(Boursier.com) — After two sessions of sharp decline, which plunged the S&P 500 into a “bear market”, the New York Stock Exchange regained a little calm on Tuesday, ending in dispersed order, while the American Federal Reserve began a crucial monetary policy meeting. Markets now expect the Fed to hike policy rates by 75 basis points on Wednesday, not 50 bps, in response to Friday’s announcement that inflation had spiked to 8.6% over a year in the United States.
At the close, the Dow Jones lost another 0.5% to 30,364 points (after -2.8% on Monday), while the broad index S&P500 dropped 0.37% to 3,735 pts (after -3.88% on Monday), chaining 5 sessions of decline in a row. As to Nasdaq Compositerich in technological and biotech stocks, it managed to regain 0.18% to 10,828 pts, after a plunge of 4.68% on Monday, the lowest since September 2020.
The S&P 500 has fallen since Monday into a ‘bear market’ (a drop of more than 20% on the highs), and now loses 22% from its January 3 peak last, at 4,796 pts at the close. The Nasdaq gives up 32% on its November 2021 record, and the Dow Jones drops 17.5% on its January highs.
The rate of the US 2-year loan climbs to 3.42%
Nine of the 11 S&P 500 sector indices ended in the red on Tuesday, but energy (+0.1% after -5.1% Monday) and technology (+0.6% after -4.4% Monday) straightened slightly. Among the most active stocks of the day are You’re here (+2.4%), Apple (+0.67%), Advanced Micro Devices (AMD, stable after -8.2% on Monday), Nvidia (+1.2% after -7.8% on Monday), Amazon (-1.3% after -5.4% on Monday), Microsoft (+0.9% after -4.2%), Meta Platforms (-0.3% after -6.4%). fedex jumped 14.4%, after notably announcing a sharp increase in its dividend.
On the bond markets, yields continued to rise on Tuesday, still reacting to the inflation figures in the United States, published on Friday, which created a shock with a acceleration in price increases in May, to 8.6% over one year, after 8.3% in April. The performance of T-Bond at 10 years jumped another 10 basis points (hundredths of a point) to 3.46% on Tuesday evening, while the rate of the T-Bond at 2 yearsmore sensitive to the Fed rate hike, climbed 9 bp to 3.42%, the highest since October 2007!
In the euro area, the return on 10-year German bund jumped 13 bps to 1.76%, 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% .
Towards a tightening of 75 basis points by the Fed this Wednesday?
Financial markets reacted sharply to new expectations for Tuesday and Wednesday’s meeting of the US Federal Reserve. According to sources quoted by the ‘Wall Street Journal’ the Fed is preparing to raise its main key rate by 75 basis points this week, and not by 50 bp as expected so far by the markets.
Many brokers, including Goldman Sachs and Morgan Stanley, share this opinion, given the surprise acceleration of inflation in May in the United States. The “fed funds” rate, which has already been raised by 75 bp since March (+25 bp in March and +50 bp in May), would then be brought within a range of 1.50%-1.75%.
According the CME Group’s FedWatch tool, the probability of such a 75 bp rate hike stood at 95% on Tuesday evening. For the end of the year, the FedWatch tool essentially shows forecasts of 3.5-3.75% (37.4% probability) and 3.75-4% (39.4% probability) for the range fed funds rates.
In addition to tomorrow’s rate hike, traders expect the Fed to signal the possibility of another 50bp (or even 75bp) rate hike in July. Beyond that, it is unlikely that the US central bank will already give clear indications for its September meeting. It should nevertheless leave the door open to a change in increments of 50 or 75 basis points. In addition, Jerome Powell, head of the institution, could explicitly reject the idea of a break from the Fed still hoped for a short time ago.
US producer prices up 10.8% year on year in May
On May 18, the Chairman of the Fed told the ‘Wall Street Journal’ that the Fed’s plan was to raise its key rates in steps of half a point at its next meetings, but he did not not rule out larger hikes, by 75bp if necessary.
The Federal Reserve will “need to see clear and convincing evidence” that inflation is easing before slowing the pace of rate hikes. “If we don’t see it, we will have to consider acting more aggressively” to tighten financing conditions, he added.
While waiting for the Fed’s announcements on Wednesday evening, the markets learned on Tuesday of the American producer price index for the month of May. The PPI still came out very high, although in line with expectations, up 0.8% over one month and 10.8% over one year. Excluding food and energy, this indicator rose by 0.5% compared to April, against 0.6% consensus and after +0.4% in April. The increase over one year, excluding food and energy, is 8.3%, against 8.7% consensus.
On Wednesday, the day will be very active, with the publication of US retail sales, the New York Fed’s Empire State index, import and export prices, inventories and business sales, the US housing market index, the Atlanta Fed inflation expectations index, the Energy Department’s weekly report on domestic oil stocks. Without forgetting, of course, the Fed press release at 8:00 p.m. French time, followed by Jerome Powell’s conference from 8:30 p.m.
