(Boursier.com) — The New York Stock Exchange plunged into bright red on Friday after the publication of inflation of 8.6% over one year in May in the United States, while the markets expected stabilization around 8.3%. Bond yields rose further in anticipation of Fed and ECB rate hikes, with the US 10-year now trading at 3.15%. US consumer confidence plunged in June, raising fears of a coming recession, and leading to a correction in oil prices.
At the close, the Dow Jones fell 2.73% to 31,392 points, while the broad index S&P500 lost 2.91% to 3,900 pts, and that the Nasdaq Compositerich in technology and biotech stocks, tumbled 3.52% to 11,340 pts, returning to the lowest since October 2020.
On all of the week, the three indices fell by 4.6%, 5% and 5.6% respectivelyand since the start of the year, they have dropped around 13.5% for the DJIA, 18% for the S&P 500 and 27.5% for the Nasdaq.
The 11 sector indices of the S&P 500 ended in the red on Friday, starting with consumer discretionary (-4.1%), technology (-3.9%), and financials (-3.6%) . Among the day’s biggest declines were the “tech” giants, including Meta Platforms (ex-Facebook) which lost 4.6%, netflix (-5.1%), Apple (-3.8%), You’re here (-3.1%) or even Nvidia (-5.9%). Alphabet dropped 3.2% and Microsoft fell 4.4%, whileAmazon dropped 5.6%.
Earlier in the day, the European markets had also ended at half mast, theEuro Stoxx 50 down 3.3%, the DAX 30 losing 3.1% in Frankfurt, while in Paris, the CAC 40 ended down 2.7%, suffering a fall of 4.5% over the week. In Asia, the Nikkei lost 1.5% in Tokyo, but in China the composite shanghai gained 1.4%.
US inflation at its highest for more than 40 years, household morale at its lowest
Investors received a double shock this Friday, with an acceleration of inflation in the United States, and a plunge in the morale of American consumers, who are worried about soaring prices, in particular of fuels, which are at record levels, at over $5 for a gallon of gasoline.
The consumer price index (CPI) climbed 1% in May compared to April, against +0.7% of the FactSet consensus, bringing US inflation to 8.6% year on year from 8.3 % consensus, and after 8.3% in April and 8.5% in March. The rise in prices thus reached a new high for 41 years across the Atlantic, and dashed the recent hopes of the markets.who thought they had detected signs that the rise in prices had now peaked…
Excluding food and energy, the CPI also rose more than expected, by 0.6% over one month (+0.5% expected). Over one year, the pace slowed slightly to +6% in May (against 5.9% expected) after +6.2% in April.
As to US consumer sentiment, measured by the University of Michigan, collapsed in June to 50.2 in initial reading, its historic low, and very far from the market consensus which was at 58.2. In May, the indicator stood at 58.4.
Monetary puzzle in sight for the Fed
These worse-than-expected figures further complicate the task of the US Federal Reserve, which began a cycle of rate hikes in March to fight inflation, and could be tempted to act even more aggressively in the face of the soaring prices at its meeting next Tuesday and Wednesday. The markets had so far been banking on a further rise of half a point in the “fed funds” rate on June 15, to bring it within a range of 1.25%-1.50%.
U.S. central bank officials have recently signaled they are ready for at least another half-point hike in July, and possibly again in September if inflation doesn’t show clear signs. slowdown by then.
The American central bank must deal with a particularly adverse environment after having kept its rates far too low, and far too long. In such a context, the risk of a more pronounced economic slowdown increases sharply. Data from the CME’s FedWatch tool now points to a potential cumulative rate hike of 215 basis points in 2022, which would bring the federal funds rate to around 3% at the end of next December.
The US 2-year rate jumped above 3%!
On the bond markets, rates soared on Friday, after the inflation figures in the United States. The performance of T-Bond at 10 years jumped 11 basis points to 3.15%, while the rate of the T-Bond at 2 yearsmore sensitive to the Fed rate hike, soared 23 bp to 3.04%, the highest since mid-2008!
In the euro area, the return on 10-year German bund jumped 9 bps to 1.51%, back to the highest since April 2014, over 8 years ago! As a reminder, the German “10-year” was in negative territory, at -0.18% at the end of December 2021, while the American “10-year” was at 1.5% and the “2-year” at only 0.74% .
