Powell did it again

06/23/2022 | 08:52am

Wall Street opened higher today despite recession fears, as falling bond yields led investors towards growth stocks. Yesterday, Fed chairman Jerome Powell managed to limit the damage during his speech, as he assured investors that the US economy was strong enough to withstand several rate hikes this year.

Recession fears have gone up a notch since the Fed implemented an aggressive 75 basis point rate hike, following data showing that inflation remained at a 40-year high in May. The ongoing war in Ukraine and surging Covid cases in China are only adding fuel to the fire.

Things are not going well for equity markets, and this was confirmed last week when the S&P officially recorded more than 20% loss from its January peak. The Nasdaq even fell more than 31% from its November peak.

After two days of sharp gains, US stocks took a break yesterday, on declines of less than 0.2% for all three indexes. It was a rather calm session, without the turmoil investors feared might happen after Powell's speech before Congress. Jerome Powell has again hammered that the Fed will do everything to fight inflation and that a recession is not guaranteed but possible. Given the limited drop in indexes and the easing of bond yields, it's safe to say that he did it again. In the short term, Wall Street's calm can be interpreted as a sign of a certain acceptance of a complex macroeconomic context. However, the Fed is still a divisive force, as it is accused by a fringe of economists of playing with fire. Powell will be in front of Congress again today, this time in the lower house. The content of his speech should remain the same.

In other news, the leading PMI indicators are being released throughout the day for the major economies. They survey purchasing managers of a panel of companies, and are good indicators of the mood in the private sector. The manufacturing sector is slowing down in the US, with the S&P Global Manufacturing PMI falling to 52.4 in June from 57 in May, much lower than the consensus of economists of 56. 

The German and French PMI data were also disappointing, but the British one was slightly better than expectations. 

Today, Weekly jobless claims reached 229,00 last week, against 226,000 estimated.

Meanwhile, the Fed is set to release the results of its 2022 stress test, which will assess how much capital banks would need to withstand a severe economic downturn.

 

Today's Economic Highlights:

The leading manufacturing PMI indices for June will be published throughout the day. In addition. All the macro agenda here.

The dollar is worth EUR 0.9509. The ounce of gold is stagnating at USD 1830. Oil is rising after its decline, with North Sea Brent crude at USD 111.54 per barrel and U.S. light crude WTI at USD 105.95. The yield on 10-year US debt drops to 3.14% over 10 years. Bitcoin is trading at $20,500.

 

On markets:

  • Berkshire Hathaway bought 9.6 million shares of Occidental Petroleum, raising its stake in the company to 16.3%. 
  • Abbott Laboratories was down 1.1% in pre-market trading after the U.S. Food and Drug Administration announced Wednesday that it had opened an investigation into the death of an infant in January, possibly linked to an infant formula developed by the group.
  • Accenture announced Thursday a lower-than-expected revenue forecast for the fourth quarter, due to high inflation and the impact of the rising dollar on its overseas earnings. The stock was trading down 5.3% before the opening.
  • Uber Technologies explored various options for its India business, including a sale, but put talks on hold following the sharp drop in global stock markets, Bloomberg reported Thursday.
  • Oil Values- Major U.S. oil companies will meet Thursday with Energy Secretary Jennifer Granholm and other U.S. administration officials in an emergency meeting on ways to lower fuel prices.

 

Analyst recommendations:

  • AGCO: Morgan Stanley downgrades to equal-weight from overweight. PT up 21% to $129.
  • Autozone: MKM Partners initiated coverage with a recommendation of buy. PT set to $2,350.
  • AvalonBay: Credit Suisse reinstated coverage with a recommendation of neutral. PT up 8.4% to $208.
  • Booking: Gordon Haskett lowers price target to $2,474 from $2,730, maintains buy rating.
  • Chemring: Jefferies remains "Hold" with a price target reduced from GBp 350 to GBp 330.
  • Currys: Morgan Stanley resumes inline-weighted tracking by targeting GBp 96.
  • D.R. Horton: Keefe Bruyette & Woods adjusts price target to $80 from $100, maintains market perform rating.
  • FirstGroup: HSBC downgrades from buy to hold, targeting GBp 150.
  • Intertek: Deutsche Bank downgrades from hold to sell targeting GBp 3600.
  • Lowe's: MKM Partners initiated coverage with a recommendation of neutral. PT set to $190.
  • Kilroy Realty: Credit Suisse reinstated coverage with a recommendation of underperform. PT set to $48.
  • Rentokil: Deutsche Bank upgrades from hold to buy targeting GBp 550.
  • Rio Tinto: Morgan Stanley moves from Overweight to Equal-Weight with GBp 6230.
  • Snap: Guggenheim lowers price target to $18 from $35, maintains buy rating.
  • Snowflake: J.P. Morgan upgrades to overweight from neutral. PT up 30% to $165.
  • Tesla: Morgan Stanley lowers price target to $1,200 from $1,300, maintains overweight rating.
  • The Home Depot: Gordon Haskett lowers price target to $315 from $330, maintains accumulate rating.
  • The New York Times Co: Cannonball Research downgrades to neutral from buy, lowers pt to $31.50 from $60.
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