Yesterday, investors’ Holy Trinity – namely rates, the Chinese economy and artificial intelligence – took a back seat. Only yesterday, because as you’ll see in a minute, Fed rates became the focus again today. Anyway, geopolitics and corporate earnings momentarily took over on Monday. Investors welcomed the good profits of financial stocks. JPMorgan Chase or Wells Fargo posted great results on Friday, and so did Charles Schwab yesterday. Bank of America also posted robust results today. These lenders are in the best possible period of the cycle to make money: rate hikes have boosted profits generated by assets without having to do much, but they haven't yet damaged the rest of the business too much. However, Goldman Sachs didn’t deliver, as announced today that its net profit fell by 36% in the third quarter, during which the bank recorded a significant decline in its asset management and wealth management business.

Overall, analysts have tended to reduce their earnings expectations over the past few weeks, which has moved the cursor in absolute terms. But investors still judge figures in relative terms. The results of the Magnificent Seven of Big Tech start tomorrow with Tesla. However, we'll have to wait until next week for Microsoft, Alphabet, Amazon and Meta, and a little longer for Apple (November 2) and above all Nvidia (November 21), the new cult object of financiers. If research firms are to be believed, the Magnificent Seven won't be mixing with the plebs just yet this quarter: their combined profits are set to jump by 34% year-on-year. Less so for Apple than for Nvidia, but still.

In addition to corporate results, the situation in the Middle East dominates the news. Risk perception eased a little yesterday after the United States decided to throw all its weight behind trying to avoid a escalation in the region. Joe Biden will travel to Israel tomorrow, before heading to Jordan, where he will meet the King, the Egyptian President and the head of the Palestinian Authority. It is rumored that the White House wants both to assure the Jewish state of its support and to encourage humanitarian aid for the displaced population of Gaza. This balancing act is unlikely to prevent the Israeli army from launching a ground offensive in the north of the territory, or Iran from fanning the embers from a distance. Fortunately, Elon Musk has not yet offered mediation! Joe Biden's involvement yesterday helped to push down the safest assets, notably the dollar and gold. The barrel of oil retreated slightly, but remains high. Equity indices benefited from this easing, following Friday's decline. Gains were modest in Europe, but more solid in the US, where the three main indices gained around 1%, led by financials and semiconductors.

Fed rates worries came back today after data showed a stronger-than-expected rise in monthly retail sales, fueling concerns that the US central bank could keep rates higher for longer and even implement a new hike by the end of the year. The Commerce Department report showed retail sales climbed 0.7% in September, compared with a 0.3% gain expected in the consensus of economists.

Dow futures were down 0.25%, S&P 500 futures were down 0.5%, and Nasdaq 100 futures were down 0.8% in premarket trading.

Investors know that Jerome Powell is due to deliver an important speech on Thursday. They are now hoping more than ever that the Fed boss will back up his colleagues' recent comments that there will be no further rate hikes in the months ahead. As for China, it is organizing a major regional economic forum starting today, with guest-star Vladimir Putin. "President Xi Jinping calls me his friend, and I call him my friend too", said the Russian leader ahead of the summit. In the midst of all this friendship, real estate giant Country Garden continues its agony. It has a dollar bond due by tomorrow, or it will default. I have a feeling this would be the 212th time the developer has defaulted. A long agony, then.

Economic highlights of the day:

UK with jobless claims and the unemployment rate, the German ZEW survey for October, US advanced retail sales, capacity utilization and industrial production, business inventories and the NAHB house price index. The full agenda is here. 

The dollar is trading at EUR 0.9487 and GBP 0.8236. The ounce of gold is slightly up at USD 1923. Oil remains firm, with North Sea Brent at USD 89.78 a barrel and US light crude WTI at USD 86.67. The yield on 10-year US debt rises to 4.8%. Bitcoin trades at USD 29,000.

