Wall Street climbed before the stock market on Tuesday, the DJIA offered 1% and the S&P 500 1.3%, against a gain of nearly 2% on the Nasdaq! The Russian Ministry of…
(Boursier.com) — Wall Street climbed before the stock market on Tuesday, the DJIA offering 1% and the S&P 500 1.3%, against a gain of nearly 2% on the Nasdaq! The Russian Ministry of Defense indicated that part of the troops deployed in Russia in border regions of Ukraine were returning to their bases, which fuels the hope of a reasoned and diplomatic solution. At the same time, Russia is initiating naval maneuvers, with around twenty ships having started exercises in Arctic waters between Russia and Norway. On the Nymex, a barrel of WTI crude fell 3.3% to $92.3. The ounce of gold fell by 0.7% to $1,856. The dollar index lost 0.4% against a basket of benchmark currencies. Bitcoin is evolving around $44,000, despite comments from Indian authorities, who are very skeptical of cryptocurrencies.
Yesterday, markets ended in mixed order on Wall Street, with the Dow Jones down 0.49%, the S&P 500 down 0.38% and the Nasdaq stable, against a backdrop of geopolitical fears and apprehensions about the Fed’s monetary tightening. After a sharp fall on Friday (-1.43% on the DJIA and -2.78% for the Nasdaq), the trend therefore seems to be calming down, while Russia seems to want to continue discussions with Westerners.
This Tuesday, operators will be able to follow the American producer price index for the month of January (2:30 p.m., FactSet consensus +0.5% compared to the previous month and +0.5% also excluding food and energy) and the New York Fed Empire State Manufacturing Index (consensus 12). The producer price index should therefore rise by 9.2% over one year (8% excluding food and energy). A few days ago, operators learned of consumer price inflation of 7.5% in the United States, unheard of since 1982.
Tomorrow Wednesday, Retail Sales, Import Prices, Industrial Production, Business Inventories, Housing Market Index, Atlanta Fed Inflation Expectations Index, Weekly U.S. Domestic Oil Inventories Report and Minutes of the last monetary meeting of the Fed, are on the agenda.
Fears of imminent Russian intervention in Ukraine are therefore subsiding for the time being, while the White House had previously warned, on Friday, of a possible invasion of Ukraine by Russia in the coming days. Such an invasion would probably exacerbate inflationary tensions and would put a little more pressure on the Fed, forced to accelerate the movement by putting an end to its purchases of bond assets and by engaging in a cycle of rate hikes and a reduction of its balance sheet. However, such a conflict would also weigh on global economic growth, further complicating the equation for the US central bank. Investors are increasingly counting on a strong gesture from the Fed in March, with a rate hike of half a point. Some even mention the possibility of a first rate hike outside of regular meetings. The latest data on consumer prices in the United States showed higher than expected inflation at 7.5%, which is also fueling rumors of an “emergency hike” in rates. At the same time, companies are increasingly passing on rising costs through price increases, creating a vicious cycle and further feeding this already burdensome inflation.
Moscow said there was still a chance of compromise with the West and resolving the Ukrainian crisis through diplomatic channels. Sergei Lavrov, head of Russian diplomacy, thus specified that there was “always a chance”, the opportunities for dialogue being “not exhausted”. These comments, during a television interview with Vladimir Putin, had already partially reassured yesterday.
Attention also remains focused on central bank policy, with the risk of a policy error. San Francisco Fed leader Mary Daly reiterated her stance against overly aggressive tightening. St. Louis Fed Chairman James Bullard’s speech did not change after comments that rattled markets last week. Bullard is in favor of a marked acceleration of “monetary normalization”. He says he is “a little more worried” that the Fed is not moving fast enough. According to him, the initial phase of monetary tightening should be “relatively painless”. Conditions would still justify, according to the official, a 100 basis point rate hike by July. The Fed should also prepare for asset sales if necessary. Esther George, head of the Kansas City Fed, also stressed the need for the Fed to divest assets from its $9 trillion portfolio. Finally, Thomas Barkin, head of the Richmond Fed, stayed on the same theme, saying it was time for the central bank to “normalize”.
More than 70% of US S&P 500 companies have now released their quarterly financial results. According to the FactSet Earnings Dashboard, the growth rate stands at 30.3%, down from 21.7% at the start of the earnings season. Slightly more than 77% of the firms that published exceeded consensus expectations in terms of earnings per share, which appears quite correct, but below the average of 84% observed over four quarters. These figures remain in line with the five-year average. Overall, companies reported earnings 8.8% better than expected, compared to an average “surprise rate” of 15.7% over four quarters. The positive surprise rate was less than 5% before getting an outsized boost fromAmazon a few days ago. Fourth quarter themes have been fairly predictable, with generally strong demand but elevated inflationary pressures – which are likely to persist for at least the next few quarters. The rigid inflation narrative, which also includes increasing wage pressure, is impacting forecasts and lending credence to the ‘peak margins’ thesis as revision momentum slows and trends emerge disappointing in terms of prospects.
Yesterday Monday, the chief U.S. equity strategist of Goldman Sachs, David Kostin, reduced his target for the broad S&P 500 index for the end of 2022 to 4,900 against 5,100 points. That was to be expected after his colleague Jan Hatzius, Goldman’s chief economist, raised his expectation for Fed rate hikes this year to seven from five. “Uncertainty abounds about the path of inflation and Fed policy. We believe that bilateral risks exist for our S&P 500 baseline forecast, but with greater downside probability,” said Kostin. Regardless, this new Kostin target still assumes an 11% upside from current levels.
Regarding the quarterly financial publications of companies listed on Wall Street, the agenda is a little less busy this week. This Tuesday, Akamai, Baidu, Borgwarner, Lattice Semiconductor, Devon Energy, Marriott International and Wynn Resorts will post their results.