(Boursier.com) — After an initial drop, the New York Stock Exchange managed to climb slightly higher on Friday evening, after a disastrous first half of the stock market marked by a 20.5% drop in the S&P 500 index against the fears of recession induced by the Fed’s monetary tightening in the face of inflation. The barrel of crude oil WTI rebounded 3% Friday night to $109.19, while the US 10-year bond rate fell to 2.89%.
Two hours before the closing, the Dow Jones gained 0.38% to 30,891 points, while the broad index S&P500 advance of 0.26% to 3,795 pts and that the Nasdaq Composite, rich in technological and biotech stocks, took up a small 0.04% to 11,033 pts. In the first half, which ended on Thursday, the three indices fell by 15%, 20.5% and 29.5% respectively… They had a second consecutive quarter in the red for the first time since 2015. The S&P posted its worst June since 2008 and its worst first half since 1970.
The latest macroeconomic indicators published in the United States came out mixed on Friday. The Markit PMI manufacturing index came in at a final reading of 52.7 in June, compared to a consensus of 52.4 and an earlier reading of 52.4 as well. The indicator therefore still signals a fairly clear expansion. The ISM manufacturing index for its part came out below expectations at 53 in June, against a market consensus of 55 and a level of 56.1 in May, which reflects a slowdown in expansion. The price index for its part declined to 78.5, against 80 consensus and 82.2 a month before.
In addition, construction spending fell unexpectedly by 0.1% in May over one month, while the FactSet consensus was at +0.3%. The increase for April is however revised upwards to +0.8%, against +0.2%.
The session was also marked by the publication of the final European PMI manufacturing indices. The Spanish manufacturing PMI slightly beat expectations at 52.6 in June, as did the Italian index at 50.9. The French index stood at 51.4, against the FactSet consensus of 51. The German indicator was 52, in line with expectations. Finally, the European indicator remained close to expectations at 52.1.
Inflation is accelerating to new highs in the euro zone. According to preliminary data from Eurostat, the annual inflation rate in the region is estimated at 8.6% in June, against 8.1% in May, and a consensus of 8.5%. As for the main components of inflation, energy is expected to experience the highest annual rate in June (41.9%, compared to 39.1% in May), followed by food, alcohol & tobacco ( 8.9%, compared to 7.5% in May), industrial goods excluding energy (4.3%, compared to 4.2% in May) and services (3.4%, compared to 3.5% in May), details Eurostat. Sequentially, prices are up 0.8%. Core annual inflation, on the other hand, slowed slightly to 3.7%, against 3.8% in May and 3.9% consensus.
The markets remain concerned about the tightening of monetary conditions, the central banks starting with the Fed having clearly given priority, for the time being, to the fight against inflation, at the risk of provoking a recession. The bullish talking points continue to revolve around peak inflation/peak Fed, more attractive valuations, strong balance sheets, and economic normalization (including the reopening of China).
The weakening macro outlook bolsters the ‘peak Fed’ thesis, as concerns grow that policymakers are tightening too aggressively amid an economic slowdown. While in the short term the trend is for accelerated monetary tightening, the market increasingly sees the Fed swinging towards an easing stance in 2023. The CME Group’s FedWatch tool provides good indications on this. First, it shows a nearly 78% probability of a 75 basis point rate hike on July 27 (which would bring rates into a range of 2.25 to 2.5%). This same tool indicates a 48% probability of a range of 3.25 to 3.5% on December 14 (last FOMC meeting of the year) and a probability of almost 24% of a rate ranging from 3, 5 to 3.75%. The peak in rates could be reached after the February meeting, since the probabilities are quite similar (42% for the 3.25 to 3.5% range, and 28% for the 3.5 to 3 range, 75%). The March or May 2023 meetings could therefore mark a change of direction and a return to monetary easing, if economic conditions justify it.
VALUES TO FOLLOW
Micron (-3.8%) revealed record quarterly results that exceeded market expectations, but very weak guidance, due to a drying up of demand for ‘chips’. The American designer of memory chips expects revenues of 7.2 billion dollars, more or less 400 million dollars, for the quarter started. The consensus was more than 9 billion dollars! Micron expects quarterly adjusted earnings per share of $1.63, plus or minus 20 cents, against $2.6 consensus. The designer of DRAM chips (for data centers or PCs) and NAND memory chips (data storage) intends to reduce its chip production expenses in the 2023 fiscal year, which begins in September.
For the third fiscal quarter of 2022, ending at the end of May, the group achieved revenues of 8.64 billion dollars, against 7.79 billion in the previous quarter and 7.42 billion a year earlier. GAAP net income was $2.63 billion and $2.34 per share. Adjusted net income reached $2.94 billion, or $2.59 per share. The consensus was $2.44 adjusted EPS and $8.6 billion in sales. “Micron achieved record revenue in the third fiscal quarter thanks to the excellent execution of our team across technology, product and manufacturing,” said group leader Sanjay Mehrotra. “Recently, the industry demand environment has weakened and we are taking steps to moderate our supply growth in fiscal year 2023. We are confident about long-term secular demand for memory and storage and are well positioned to deliver strong financial performance over multiple cycles.”
Apple (+0.6%) is picking up a bit, while the Californian apple giant intends to raise the price of its iPhones by almost a fifth in Japan, in a context of a weakening yen and rising inflation.
Meta Platforms (-1.7%) would expect growth to slow in the second half amid “strong headwinds”, according to Reuters. The article cites an internal memo, in which Meta’s chief product officer, Chris Cox, said the company was going through tough times, headwinds were “fierce,” and Meta needed to execute perfectly in a slower growth environment, where teams shouldn’t expect large influxes of new engineers and budgets… Cox added that Meta needs to “more ruthlessly prioritize and leverage leaner, more aggressive and better,” while the company will need to quintuple the number of graphics processing units in its data centers by the end of 2022 to support Discovery’s push.
Cox noted that interest in Reels is growing rapidly, with users globally spending twice as much time as they spent on Reels a year ago, while around 80% of the growth since March is believed to come from Facebook. . According to Cox, Meta sees opportunities for revenue growth in in-app purchase tools, which could mitigate signal loss created by Apple-led privacy changes and commercial messaging.
Cox further said that Meta’s hardware division is focused on the successful launch of its mixed reality headset in the second half of this year, while the company will also focus on linking accounts between its virtual reality products and its customers. traditional social media apps.
Finally, Meta is said to have reduced its recruitment forecast by at least 30% for the year. At least that is what the CEO of the Californian group, Mark Zuckerberg himself, would have told the employees, explaining that they should expect a sharp deterioration in the economic situation.
Kohlsthe American distribution chain, fell by 17.5% on Wall Street, while the group put an end to its negotiations for its possible takeover by Franchise Group (-6%), due to the current context and high market volatility. Kohl’s therefore evokes a significant deterioration in the retail environment since the start of the sale process. Worse, the group is also lowering its financial forecasts for the second fiscal quarter, citing weak consumer spending.
Citigroup (+1.2%) would have engaged in discussions with a view to the sale of its operations in Russia to local investors, indicated the well-informed Financial Times, citing sources familiar with the matter.
Amazon (+2%), the colossus of online commerce, will allow its ‘Prime’ subscribers to unsubscribe “in two clicks”, following complaints from consumer associations. This is what the European Commission has just announced on Friday.
Jetblue Airways (+1.2%) extended for an additional month, until the end of July, its acquisition offer for the rival Spirit Airlines (+1.9%), a recently improved offer.