufacturing indexes will be published at 8:30 am, along with weekly unemployment data. Industrial production (9:15am) and business inventories (10:00am) will follow. ECB rate decision at 8:15am. The full agenda is here.

      The dollar is slightly up against the pound and the euro by 0.3% to EUR 0.9230 and GBP 0.7899. The ounce of gold is worth USD 1932. Oil is up, with North Sea Brent at USD 73.97 a barrel and US light crude WTI at USD 69.15. The yield on 10-year US debt has risen to 3.79%. Bitcoin falls to 25,000.

       

      In corporate news:

      Citigroup: It expects severance costs in the second quarter to be $300 to $400 million higher than in the first quarter due to the elimination of around 1,600 jobs.
       
      Goldman Sachs: It will be cutting more than 30 jobs in Asia, mainly in its international banking and markets division, due to a difficult market environment affecting financial transactions and brokerage activities.
       
      Alphabet (Google's parent company) has warned its employees against using generative artificial intelligence chatbots, including its own Bard interface, and advised them not to enter sensitive data into chatbots due to information protection policies.
       
      Microsoft and Activision Blizzard have requested a U.S. judge's intervention in the legal proceedings initiated by the Federal Trade Commission to block Microsoft's acquisition of the video game publisher.
       
      Patterson-UTI Energy and Nextier Oilfield Solutions: The two companies have agreed to merge in an all-stock transaction, creating an oilfield services company worth $5.4 billion.
       
      Pfizer, Moderna, and Novavax: Advisors to the U.S. FDA will discuss and vote on whether to recommend targeting the XBB variant of SARS-CoV-2 in COVID-19 vaccines for a fall vaccination campaign. The companies are already developing vaccine versions targeting the XBB.1.5 variant and other sub-variants.
       
      Truecar: Truecar announced a restructuring plan that includes laying off 24% of its workforce (102 positions) to reduce expenses by $20 million per year.
       
      Uber: Uber plans to close its meal delivery business in Italy and withdraw from Israel to focus on markets with sustainable growth opportunities.
       
      Cava Group: The restaurant chain raised $318 million in its initial public offering (IPO), valuing the company at around $2.5 billion.
       
      JD.com, Pinduoduo, Alibaba, iQIYI: U.S.-listed Chinese companies experienced a stock price increase of 1.5% to 3% following the People's Bank of China's decision to cut the medium-term interest rate to support the Chinese economy's rebound.

      Analyst recommendations:
      • Accenture: Citigroup recommends buying the stock. Price target raised to $358 from $306.
      • Allegiant Travel: Deutsche Bank raised the recommendation to buy. PT set to $145.
      • Bank of America: Citigroup maintains neutral rating. Price target downgrades to $31 from $33.
      • CRH: Redburn reinstated coverage with a recommendation of buy. Price target up 28% to $66.5.
      • Corning: Citi raised to buy from neutral. PT upgrades to $40
      • Denbury: J.P. Morgan initiated coverage with a recommendation of neutral. PT set to $96, implies a 9.1% increase from last price.
      • Diageo: Goldman Sachs cut the recommendation to neutral from buy. PT set to 3,700 pence
      • Domino's Pizza: Stifel raised the price target to $350. To buy from hold.
      • Lennar: Wedbush raised the target to $123 from $94. Maintains neutral rating.
      • Netflix: Wolfe Research is positive on the stock. Price target set to $485 from $ 388.
      • Nike: RBC lowers price target from $145 to $138.
      • OGE Energy: Ladenburg Thalmann & Co raised the recommendation to buy from neutral. PT set to $39.