Today on Wall Street: Core inflation is lower than expected

09/14/2021 | 08:53am

While waiting for the publication of the latest statistics on inflation in the United States, global financial markets saw a slight decrease in volatility. In Asia, Tokyo set a new record. The figures have now been released and investors are busy assessing them.

The US inflation rate in August reached 5.3M at an annual rate, in line with analyst expectations. In July, it was 5.4%. Excluding the most volatile items such as energy or food, core inflation, which serves as a reference for the Fed, reached 4%, against 4.2% expected and 4.3% the previous month.

This data could give clues about what the Fed will pull out of its hat in terms of monetary policy next week. That said, with investors not really sure what they want at the moment, it will once again be difficult to draw any definitive conclusions from these, beyond the short-term wobble of course.

Yesterday on Wall Street, indexes recovered at the end of the day after some difficult hours. In the end, the S&P500 gained about 0.2%. The Nasdaq 100 failed to erase all of its losses to finish down a symbolic 0.04%, for a fourth consecutive session in the red. The overall picture is skewed by the strength of energy-related stocks, especially oil, which have played the role of growth engine, while the majority of other sectors were less lackluster.

A word today on the "value" strategy, which consists of seeking out discounted stocks by betting on their return to good graces. This is an investment style whose return has been announced at regular intervals for years, in order to finally dismantle those damned growth strategies that have no merit. Arguably, with rare exceptions, this investment style has not really succeeded, or at least suffers deeply from the comparison with other approaches.

In addition to the low interest rate environment, value investors obviously have to fight against an overpowering underlying trend, if we are to believe a French-Russian study cited at the beginning of August by the economist Joachim Klement. The latter defines himself as a value investor who has disavowed (but not totally) his principles for several years. The researchers created investor profiles with algorithms capable of reinforcement learning and with biases, in order to have short-term and long-term traders.

By running the models, two phenomena have emerged. First, and quite logically, the increase in short-term investors improves market liquidity, since they are more active. Secondly, the increase in short-term bias during bull markets has created a self-fulfilling prophecy. Joachim Klement said on this study: "The best way to make a quick profit in such markets is to bet that what has gone up will go up. If more investors do this, this expectation becomes a self-fulfilling prophecy, as more short-term investors buy stocks that have gone up and avoid stocks that have gone down."

Trend-following is increasingly popular, and what started as a bias has turned into a tidal wave, reinforced by the advent of high-frequency trading. For the economist, investors' appetite for the short term is a worrying factor for the value strategy, which could be left behind for a long time.

 

Today's Economic Highlights:

British employment figures and US inflation for August are on the agenda today.

The dollar/euro pair is little changed at EUR 0.8467, while the ounce of gold is down USD 1783. Oil is up slightly, with Brent crude nearing USD 74 and WTI at USD 70.71. Bond yields are relatively quiet, with 10-year debt paying 1.33% in the US. Bitcoin is rebounding slightly above USD 46,000.

 

On markets:

* Boeing said Tuesday that it has raised its 20-year forecast for the passenger market slightly to 43,610 aircraft, 500 more than before, but lowered its forecast for cargo planes.

* Apple is expected to introduce new products later today that could include a new version of the iPhone.

* South Korean authorities have fined Google, the company's main subsidiary, $177 million for abusing its dominant position in the mobile operating system market.

* Oracle reported Monday a lower-than-expected quarterly revenue, as a result of competition in the cloud computing market, but its forecasts for the current quarter exceeded the consensus. The stock lost 1.8% in pre-market trading.

* Amazon Evercore ISI raised its price target to $4,700 from $4,200. The online retailer also raised the minimum hourly wage in the U.S. for its employees to $18 and plans to hire 125,000 people. The stock was up 0.2 percent to $3,465.59 in premarket trading.

* Twitter - The Russian justice announced Thursday that it has imposed a fine of five million rubles to the social network for not removing content deemed illegal.

* Intuit - The publisher of tax software TurboTax and accounting software QuickBooks announced on Monday the acquisition of the marketing specialist Mailchimp for about 12 billion dollars (10.15 billion euros), its largest acquisition, a transaction payable in cash and shares.

* Fox Entertainment announced Monday that it has bought the TMZ media platform from AT&T-owned WarnerMedia for an undisclosed amount.

 

Analyst recommendations:

Associated British Foods: Jefferies remains Buy with target reduced from GBp 2900 to GBp 2700.

Apple : Wedbush reiterates Apple's outperform rating, $185 price target

Bank of America : Odeon Capital upgrades  to buy from hold, adjusts price target to $46.50 from $44.35

Cairn Energy: Investec downgrades to hold from buy. PT up 11% to 210 pence

Canadian Western Bank : Upgraded to Outperform at Raymond James

Cisco: JPMorgan adjusts price target to $67 from $62, maintains overweight rating

DT Midstream : Wells Fargo starts coverage at Overweight with $56 price target

EasyJet: UBS is keeping its Neutral rating. The target price is lowered from GBp 862 to GBp 760.

Eaton Corp: HSBC cut the recommendation on Eaton Corp. to hold from buy. PT down 3.3% to $153

EOG Resources : Tudor Pickering upgrades to buy from hold, $82 price target

Exelon: Mizuho Securities raised the recommendation to buy from neutral. PT up 4.8% to $53

Halliburton: Halliburton : UBS raises PT to $17 From $13, maintains Sell rating

Integer : Argus Research adjusts pt to $105 from $100, maintains buy rating

ITM Power: Berenberg upgraded from hold to sell with a target of GBP 350.

Next: Jefferies remains in the hold category with a target raised from GBp 8000 to GBp 8500.

PS Business Parks: J.P. Morgan upgrades to overweight from neutral. PT up12% to $175

S4 Capital: Jefferies remains Buy with target raised to GBP 960 from GBP 700. 

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