The head of the US Treasury stressed that providing a global guarantee on deposits in response to the banking crisis was not on the table. From an institutional, economic and moral point of view, this is undoubtedly a very good thing, as a blank cheque would encourage recklessness. From the point of view of the investor, the hope that short-term risk would almost disapear has vanished. The financial and real estate sectors fell sharply. This is where the current weak links are, especially First Republic (-15% yesterday), Comerica (-8%) and more generally all the second-tier banks.

Yellen's comments sent the S&P500 down -1.65% and the Nasdaq down -1.37%. Prior to this, US indices had reacted positively to the US central bank's decision to raise rates by 25 basis points, as had been expected. Fed funds are now between 4.75 and 5%. They are approaching the theoretical peak rate envisaged by the Fed, i.e. 5.125%. This level is of course "all things being equal", which is very meaningful in finance as what is supposed to happen does not always happen. But overall, the Powell team did not venture off the beaten track. The markets heard what they expected to hear. Namely, that the Fed considered a pause in the current rate hike cycle, but that there was a fairly strong consensus in favor of further monetary tightening because, after all, inflation is still biting. The president of the central bank stressed, and I quote, that rate cuts are not part of the basic scenario. This is just one way of suggesting that if the base case is shattered, the Fed will adjust.

Commentators familiar with Powellian semantics summarized yesterday's meeting as a "dovish hike". This means that the Fed has preserved its strategy and credibility by raising rates, and that it can be dovish if something goes wrong in the days or weeks to come: new bank failure(s), a credit crunch elsewhere, soaring unemployment or Elon Musk's candidacy for the US presidential election.

The Fed's apparent docility is reflected in the fall in the dollar and bond yields, signalling that the market believes the end of monetary austerity is near, even though the central bank has continued to hammer home the point that inflation remains a problem. As we have discussed several times since the beginning of the week, the Fed is trying to preserve both financial stability and price stability, but will likely focus on financial stability if forced to choose. This risk, coupled with lingering recession fears, means that investors remain confident that rates will fall this year. They see them at 4.2% at the end of 2023 and therefore do not believe the central bank when it says they will be at 5.1% in December and 4.3% in December 2024.

On the macro front, the Swiss National Bank raised its rate by 50 basis points today, while the Bank of England went for a 25 basis points rate hike.

Wall Street opened in positive territory today, with the Dow Jones Industrial Average futures up 0.6%, S&P 500 futures rose 0.8%, and Nasdaq futures surged 1.3%.

New data published this morning showed new unemployment claims reached 191,000 in the week ended March 18, compared with 192,000 claims in the preceding week and estimates for 198,000.

 

Economic highlights of the day/

Monetary policy decisions in Switzerland and the UK, as well as US jobless claims and new home sales figures are today’s main indicators. All the agenda is here

The dollar is slightly down to EUR 0.9183 and GBP 0.9128. The ounce of gold rebounds to 1978 dollars. Oil also rallied, with North Sea Brent at USD 76.67 a barrel and US WTI light crude at USD 70.92. The yield on US 10-year debt fell to 3.44%. Bitcoin is trading around USD 27,500.

 

In corporate news:

Technology groups Apple, Microsoft and Amazon were up 1% in premarket trading as bond yields eased after the Fed's announcements.

Nvidia was up 1.9 percent in premarket trading as Needham raised its price target on the semiconductor maker to $300 from $270, which is expected to benefit from near-term demand in data centres.

Boeing received an order from Japan Airlines for 21 737 MAX aircraft in a deal estimated by Reuters to be worth at least $2.5 billion at list price.

Regeneron and Sanofi's asthma and eczema drug Dupixent met all its endpoints in a Phase III trial of the treatment for chronic obstructive pulmonary disease (COPD), a lung condition common in smokers, the French drugmaker said on Thursday. Regeneron jumped 8.6% in pre-market trading.

Coinbase is facing prosecution by the Securities and Exchange Commission, which has identified potential securities law violations, the cryptocurrency platform said on Wednesday, falling 12.9 percent in premarket trading.

Block was down 14.9 percent in premarket trading as Hindenburg Research said it was short on the Jack Dorsey-founded payment group's stock.

Accenture was up 4.6% in premarket trading after announcing a plan to cut 19,000 jobs, or about 2.5% of its workforce.

Bed Bath & Beyond was up 7.4% in premarket trading after it reached a share price agreement with Hudson Bay Capital Management, a leading investor in the group.

 

Analyst recommendations:

  • Align Technology: CICC initiated coverage with a recommendation of market perform.  PT set to $340.
  • Coinbase: Oppenheimer & Co downgrades to market perform from outperform.
  • Fevertree: Jefferies remains "Hold" with a price target raised from GBp 1000 to GBp 1150.
  • Informa: Morgan Stanley moves from Overweight to Equal Weight with GBp 730 target.
  • Marathon Oil: Citi upgrades to buy from neutral. PT up 21% to $27.
  • M&T Bank: Wolfe Research downgrades to peerperform from outperform.
  • NCC: HSBC starts tracking as a buy, targeting GBp 245.
  • Netflix: Fubon Securities initiated coverage with a recommendation of neutral. PT set to $322.
  • Nvidia: WestPark Capital reinstated coverage with a recommendation of hold.
  • Pioneer Natural: Citi upgrades to buy from neutral. PT up 11% to $210.
  • Qualcomm: WestPark Capital initiated coverage with a recommendation of hold
  • Regency Centers: Barclays upgrades to overweight from equal-weight. PT up 24% to $70.
  • Roper: Mizuho Securities downgrades to neutral from suspended coverage. PT up 11% to $475.