The dollar and gold act as safe havens
In the foreign exchange market, the dollar index acted as a safe haven, and jumped 0.9% Friday evening to 104.17 points against a basket of benchmark currencies. euro fell 0.93% to $ 1.0516, after the announcements of the ECB Thursday, which caused tensions on the debt of Italy. While the ECB is going to end its purchases of bonds on the markets, the “spread” (difference) between the yields of the southern countries of the euro zone and the German Bund has increased, reflecting investors’ concern about the Italian debt, which exceeds 150% of GDP. The Italian 10-year yield ended the week at 3.83%, with a spread of 232 basis points against the Bund of the same maturity.
gold jumped 1.2% to end at $1,875.50 an ounce, for the Comex August futures contract, and is up 1.4% on the week. the bitcoin peaked Friday evening at $29,150, down 3.3% over 24 hours.
WTI oil signs its 7th week of increases
Oil markets lost ground on Friday amid fears of a slowdown in global demand, but prices remained anchored above the $120 a barrel threshold. The barrel of American light crude WTI (July futures) fell 0.7% to $120.67 on the Nymex on Friday, while the Brent North Sea August-maturing price fell 0.86% to $122.01 on the ICE. Investors are wondering about American demand, but also Chinese demand after Shanghai announced Thursday the re-containment of 2.7 million inhabitants on Saturday to screen them for Covid-19.
On all of the week, WTI crude rose 1.5% (its 7th week of gains) and Brent rose 1.9%, its 4th positive week. The analysts of Goldman Sachs have revised their price target for Brent upwards this week, to $140 a barrel in the 3rd quarter, and to $135 on average over the coming year, due to still constrained supply, in the face of solid demand despite inflation.
VALUES TO FOLLOW
DocuSign, the Californian specialist in electronic signatures and digital transactions, plunged 24.5%! The group missed the profit consensus for the quarter ended and to revise its forecasts downwards. In the first fiscal quarter of 2023, ending at the end of April 2022, the group posted revenue up 25% to $589 million, with a 26% increase in subscription revenue to $569 million. GAAP net loss was 14 cents, compared to 4 cents a year earlier. Adjusted earnings per share were 38 cents, compared to 44 cents a year earlier and 46 cents consensus. Free cash flow nevertheless increased to 175 million. For the financial year ending at the end of January 2023, the group expects revenues ranging from 2.47 to 2.482 billion, and an adjusted operating margin ranging from 16 to 18%.
Stitch Fix (-18.5% after -10.5% on Thursday). The US online personal styling service has lost two-thirds of its value since the start of the year and has been more than tenfold since peaks in January 2021. Rising costs and a fall in demand have weighed on the accounts published Thursday evening. The group also plans to cut hundreds of jobs. 15% of the salaried workforce is affected, i.e. 330 jobs. For the third fiscal quarter, the group announced an adjusted loss per share of 72 cents compared to a consensus of 57 cents. A year earlier, the loss was 18 cents per share. Revenues reached 493 million dollars in the quarter ended in April, in line with expectations, against 535 million a year earlier.
netflix lost another 5.1%, while Goldman Sachs has just downgraded the value of the streaming giant from neutral to sell! The target price is reduced from $265 to $186. Remember that Netflix’s setbacks continue, the group being the victim of a combination of unfavorable elements, with massive sharing of passwords, increased competition and seemingly unappreciated price increases. Netflix will have to do what is necessary to remedy these various problems, and it will take time. The service lost 200,000 subscribers over the quarter, a first in ten years. After the “stock market bubble” of confinement on Netflix and a certain number of other values adapted to the context, the return to reality is therefore harsh. The Netflix stock is dropping 68% of its value this year. Goldman Sachs justifies its deterioration by the deterioration of the economic environment, and anticipates a slowdown in Netflix’s growth, adjusting downwards its 2022 and 2023 revenue estimates.
GS, in a same report, also downgraded from ‘neutral’ to ‘sell’ the video game group Roblox (-8.9%) and the online auction giant eBay (-5.1%).
Apple (-3.8%) / Alphabet (-3.2%). The CMA, the British competition authority, says it is considering an investigation into the positions of Apple and Google (Alphabet) in the market for browsers for mobile devices as well as the restrictions imposed by Apple on online gambling via its store. apps.