It has started again. The initial somewhat euphoric reaction of financial markets to the central bank announcements this week has given way to more confusion, as often happens. I think I used the term "let's wait for the dust to settle" twice this week, for lack of a better term. In general, overreactions go both ways, which implies that a lull is not impossible in the following sessions. As it would be presumptuous to try to predict the future without having attended a divination school, I will content myself with providing a few explanations of what is going on.
Yesterday, the US Nasdaq fell by 2.6%, apparently its biggest correction since September. The day before, happy with the statements of the Fed for its last meeting of the year, it had jumped by 2.35%. To tell the truth, I didn't understand why the stock-rich technology index on steroids was taking advantage of the announcement of a less generous economic period in terms of liquidity. As we all know, when money (from central banks) is flowing, investors are less and less selective and get enthusiastic about unreasonable business models, which would probably never have worked without these extravagant windfalls. Some of them are disappearing anyway.
By planning a series of rate hikes over the 2022/2024 period and closing its asset purchase program in the coming weeks, the Fed is sending the message that money will become less cheap, so there will be less of it in circulation, because the economy is overheating as evidenced by price and labor market data. In doing so, the surplus money of investors who no longer knew where to put their marbles to participate in the party will gradually leave the riskiest assets.
This mechanism justifies the cautious position of some financial intermediaries who are recommending a jump to quality and defensive assets at the moment. The monetary cycle is being reversed and the combination of strong growth and low interest rates should come to an end. Unless, of course, the central banks are forced to act as firemen again by the coronavirus. But that is another story.
Yesterday, the Nasdaq floundered, dragging down the broad S&P500 index, which was a bit too inbred. I remind you that the seven largest US companies now account for more than 50% of the Nasdaq 100, and that the same seven companies account for 27% of the S&P500. And even more in terms of daily trading within these same indices. The Dow Jones finished almost at equilibrium thanks to the "old" economy, particularly finance and health care.
This morning, European leading indicators are quite clearly bearish, given the performance gap with Wall Street, which widened its losses after the close of the old continent's markets yesterday. The main Asian stock markets are well anchored in the red, with the exception of Australia. Hong Kong resumed its slide as the United States blacklisted 34 new Chinese companies banned from investing in American capital. At the same time, the Senate passed a law banning the import of goods produced in the Xinjiang region, unless it can be proven that forced labor was not used in the process. The Hong Kong index has lost 13% since the beginning of the year, for a gain of 19.4% in the STOXX Europe 600: more than 30% difference, which reminds us that the stock markets are not all in the same boat this year.
One last thing: the stock market month, and therefore the stock market year since we are in December, "ends" today with the "day of the four witches", the date for the settlement of monthly and quarterly derivatives. These clearing sessions take place every third Friday of the month on the exchange (these are the "three witches") and four times a year at the end of each quarter for quarterly maturities (these are the "four witches"). There are usually spikes in volatility around the closing hours. Then there will be two weeks of trading left to end the calendar year.
Economic highlights of the day:
The German Ifo business confidence index and European inflation for November are on the agenda today. Overnight, the Bank of Japan announced the reduction of its Covid support measures, while keeping rates unchanged.
The dollar is up to EUR 0.8827 The ounce of gold is back above the USD 1,800. Oil is down slightly with a barrel of Brent crude at USD 73.62 and a barrel of WTI at USD 70.95. The yield on 10-year US debt is down to 1.42% after rising slightly the day before. Bitcoin is down to USD 47211.
* Technology heavyweights, which are particularly sensitive to interest rate changes, fell further in pre-market trading on Friday after the U.S. Federal Reserve's announcements paving the way for monetary tightening.
* Banking stocks are each up about 0.4 percent on the prospect of a three-fold increase in U.S. interest rates next year.
* The U.S. business software giant is in talks to buy Cerner, a company specializing in medical IT management and infrastructure, in a deal valued at $30 billion, The Wall Street Journal reported Thursday, citing sources close to the matter.
* Fedex - The courier group is up 5.7 percent in premarket trading after restoring its 2022 profit forecast on Thursday, despite persistent labor shortages that have weighed on its results for the crucial holiday season.
* Tesla CEO Elon Musk has sold about $14 billion worth of his shares in the automaker since early November, according to stock market reports.
