Powell's tall order to reassure investors

06/22/2022 | 09:35am

Yesterday's rally quickly fizzled, as U.S. indexes headed south this morning. Fed Chairman Jerome Powell will be the focus today, with a speech scheduled this morning on Capitol Hill for a monetary policy briefing with US lawmakers. He is going to have to be pretty convincing to get investors out of their rut.

This intervention comes one week after the Fed implemented the biggest interest-rate rise in thirty years. Powell will reiterate the Fed’s commitment to combat inflation, but growth is already slowing, which will make it difficult to reassure investors.

Yesterday's session saw strong increases, with gains in oil stocks, while basic materials were the biggest drag. It seems that investors are having a hard time positioning themselves as recession looms. This morning, oil is down after rumors that Joe Biden intends to temporarily suspend the federal tax on a gallon of gasoline. This decision would not in itself be particularly disruptive for prices, but it shows that the United States is looking for ways to ease the pressure on consumers, which could lead to other measures more targeted on the supply. To be continued... However, European restrictions on Russian oil have not really taken effect yet and that they could have a small upward effect once they do. The funny thing is that no matter how many studies we do, how much we talk about disruption and how much we talk about the subject, oil remains a highly strategic asset driven by forces that are both simple to understand and complex to anticipate.

On the macro side, the May US housing sales figures released yesterday were down, as expected. In economics, there are often complex mechanisms at work, but the relationship between rising interest rates and the housing market is transparent: money is more expensive, so lending conditions are tightening, effectively excluding certain segments of the population from mortgages and pushing others to be cautious about their purchases. Today's high inflation reading in May in the UK only added to inflationary frenzy. In China, the government is calling for more investment and is signaling that it is preparing measures to support growth.

After Powell's speech today, we also have interventions from Barkin, Evans and Harker from the Fed this evening.


Economic highlights of the day:

Nothing major to report, except of course Jerome Powell's bi-annual hearing before Congress. All the macro agenda here.

The dollar is trading around EUR 0.9480. The ounce of gold is down to USD 1842. Oil is down with North Sea Brent crude at USD 107.53 per barrel and U.S. light crude WTI at USD 102.10. US 10-year debt yields fall back slightly to 3.26%, while short maturities (3 months and 6 months) rise. Bitcoin is down to USD 20,400.


On markets:

* The Boeing Company - The aircraft maker expects continued supply difficulties through the end of 2023 because of labor problems at subcontractors and small suppliers facing a faster-than-expected recovery in demand, its chief executive said Wednesday. The stock is down 1.5% in pre-market trading.

* Philip Morris, Altria - The U.S. government is considering a measure to set a maximum nicotine level in cigarettes and other tobacco products in an effort to make them less addictive, the White House Budget Office said Tuesday.

* Alphabet relaunched Google News in Spain on Wednesday, eight years after it shut down the service because of a local law forcing the company and other news platforms to pay publishers to distribute their content.

* Uber Technologies and Lyft drivers filed a lawsuit Tuesday in California against the two U.S. VTC groups, accusing them of anti-competitive practices by exercising unfair control over fare prices.

* Revlon was up 29.5 percent in premarket trading as the cosmetics maker became popular with individual investors after filing for bankruptcy protection.


Analyst recommendations:

  • Anthem: Morgan Stanley downgrades to equal-weight from overweight. PT jumps 16% to $533.
  • Brixmor Property: J.P. Morgan upgrades to overweight from neutral. PT jumps 27% to $25.
  • Celanese Corporation: Alembic Global Advisors lowers price target to $165 from $200, maintains overweight rating.
  • Ceres Power: Goldman Sachs upgrades from sell to buy targeting GBp 700.
  • Cigna: Morgan Stanley upgrades to overweight from equal-weight. PT up 17% to $296.
  • Corteva: BofA Securities raises price target to $57 from $51, maintains underperform rating.
  • CRISPR Therapeutics: Piper Sandler adjusts price target to $121 from $115, reiterates overweight rating.
  • Equity Residential: RBC Capital Markets upgrades to outperform from sector perform. PT rises 11% to $79.
  • Johnson & Johnson: Daiwa Securities initiated coverage with a recommendation of outperform. PT up 4% to $180.
  • Kroger: MKM Partners raises price target to $55 from $48, maintains neutral rating.
  • Lennar Corporation: Barclays adjusts price target to $85 from $93, keeps equalweight rating.
  • PNM Resources: Mizuho Securities upgrades to buy from neutral. PT up 16% to $52.
  • Medical properties: J.P. Morgan downgrades to neutral from overweight. PT rises 23% to $18.
  • NatWest: Jefferies upgrades from hold to buy targeting GBp 359.
  • Rogers Communications: Canaccord upgrades to buy from hold, lowers price target to CA$69 from CA$71.
  • Sage Group: Jefferies remains Buy with a price target reduced from GBp 890 to GBp 740.
  • Smurfit Kappa: Jefferies upgrades from hold to buy targeting GBp 3700.
  • The Home Depot: Evercore ISI adjusts price target to $320 from $335, maintains outperform rating.
  • The Kraft Heinz Company: BMO Capital upgrades to outperform from market perform; price target is $46.
  • The Sherwin-Williams Company: Evercore ISI adjusts price target to $280 from $305, maintains outperform rating.
  • Veeva: Guggenheim initiates coverage with buy rating, $252 price target.
  • Vodafone: Barclays moves from Overweight to Equal-Weight in line with GBp 140 target.
  • Welltower: J.P. Morgan upgrades to overweight from neutral. PT up 13% to $89.
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