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Wall Street: the rebound continues, the peak of inflation in sight?


(Boursier.com) — Wall Street continued its rebound on Friday, as markets tried to reassure themselves about the risk of recession linked to the Federal Reserve’s more restrictive monetary policy. Despite a fall in US household sentiment to a historic low in June, one-year inflation expectations have fallen slightly, perhaps a sign that an inflation peak is approaching. Investors also appreciated the latest remarks from the head of the Fed of Saint-Louis, James Bullard, believing that a recession can be avoided in the United States.

Two hours before the closing, the Dow Jones jumped 2.1% to 31,324 points, while the broad index S&P500 gains 2.38% to 3,885 pts and that the Nasdaq Compositerich in technology and biotech stocks, jumped 2.4% to 11,508 pts.

The barrel of crude WTI regained 2.4% to $106.76 on the Nymex. The ounce of gold consolidates at $1,830.50 (+0.04%). The dollar index lost 0.2% to 104.25 pts against a basket of benchmark currencies. the Bitcoin recovered a little on $21,000, to $21,024 (+1% in 24 hours).

On the bond markets, the “rally” of the last few days has come to an end, and yields are recovering slightly. The performance of T-Bond at 10 years regained 2 basis points to 3.11% and that of “2 years” recovered 4 bp to 3.05%. The American “10-year” which started the year around 1.50%, had come close to 3.50% on June 14, before correcting.

In the euro area, the return on 10-year German bund stabilized on Friday at 1.43% (+1 bp), after having reached its highest level for 8 and a half years on Monday, in December 2013, at more than 1.76%. At the end of 2021, the German 10-year was still negative, at -0.18% before the ECB signaled that it was in turn preparing to raise its rates, from next July, to curb inflation (+ 8.1% in the euro zone in May).

US inflation could peak in the coming months

In the United States, the macro-economic data of the day were interpreted rather positively, even if the final index of the U.S. consumer sentiment as measured by the University of Michigan fell to 50 in June, an all-time low. The index came out at 50.2 in initial reading, stable compared to May.

The Consumer expectations for 12-month inflation, also measured by the “UMich”, on the other hand fell very slightly to 5.3% in June, against 5.4% in May. A change that was enough for investors to start hoping for a peak in inflation before the end of 2022, which could discourage the Federal Reserve from continuing to raise its key rates in 2023.

In addition, new home sales in the United States for the month of May came out better than expected, at 696,000 units, against 590,000 of the market consensus and after 629,000 for the revised reading – up – for April. The figure reassured after the drop in building permits and housing starts in May.

A break in rate hikes in 2023?

Investors also saw the glass half full in the latest remarks from James Bullard, considered the most “hawkish” member of the Fed when it comes to rate hikes. The head of the St. Louis Fed has thus minimized the risk of a recession in the United States, explaining that the rise in rates would undoubtedly bring growth back to its long-term trend, but not below it. .

“We are in the early stage of an expansionary phase in the United States… Unless we are hit by a shock, it would be unusual to fall back into recession at this stage,” he said. said. James Bullard repeated that he would like to see the “fed funds” rate rise to 3.5% by the end of 2022, explaining that the central bank could consider reducing the cost of credit once inflation subsides.

In futures markets, expectations for further rate hikes in 2023 dwindled over the weekend. CME Group’s FedWatch tool anticipates that the fed funds rate will be around 3.5% at the end of 2022, and that it will remain at the same level, or even slightly lower, by July 2023.

Recession is a ‘possibility’, acknowledges Powell

The markets are therefore now a little more optimistic than the Fed itself. In its latest economic projections published on June 15, the American central bank estimated that its key rates could be around 3.4% at the end of 2022 and 3.8% at the end of 2023, against, let us recall, 1.50-1, 75% currently. A further rise of 75 basis points is expected in July to counter inflation which reached 8.6% in May in the United States, and could exceed 9% in the coming months before receding, according to economists.