* The U.S. Federal Trade Commission (FTC) has opened an in-depth investigation into Facebook parent Meta Platforms’ proposed $400 million takeover of Supernatural, a virtual reality-based fitness app, according to The Information on Thursday.
* KKR - The U.S. private equity firm will buy Orix's small business accounting software subsidiary Yayoi for an undisclosed amount, the Japanese financial group said Friday.
* Biogen is down 1.6% in pre-market trading after the European Medicines Agency rejected its application to market Aduhelm (also known as Aducanumab), its treatment for Alzheimer's disease.
* Pfizer, BionTech - European Union member states have agreed to order more than 180 million doses of the COVID-19 vaccine specifically tailored to the Omicron variant that the two companies are developing, the European Commission announced Friday. In addition, France's National Consultative Ethics Committee (CCNE) has approved the expansion of COVID-19 vaccination to all children aged five to 11.
* Moderna's COVID-19 vaccine is up to four times more likely to cause heart muscle inflammation, a very rare side effect, than its competitor developed by the duo Pfizer and BioNetch , according to a Danish study published Thursday night in the British Medical Journal.
* The European Medicines Agency (EMA) will not decide on Merck's oral COVID-19 treatment until after Christmas, a source said Friday. An EMA decision on Gilead's antiviral will instead be made before Christmas, the same source said.
* Two Amazon shareholders have asked the U.S. online retail giant to disclose its tax practices and potential risks to investors, shareholder advisory firm PIRC said Friday as pressure for greater transparency intensifies on multinationals.
* Bing, one of the few foreign Internet search engines allowed in China, will suspend the auto-suggest feature when making an online query for 30 days at the request of authorities, Microsoft said Friday.
* Chinese authorities will ban online brokerage firms such as Futu Holdings and UP Fintech Holding from offering "offshore" trading services to customers in mainland China because of concerns about data security and capital outflows, sources close to the matter told Reuters.
* The Amazon-backed electric vehicle maker reported a third-quarter net loss of $1.2 billion on Thursday night. The group also announced plans to invest $5 billion in a plant in Georgia, its second U.S. location. Rivian's share price fell by 9.8% in after-hours trading.
- Accenture: DA Davidson lifts PT to $428 from $380; Buy/Add rating kept
- Blackrock: BofA Securities initiates coverage with Buy rating
- Boohoo: Investec downgrades from hold to sell targeting GBp 95.
- Eaton Corporation: Mizuho Securities initiated coverage with a recommendation of buy. PT set to $200.
- Edwards Lifesciences: J.P. Morgan upgrades to overweight from neutral. PT rises 17% to $140
- Emerson Electric: Mizuho Securities initiated coverage with a recommendation of neutral. PT set to $100.
- Fedex: JP Morgan is keeping its Buy rating. The target price has been modified and is now set at USD 312 compared to USD 305.
- Franklin Resources: BMO Capital Markets downgrades to market perform from outperform. PT up 11% to $38.
- Honeywell: Mizuho Securities initiated coverage with a recommendation of buy. PT set to $245.
- John Wood Group: Morgan Stanley downgrades from overweight to in-line weighting, targeting GBp 249.
- Lowe's: Morgan Stanley adjusts PT on Lowe's to $265 from $260, maintains Overweight rating
- Martin Marietta Materials: Barclays raised its recommendation to overweight from equal-weight. PT up 10% to $485
- Medtronic: J.P. Morgan downgrades to neutral from overweight. PT up 2.7% to $105
- QinetiQ: Citigroup upgrades from neutral to buy targeting GBp 340.
- Robinhood Markets: JPMorgan adjusts PT to $17 from $26, reiterates Underweight rating
- Roper Technologies: Mizuho Securities Co Ltd initiated coverage with a recommendation of buy. PT up 13% to $550
- Severn Trent: HSBC downgrades from buy to hold with a target of GBp 2940.
- Starbucks: Baird downgrades to neutral from outperform. PT up 2.1% to $116.
- International Game Technology: Stifel reinstated coverage with a recommendation of buy. PT set to $43.
- Rowe Price Group: BMO Capital Markets upgrades to outperform from market perform. PT jumps 29% to $246
- TUI AG: Berenberg remains Sell with a price target raised from GBp 175 to GBp 180.
- 3M Company: Mizuho Securities initiated coverage of with a recommendation of neutral. PT up 0.9% to $180