The dollar at its highest for almost 20 years
On the foreign exchange market, the dollar benefits from the prospect of higher rates and acts as a safe haven. The dollar index rose 0.42% to 105.52 points on Tuesday evening against a basket of reference currencies, at the highest for nearly 20 years, in October 2002. euro stabilized at $1.0410 (+0.02%).
gold fell another 1% after falling 2.3% on Monday, to end at $1,813.50 an ounce, for the Comex August futures contract, falling back to a month low. the bitcoin continued its descent into hell, falling around $22,200 at the end of the evening, down 4.5% over 24 hours, and the lowest in 18 months. The crypto sector is weighed down by the announcement of cryptocurrency lending platform Celsius Network, which had to freeze withdrawals in the face of “extreme market conditions”, in the current context of rising rates.
Oil markets stalled on Tuesday amid fears of a slowdown in global demand. The barrel of American light crude WTI (July futures) fell 1.7% to $118.93 on the Nymex, while the Brent North Sea August maturity fell 0.9% to $121.17 on the ICE.
VALUES TO FOLLOW
Oracle (+10.4%!) The American group based in Austin, Texas, has shown that its strategy of migrating its offer to the “cloud” is bearing fruit, posting profits and revenues that exceed analysts’ expectations for its 4th fiscal quarter ended May 31. However, net profit fell 21% to $3.2 billion from $4 billion a year earlier. Net earnings per share, adjusted for non-recurring items, came out at $1.54, while the FactSet consensus was for $1.37. Quarterly sales rose 5% (and 10% at constant exchange rates) to total $11.8 billion, versus $11.6 billion expected by Wall Street. Total cloud-related sales jumped 19% to $2.9 billion (+22% at constant exchange rates).
“We have seen a surge in demand for our cloud infrastructure offering, which jumped 39% at constant currency,” Group Chief Executive Safra Catz said in a statement. “We believe this upward spurt of growth shows that our cloud infrastructure business has entered a phase of hyper-growth,” she added.
FedEx jumped 14.4%, posting its strongest rise in about 30 years. The delivery giant has just announced a 53% increase in its quarterly dividend, along with other value-enhancing actions. Two administrators have been added to the board in agreement with the activist investor DE Shaw & Co, which also produces its small effect. The quarterly cash dividend is increased to $1.15. While Raj Subramaniam has just taken over the management of the group, the operators are apparently betting on strong resistance from FedEx in an economic context that promises to be difficult. The Memphis group intends to reduce its capital expenditure and review its executive compensation program.
Fred Smith, founder of the group who has therefore just left the general management, remains its largest shareholder with 7.5% of the shares. DE Shaw held 1 million shares at the end of March. The firm has already demonstrated its activist capabilities at ExxonMobil, Lowe’s and many others.
Twitter (+0.5%). Elon Musk should address all employees of the social media network on Thursday Twitter for the first time since he presented his initial plan to buy back 44 billion dollars, Reuters learned yesterday Monday, from a source familiar with the matter. Business Insider, citing an email message from Twitter CEO Parag Agrawal, also reported on the June 16 meeting. Agrawal, in his message, says that staff members can submit their questions to the businessman in advance. The social network’s marketing director, Leslie Berland, will play the role of moderator during the event…
Recall that Musk had initially proposed to buy Twitter for 44 billion dollars, before suspending his proposal to obtain more data from the group concerning the evaluation of fake and bot accounts. The markets are betting on a reduced offer from Musk, while Twitter’s share price is moving to $37, a far cry from the $54.2 indicated when the billionaire approached in April.
Coinbase (-0.8%) has just announced a huge restructuring plan, involving the elimination of 18% of its workforce, or 110 positions. The group evokes the economic turnaround, while cryptocurrencies have also just copiously unscrewed. The cryptocurrency exchange platform has lost 85% of its value since its debut on Wall Street. Most of the fall took place this year, with the plunge in Nasdaq technology stocks. “Today, I am making the difficult decision to reduce the size of our team by approximately 18%, to ensure that we remain healthy during this economic downturn,” said Brian Armstrong, chief executive and co-founder of the group.
Apple (+0.67%). The German Cartel Office has announced that it is investigating the rules imposed by the group on publishers of third-party applications in terms of tracking user data.
Boeing (+5.4%) rebounded, after falling 8.8% on Monday. Industry-wide demand for aircraft is strong and continues to improve as airlines work to replace aging fleets, purchase more efficient models and watch the growth of the number of passengers, Boeing Chief Executive Dave Calhoun said on Monday, expressing great optimism. “Demand for planes is as strong as I’ve ever seen it. I think it’s going to get stronger,” Calhoun told Reuters and to another media outlet on the sidelines of an event at Boeing’s new headquarters in Arlington.