Powell will speak again today at 2 pm ET, and he will be followed by vice chair Lael Brainard and board governor Michelle Bowman.
He should reiterate that its priority is fighting inflation, not pro-market paternalism, or anything like that.
This stance doesn't please investors, who thought a happy ending scenario was still a possibility, without anticipating yet another twist. It's the usual gap between reality and fiction. The fiction was the rapid victory of central banks against inflation. The reality is that modern economies cannot be cleaned up from top to bottom in a few months.
Jerome Powell reminded us of this again on Wednesday. He is a reliable indicator, firstly because he is at the helm of the world's most influential economy. Secondly, because for a long time he himself thought that the US central bank was going to regain control of prices in a matter of weeks. Before changing his stance, obviously, but belatedly. The message is now: past efforts are not enough. The debt market has understood this: the US 10-year bond rate rose to 3.71% yesterday, an unprecedented level over the recent period.
Yesterday, the central banks of several countries also raised their rates. In particular Switzerland, Norway and the UK. The classic inflation bending tools are being deployed, but there is a sense that central bankers are not very much in control.
I will end this week's column with an interesting piece by John Thornhill, in the Financial Times. He looked at what investors got right during the latest tech bubble, the one that burst in December 2021. A similar exercise was done by Paul Graham after the internet bubble of 2000. Graham explained that stock market investors were right at the time about the direction of travel, but wrong about its speed.
Thornhill puts forward five elements to the credit of investors. First, they were right to place enormous value on data. Second, they understood that while globalization is slowing down, electronic globalization is accelerating. Third, they perceived that the labor market has been permanently disrupted by the coronavirus. Fourth, Thornhill thinks that the energy transition will result in huge stock market wealth. I didn't find this very clear at first, but he uses Tesla to illustrate this point: the company is undoubtedly overhyped and perhaps overvalued, but it has led the way. Finally, he mentions blockchain and cryptocurrencies, conceding that aficionados don't provide many answers but ask the right questions.
This seems to me to be a fair statement, even if it probably lacks quite a bit, by the author's own admission. Personally, I would like to add a major underlying trend which will also largely shape the world, and investment, in the years to come: the interconnectedness enabled by social networks. It multiplies access to all kinds of information, true or false, and can divide or bring closer parts of the population.
Economic highlights of the day:
Today, the PMI indicators of the major economies will be released throughout the day. They take the pulse of purchasing managers in industry and services. All the macro agenda is here.
The dollar is still going strong, up 0.8% to EUR 1.0254. The ounce of gold rallies to USD 1,645. Oil retreats, with North Sea Brent at USD 87.74 per barrel and US WTI light crude at USD 80.58. The yield on 10-year U.S. debt is stretching at 3.71%. Bitcoin is trading around USD 18,900.
In corporate news:
* Fedex, which issued a warning last week, confirmed Thursday that its earnings per share fell 21.3% in the quarter ended Aug. 31. The group added that it wants to cut expenses by $2.2 billion to $2.7 billion in fiscal 2023. The stock is down 1.3% in pre-market trading.
* Costco Wholesale is down 3.5% in premarket trading as the company reported a decline in fourth-quarter profit margin on Thursday due to inflationary pressures and supply chain strains.
* Apple - The NFL, the U.S. national soccer league, announced Thursday that it has entered into a multi-year agreement with Apple Music to sponsor the Super Bowl halftime show starting in February 2023. Financial terms of the deal were not disclosed.
* The Boeing Company will pay $200 million to settle a lawsuit involving the 737 MAX, the aircraft manufacturer accused by the Securities and Exchange Commission of misleading investors by claiming that the plane was safe when it knew that its MCAS anti-stall system posed a safety problem. Boeing's stock is down 1.5% in premarket trading.
* Raytheon Technologies, which was competing with Boeing and Lockheed Martin, won a $985 million contract with the Pentagon to develop hypersonic attack cruise missile prototypes.
* Tesla in turn filed a lawsuit Thursday against the California Civil Rights Department (CRD), a California public civil rights agency, which accuses the electric car maker of tolerating racial discrimination at one of its plants.
* Humana and CVS Health are cited by sources as possible takeover candidates for healthcare group Cano Health, which has received expressions of interest. Cano shares are up 3.2% in pre-market trading.
- Ally Financial: Wells Fargo Securities downgraded to equal-weight from overweight. PT up 4.3% to $32.
- Avista: Mizuho Securities raised its recommendation to buy from neutral. PT up 9.1% to $44,.
- Asos: RBC moves from Outperform to Sector Perform targeting GBp 1000.
- Boyd Gaming: JMP Securities initiated coverage with a recommendation of market outperform. PT up 34% to $65.
- CrowdStrike: MoffettNathanson Initiates coverage with Buy Rating, $280 Price Target.
- Domino's Pizza: BMO Capital Markets upgrades to outperform from market perform. PT up 34% to $430.
- Equifax: Autonomous initiated coverage with a recommendation of outperform. PT up 25% from last price to $215.
- Experian: Autonomous initiated coverage with a recommendation of outperform. PT set to 3,300 pence.
- Fair Isaac: Autonomous initiated coverage with a recommendation of underperform. PT down 15% to $373.
- First Solar: Morgan Stanley increases price target to $146 from $136, keeps equalweight rating.
- Intertek: Oddo BHF upgrades from neutral to outperform, targeting GBp 4500.
- Marathon Petroleum: JPMorgan Chase adjusts price target to $136 from $110, maintains overweight rating.
- Phillips 66: JPMorgan Chase adjusts price target to $118 from $112, maintains overweight rating.
- ServiceNow: MoffettNathanson starts with hold rating, $553 price target.
- Take-Two: Stifel adjusts price target to $163 from $180, maintains buy rating.
- The Wendy's Company: Stephens starts at Overweight with $25 Price Target.