On Wednesday and Thursday, Federal Reserve Chairman Jerome Powell, hearing before the US Congress, was very firm in the face of soaring inflation, saying that the Fed’s determination to control prices was “unconditional” , while admitting that the fight against rising prices comes with the risk of rising unemployment and an economic slowdown. The day before, before the Senate, the boss of the Fed had admitted that it was “possible” that the rise in rates would lead to a recession. “It’s not at all the desired effect, but it is certainly a possibility”, he added, acknowledging that a soft landing was going to be “very difficult”.

For his part, Mike Wilson, the chief investment officer of Morgan Stanley, indicated that the chances of a recession are still less than 50% in the United States. “It’s not our base case, it’s our bearish case,” the strategist is quoted by Bloomberg as saying. The risk-reward ratio for investing in the S&P 500 nevertheless remains, according to him, “rather mediocre”. Wilson currently sees a 35% probability of a recession. The specialist, reputed to be generally bearish, who had well anticipated the stock market fall this year, is therefore more moderate about the hypothesis now widely put forward by experts of a potential recession caused by very rapid monetary tightening by the Fed in a context of record inflation.

VALUES TO FOLLOW

CarMax (+5.6%), the American retailer of used vehicles, announced for its first fiscal quarter profits in decline, but higher than market expectations. Revenues rose above expectations, as vehicle prices rose. Net profit for this quarter ended at the end of May 2022 represented $252 million and $1.56 per share, compared to $437 million a year earlier. The FactSet consensus was at $1.49 EPS. Revenues appreciated by nearly 14% year-on-year and excluding wholesale sales (+21% in consolidated data) to reach 9.31 billion dollars, while the FactSet consensus was 9.06 billion. dollars.

carnival (+11%), the cruise giant, jumped on Wall Street after the publication of preliminary accounts for the second quarter. The operator posted a positive level of cash flow from operations over the period, but its revenues missed the consensus. The group still evokes a growth of nearly 50% in sequential activity, compared to the first fiscal quarter. The FactSet consensus of $2.76 billion showed a 70% expansion. The occupancy rate in the second quarter improved for its part to 69%, against 54% in the previous quarter. GAAP net loss was $1.8 billion, while adjusted loss was $1.9 billion. The group ended the quarter with a cash level of $7.5 billion. Reservation volumes in the quarter nearly doubled sequentially. The group evokes the best level of reservations since the start of the pandemic.

Bausch Health (+18%). Bausch Health President Joseph Papa has resigned effective immediately. This decision by Papa to resign from the board of directors was not due to a dispute or disagreement with the company. The board named John Paulson as president. Paulson is currently an independent director of Bausch + Lomb and chairman of Paulson & Co.

Merck & Co (+1%) would continue on the path of an acquisition of seagen (+ 1.8%), believe to know people familiar with the issue quoted by the Wall Street Journal. The discussions would have even accelerated before a scheduled meeting between the two companies. The American pharmaceutical company would therefore negotiate a possible takeover of the biotech Seagen, which specializes in cancer treatments. According to information previously provided by the WSJ, the two companies are aware of a risk of a blocking of their marriage by the competition authorities. With Seagen, Merck would strengthen its portfolio of cancer drugs, currently dominated by its blockbuster Keytruda. Seagen is developing targeted therapies, which aim to target cancer cells more precisely and reduce side effects, and is also working on treatments targeting solid tumors and hematologic cancers.

FedEx (+6.5%) raised its profit forecasts for the 2023 financial year on Thursday evening. The group, which has changed CEO since June 1, published accounts generally in line with expectations for its fourth fiscal quarter of 2022 , completed at the end of May, but showed optimism for the financial year which has just started. For fiscal year 2023, Fedex expects net earnings per share (EPS) of $22.50 to $24.50. The midpoint, at $23.50, is above analyst consensus expectations, housed at $22.21. In the 4th fiscal quarter, the group’s adjusted EPS reached $6.87 (+37% over one year) and sales came out at $24.39 billion, up around 7.5% on a year. Refinitiv analyst consensus expected a little better, at $6.86 for EPS and $24.56 billion in sales.

netflix (+4.6%). The US streaming giant, which recently faced an unexpected decline in subscriptions, announced the layoffs of 300 employees, about 4% of its workforce, as part of a new round of workforce reductions aimed at lowering expenses.



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