In corporate news:

  • Bank of America reported third-quarter net income of $7.27 billion or 91 cents per share, compared with $6.58 billion or 81 cents per share a year earlier.
  • Bank of New York Mellon beat consensus for third-quarter earnings on Tuesday, as Federal Reserve rate hikes bolstered net interest income. Net interest income jumped nearly 10% year-on-year to $1.02 billion, compared with $926 million a year earlier.
  • Johnson & Johnson gained 1.56% in pre-market trading after raising its earnings forecast for 2023. Excluding its consumer healthcare unit, the company now expects adjusted earnings of $10.07 to $10.13 per share in 2023, compared with a previous forecast of $10 to $10.10 per share.
  • Apple fell by 0.4% before the opening, as Morgan Stanley reduced its price target due to supply constraints.
  • Marathon Oil said Monday it had signed a five-year liquefied natural gas (LNG) sales agreement with a Glencore unit, and expects to see its EBITDA grow by more than $300 million next year.
  • Amazon said on Tuesday that it would launch its online shopping service in South Africa in 2024, as the country experiences a surge in online shopping.
  • The US Food and Drug Administration on Monday approved the expanded use of Merck's Keytruda immunotherapy in patients with a type of early-stage lung cancer who can have their tumor surgically removed.
  • NetScout Systems fell 22.4% in after-hours trading, after the enterprise software company lowered its revenue and earnings guidance for 2024.
  • Brookfield is considering entering the UK pension insurance market and is open to a local acquisition to support its growth, three people familiar with the matter told Reuters.
  • U.S. auto safety regulators said on Tuesday they had opened a preliminary investigation into 594 vehicles from General Motors’ cruise autonomous driving unit.
  • Some 3,700 Detroit casino employees are set to strike Tuesday if a wage agreement is not reached, the Detroit Casino Council said Monday.
  • Vistagen jumped 12% in after-hours trading, after Citadel founder Ken Griffin revealed a 5.7% passive stake in the company.

Analyst recommendations:

  • Aes corp: Barclays maintains its overweight recommendation and reduces the target price from USD 25 to USD 17.
  • Air Products: Wells Fargo Securities upgrades to overweight from equal-weight. PT up 20% to $345.
  • Avantor: Goldman Sachs maintains its buy recommendation and raises the target price from USD 24 to USD 25.
  • Bellway: Peel Hunt maintains its buy recommendation with a price target reduced from GBX 2660 to GBX 2580.
  • Block: Wolfe Research maintains its outperform rating and reduces the target price from USD 95 to USD 60.
  • Broadridge: Wolfe Research upgrades to peerperform from underperform.
  • Consolidated edison: Wells Fargo upgrades to equalweight from underweight with a price target reduced from USD 96 to USD 94.
  • Danaher corp: Goldman Sachs maintains its buy recommendation and reduces the target price from USD 260 to USD 250.
  • Dollar general c: Goldman Sachs maintains its buy recommendation and reduces the target price from USD 160 to USD 138.
  • Dollar Tree: Goldman Sachs upgrades to buy from neutral. PT up 24% to $137.
  • Enphase energy: Morgan Stanley upgrades to attractive from equalwt/in-line with a price target reduced from USD 159 to USD 135.
  • Eversource energ: Wells Fargo maintains its overweight recommendation and reduces the target price from USD 87 to USD 65.
  • Fidelity nationa: Wolfe Research upgrades to outperform from peerperform with a target price of USD 65.
  • First solar: Morgan Stanley upgrades to attractive from equalwt/in-line with a price target reduced from USD 226 to USD 214.
  • Hsbc holdings pl: Societe Generale downgrades to sell from hold with a target price reduced from GBX 650 to GBX 575.
  • Jupiter fund: Numis downgrades to hold from add with a price target reduced from GBX 115 to GBX 88.
  • Mastercard: Wolfe Research maintains its outperform rating and raises the target price from USD 455 to USD 470.
  • Mettler-toledo: Goldman Sachs maintains its neutral recommendation with a price target reduced from USD 1300 to USD 1185.
  • Mondelez: BNP Paribas Exane upgrades to outperform from neutral with a target price of USD 75.
  • Moneysupermarket: Peel Hunt upgrades to buy from hold with a target price of GBX 290.
  • Progressive corp: Citi downgrades to neutral from sell with a price target raised from USD 120 to USD 158.
  • Revvity: Goldman Sachs maintains its buy recommendation and reduces the target price from USD 140 to USD 120.
  • Solaredge techno: Morgan Stanley upgrades to attractive from equalwt/in-line with a price target reduced from USD 240 to USD 176.
  • Thermo fisher: Goldman Sachs maintains its buy recommendation with a price target reduced from USD 580 to USD 540.
  • Tourmaline oil c: CIBC Capital Markets maintains its outperform rating and raises the target price from CAD 77 to CAD 82.50.
  • Travis perkins: Stifel maintains its hold recommendation with a price target reduced from GBX 900 to GBX 820.
  • Waters corp: Goldman Sachs maintains its neutral recommendation with a price target reduced from USD 305 to USD 280.