Traders now expect a 67.6% chance of a 50-basis point rate hike in in May, according to Reuters. Bank stocks are rising as a result.

Mr. Powell's speech yesterday led to an acceleration of sales of U.S. Treasury bonds, mechanically causing a rise in bond yields, with a 10-year debt whose remuneration has increased to 2.33%.

The Fed chairman suggested that the Fed must act quickly to counter "much too high" inflation. The institution is ready to raise rates by half a point rather than a quarter point if the need arises. Powell even talked about "moving to more restrictive levels if necessary".

Rate hikes are not necessarily bad for the economy and stock markets, at least if they are done properly and gradually. What economists fear above all are times when central banks are forced to act in an emergency, with the risk of damaging the economic equilibrium to the point of causing serious turmoil and/or a recession. We-re not there yet, but there is a feeling that the Fed has a lot to do to catch up. "The Fed's policy mistakes over the past two years have accumulated to the point of equaling those of the 1970s," wrote an American economist at First Trust yesterday, who finds it difficult to understand the "casualness" of central bankers.

But let's do a basic mathematical exercise: the latest scores on the derivatives market show that the market expects 7 or 8 quarter-point rate hikes by the end of the year, with 6 Fed meetings left. So, we should expect one or two half-point rate hikes this year...

 

Economic highlights of the day:

The Richmond Fed Manufacturing Index is today's main indicator.

The dollar/euro pair is down to EUR 0.9058. The ounce of gold is down to USD 1915. Oil is also down, with North Sea Brent at USD 114.18 and US WTI light crude at USD 108.32. US debt yields rise to 2.33% over 10 years, while German debt offers a coupon of 0.46% over the same duration. Bitcoin is trading around USD 43,000.

 

On markets:

* Tesla - The U.S. automaker is set to deliver its first electric vehicle models from its German factory near Berlin on Tuesday at a ribbon-cutting ceremony attended by CEO Elon Musk and German Chancellor Olaf Scholz. Tesla gains 1.6% in pre-market trading.

* Nike - The U.S. sports equipment maker, which reported better-than-expected quarterly revenue and profit on Monday, said production problems that had plagued its sales for the past six months were now resolved. Nike shares are up 6 percent in premarket trading.

* Prologis, the U.S. investment fund specializing in warehouse and logistics building management, has launched a $21 billion bid for Mileway, the logistics assets division of Blackstone, the Financial Times reported Monday.

* Pfizer - The company announced on Monday evening that it was recalling certain batches of its hypertension drug Accuretic, as well as two generics of the treatment, due to the presence of high levels of nitrosamine, a potentially carcinogenic impurity.

In addition, the company announced Tuesday that it has reached an agreement with UNICEF to sell up to four million doses of Paxlovid, its oral treatment for COVID-19.

* Alphabet - Waymo, one of the divisions of Google's parent company Alphabet, announced Monday that it is ready to launch driverless vehicle services in San Francisco, without further details on the timeline.

* Alibaba - The Chinese online retail giant on Tuesday raised its share buyback program from $15 billion to $25 billion, the highest amount in its history, in order to support its share price, which is suffering in particular from concerns related to a tightening of regulations in the sector by the Chinese authorities. Alibaba shares jumped 8.6% before the opening of Wall Street.

* Tencent Music - The Wall Street-listed Chinese music streaming group, which reported a 15 percent drop in revenue in its core social entertainment services business on Monday, announced plans to list on the Hong Kong stock exchange as well. Its stock is up 5.8% in pre-market trading.

 

Analyst recommendations:

Anaplan: William Blair downgrades to market perform from outperform

Altria: Goldman Sachs upgrades to buy from neutral. PT up 9.1% to $57.

Big Yellow: Berenberg maintains a hold rating with a price target raised from GBp 1,140 to GBp 1,500.

Canopy Growth: Barclays downgrades canopy growth to underweight from equalweight.

Diploma: J.P. Morgan downgrades from neutral to underweight with a target of GBp 2500.

FMC Corporation: BofA Securities double downgrades fmc to underperform from buy

Lancashire: Jefferies starts tracking to buy, targeting GBp 500.

Marks and Spencer: Exane BNP Paribas downgrades to underperform from neutral. PT up 6.5% to 170 pence.

Nike: Telsey Advisory Group raised the target on Nike Inc. Class B to $170 from $165. Maintains outperform rating.

Philip Morris: Goldman Sachs downgrades to neutral from buy. PT up 6.2% to $100.

Sea Limited: Phillip Securities initiated coverage of Sea Ltd. Class A ADRs with a recommendation of buy. PT set to $196.

The Sherwin-Williams Company: BofA Securities upgrades to buy from neutral, adjusts price target to $296 from $325