Dow +1.63%, S&P 500 +2.13%, Nasdaq +2.89%, Russell 2000 +2.95%, SOX +4.25%, Eurostoxx +0.91%, SMI +0.20% .
I was swimming last night in Lake Geneva (the real one, not the one in Geneva which is a figment of the mind of Switzerland Tourism). The temperature of the water must have been around 27 degrees and I suddenly wondered what my reaction would be if it were to drop to 26. I doubt very much that this would encourage me to cut down a dozen bottles of champagne at once. Well, that’s more or less what happened yesterday on Wall Street, which organized the party of the year after the publication of the consumer price index for the month of July.
Let’s put things in context. Everyone has understood that the general level of prices has been racing for many months and that this poses a major problem, to be resolved without delay please. The Fed is doing the job by raising its interest rates at a brisk pace. The problem is that inflation continued to rise in May and in June, we began to gradually grow impatient in the cottages. However, yesterday the “miracle” occurs, the US Department of Employment announces an increase of 8.5% in inflation on an annual basis. This is less than the 8.7% expected by economists. This decline was mainly due to lower energy prices last month, which offset higher food and housing prices. We agree, 8.5% price increase in July 2022 compared to July 2021, it’s still huge, but the market concludes that the pass has been crossed and that the decline can begin, and boom the bears!
The reaction on all asset classes is immediate and rather binary. Note here that the recent US economic statistics have been more than reassuring (ISM for services, employment report). Add yesterday’s consumer price report and you have a cocktail that we will call “soft landing”. It is clear that the probabilities of a soft landing for US growth are increasing, the specter of recession is receding somewhat and the market is starting to dream of a more accommodating Fed more quickly. The CME’s FedWatch model now indicates a 28% chance of a 75bp hike at the Sept. 21 meeting, up from 65% before the inflation report was released, so the market is easing. It is here that we must try to keep reason. One month doesn’t make a trend, however it is undeniable that the bulls are scoring points against the bears yesterday, the probability that the market will have bottomed out on June 17th increases.
The S&P500 (SPX) index “gap” strongly at the opening, to no longer look in its rear view mirror and close at the highest of the session, carried north by its little brother the Nasdaq100 (NDX), which “Space X” mode and earns 2.85% on the session. The NDX (the Nasdaq Composite too by the way) has now recovered more than 20% since its low in June, which makes it enter the bull market again, it is anecdotal and totally useless for the future, but the “Roubini » of service have so dumbfounded us with their bear market that it’s only fair game. The SPX is moving away from its 100 day moving average, it is now looking at its 200 day but not yet in the eye (4332 points against a close at 4210 pts yesterday). Volatility is tripping over the carpet, the VIX index (SPX volatility) falls 9.5% and closes at 19.74, the most important support is at 15. Trading volumes are not exceptional with 10.6 billion securities traded on the NYSE, moreover we do not observe massive coverage of short positions, at least not yet.
In terms of sectors, it came as no surprise to anyone to see growth stocks leading the way last night, today’s SPX podium is made up of Materials, Consumer Discretionary and Technology. The breadth (the difference between the stocks closing up compared to those down) is clear with +90% for the SPX and the NDX.
Apart from the joyful kingdom of equities, which will rarely have lived up to its name so well, the bond market remains in cautious mode, the US 2/10-year yield curve certainly fell from -47 basis points to -42 bps this morning, which still indicates recession fears, the difference in perception between equities and bonds these days is puzzling… The dollar begins to fall, to recover but still trade below its level before the report, the EUR/USD is trading at 1.0314 this morning. Oil is trying to break $90 a barrel on WTI Light Crude again, encouraged by greenback weakness, it needs to break $95 to re-enter an uptrend. Gold comes to breathe above $1800 an ounce but lacks oxygen and quickly returns to $1786.
San Francisco Fed chief Mary Daly says it’s too early to claim victory in the fight against inflation, but says she could support a slower pace of rate hikes, reports the FT. Fellow Minneapolis Fed boss Neel Kashkari calls the idea of the central bank starting to ease rates next year as “unrealistic” when inflation is expected to be well above its 2% target. . Mr. Kashkari, who is now the Fed’s number one hawk, still sees rates at 4.4% at the end of 2023. The Fed wants to temper equity market zeal and it’s probably right, the statistic of Yesterday is certainly reassuring but only constitutes a first step on the long road which leads to the serenity of the purchasing power of households.
Liz Truss’ thoughts on how to handle the Bank of England add to a growing list of threats to the pound and UK government bonds. The fear is that, if she becomes prime minister, Ms Truss will upend the three-decade focus on fighting inflation and ask policymakers to use tools that were discredited in the 1980s. of the BOE were changed, we would see a fall in the gilts and the pound sterling,” says Gordon Shannon of TwentyFour Asset Management.
Scrooge McDuck can quietly go back to sleep on his pile of gold as Walt Disney stock jumped after the session after raising the price of its streaming service 38% as subscriber growth beat estimates. The company added 14.4 million new Disney+ users in the quarter, bringing the number of subscribers across all of its streaming platforms to 221 million, more than Netflix. A rise in theme parks helped beat sales and profits. According to Bloomberg Intelligence, the title with big ears should end the year 2022 in style.
Two macro statistics in the United States today at 2:30 p.m.: producer prices and weekly jobless claims.
Daimler Truck: The group posted adjusted profit of 1 billion euros in the second quarter, significantly exceeding analysts’ expectations thanks to strong demand and positive currency effects. Deutsche Telekom: the German telecommunications operator raises its earnings forecasts. Siemens AG: the group is in losses due to a heavy depreciation on Siemens Energy. Revenues are slightly above expectations but targets are reduced due to depreciation. Zurich Insurance: the group announces a share buyback program of 1.8 billion francs on the sidelines of the publication of its quarterly. Partners Group sells 50% of USIC to Kohlberg in a $4 billion deal. ABB acquires its activities in the field of low voltage Nema motors from Siemens. Boeing has delivered its first 787 Dreamliner in over a year. Roche obtains an extension of approval for the Ventana in the USA.
Tonight and this morning in Asia, the indices are trading up. Tokyo is closed, Hong Kong is up 2.25%, Shanghai is up 1.56% and Seoul is up 1.73%. The future SPX does not return a millimeter of ground, on the contrary it gains 19 additional points. Europe opens up 0.6%. The simple fact that the inflation figure came out below expectations caused a general feeling of relief in the markets, this is the basic reaction. Now let’s see how the market interprets these numbers over time.
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