However, this also eased recession concerns, along with the release of strong Chinese exports numbers, which unexpectedly rose in July.
So, the U.S. economy is technically in recession, since it recorded two consecutive quarters of negative growth; but its labor market is still thriving and prices are soaring. This is understandably unsettling to investors, who are wondering how far the central bank will have to go to remedy the situation. July's U.S. inflation numbers, to be released on Wednesday, will likely provide further insight.
It is expected to remain high, which is creating damage to the economic and social fabric. It therefore requires a response, in particular a monetary response, which involves raising key interest rates. By raising rates, a central bank reduces the amount of money in circulation by restricting access to credit. Households are expected to spend less and companies to invest less, which should reduce economic overheating and thus bring inflation back into territory compatible with more harmonious economic development. I'm deliberately simplifying things, but this is the underlying mechanism.
Now, among the things that financial markets do not like at all is uncertainty. Simply because it reduces the effectiveness of models based on forecasts and probabilities. The major uncertainty of the moment for investors is the level at which the US central bank will have to raise its rates to curb inflation. So, any positive economic statistic is an indication that the Fed's efforts so far have been unsuccessful. And that it will have to do more, but how much more?
The situation is complex, because there is a strong inertia between the moment when rate hikes are deployed and the moment when they have a profound effect on the real economy.
In other news, the U.S. Senate passed Joe Biden's climate, health and tax plan. This is an important step for the majority in the US, even if the measures adopted are much less ambitious than the initial draft. Beijing is still making a show of force around Taiwan after Nancy Pelosi's visit to the island last week.
Today, a series of earnings reports should provide some clues into the impact of high inflation on companies. These include Palantir Technologies, Dominion Energy, Tyson Foods, Take-Two Interactive Software, Novavax and News Corp.
Today's economic highlights:
There's no major indicator today.
The dollar is trading at EUR 0.9815. The ounce of gold is now stagnating around USD 1784. Oil is struggling for direction today, with North Sea Brent crude at USD 93.96 per barrel and U.S. WTI light crude at USD 88.02. The yield on 10-year U.S. debt is back up to 2.91%. Bitcoin is trading around USD 24,100.
* Tesla, Rivian Automotive and Lordstown Motors gained 1% to 2.4% in pre-market trading after the U.S. Senate passed a sweeping health and climate bill that would provide tax credits for the purchase of electric vehicles and billions of dollars in funding for their production.
* Tyson Foods reported better-than-expected quarterly sales, with little change in customer buying behavior as a result of its inflationary price increases.
* Berkshire Hathaway reported Saturday a $43.8 billion loss for the second quarter, a consequence of the fall in the U.S. stock market, but the group of billionaire Warren Buffett has nevertheless seen its operating income increase thanks to its reinsurance and rail transport activities.
* Emerson Electric announced Monday that it will sell its InSinkErator food waste disposer brand to Whirlpool for $3 billion.
* CVS Health is looking to buy health platform Signify Health, which has a market cap of around $4.66 billion, according to The Wall Street Journal. In pre-market trading in the U.S., Signify Health shares were up about 18%.
* United Parcel Service announced on Monday that it would buy Italian medical logistics company Bomi without specifying the amount of the deal, but the Wall Street Journal reported that it could be worth several hundred million dollars.
* Carlyle Group announced on Sunday the resignation with immediate effect of its chief executive, Kewsong Lee, a few months before the scheduled end of his five-year term.
- Cigna: Mizuho Securities upgrades to buy rating. PT up to $330 from $291.
- Close Brothers Group: Investec cut the recommendation to hold from buy. PT set to 1.170 pence.
- Coinbase: Daiwa Securities moves to outperform from buy. PT set to $100.
- Duke Energy: Credit Suisse cut the recommendation to neutral from outperform. PT up 3.9% to $114.
- EOG Resources: TD Securities upgrades to buy from hold. PT up 35% to $135.
- Expedia Group: Wells Fargo Securities maintains overweight rating. PT down to $200 from $250.
- HubSpot: Truist Securities cut the target to $500. Maintains buy rating.
- Motorola Solutions: Cowen raised the price target to $311 from $278. Maintains outperform rating.
- Ormat Technologies: UBS maintains buy rating. PT up to $94 from $80.
- PerkinElmer: UBS raised the price target to $180.
- Phoenix Group Holdings: J.P. Morgan cut the recommendation to neutral from overweight. PT up 16% to 775 pence.
- Quanta Services: Thompson, Davis & Co raised the target to $145 from $130. Maintains buy rating.
- Repligen: UBS raised the target. PT up 13% to $275.
- Skyworks Solutions: Raymond James maintains outperform rating. PT down to $150 from $170.
- Twilio: UBS maintains buy rating. PT down to $170 from $210.
- Vertex Pharmaceuticals: Stifel maintains hold rating to $263 from $240.
- XPO Logistics: KeyBanc Capital Markets raised the target to $80 from $70. Maintains overweight rating.