The VIX volatility index, which measures investors’ anger, has become a little tense over the last few days. The major news of the day before was the reappointment of Jerome Powell as head of the US central bank. Joe Biden went for continuity by strengthening the base of this Republican appointed by Donald Trump. although Powell suffered violent ad personam attacks on Twitter when he refused to let Trump manage US monetary policy. Lael Brainard, who was considered for the position, became vice-chair of the Fed. Powell is seen as a little less flexible than Brainard on rates, so markets have been a little tense on monetary policy. But he is still part of the accommodative fringe of the Federal Reserve while being an advocate of weak financial regulation, which does not fail to please investors.
However, the two profiles were quite similar and investors believe that the money printing press will continue to operate, even if they are aware that rate hikes are on the horizon. In the forecasting game, the consensus is for a first round of monetary tightening in June, followed by a second in September. The third is under debate among economists: perhaps in December 2022, perhaps not. The expectations of a wide range of specialists varies, and on average shows that there should be 2.8 rate hikes next year by the Fed. But that’s a bit like the 2.05 children needed to renew generations: so it should be either two or three, depending on price trends (of consumer goods, not children).
One of the editors of the Financial Times’ Alphaville blog, Jamie Powell (no family connection to the Fed boss that I know of) had fun last night listing the best reactions from the troublemakers on the Reddit Wallstreebets forum, calling the mood ecstatic: all traders were happy that Jerome Powell is staying in place because they see it as the best guarantee for continued access to the liquidity fountain. In more serious circles, or those who take themselves more seriously, this continuity was also welcomed. The dollar, already strong, has strengthened and US 10-year yields have risen, since the Powell scenario is a little stricter than the Brainard scenario. Quite logical macroeconomic reactions, even if at the same time and as I think a Bloomberg editorialist pointed out, this monetary largesse also allowed two doggie-themed cryptocurrencies to be worth $24 billion and an American car manufacturer (Rivian to name but one) to capitalize $105 billion without having sold a single vehicle.
The problem is that monetary continuity at the head of the Fed is not everything. The pandemic is back, with all its potential restrictions. Only last night, the USA advised its citizens against travelling to Germany. Unfortunately, our short experience with this has taught us that the situation gets mechanically worse before it gets better.
This epidemic resurgence is upsetting financial markets, which were looking forward to a good slice of pre- and post-Black Friday consumption.
Today’s economic highlights:
Big day with the release of PMI indicators for the major economies.
The dollar continues to dominate other currencies, including the euro, and is trading at EUR 1.8883. The yen has been pushed to JPY 115.1 per USD. The ounce of gold has fallen to USD 1788, while oil is consolidating its rebound from the previous day, with Brent at USD 79.86 and WTI at USD 76.60. The yield on US 10-year debt rose to 1.62% yesterday. Bitcoin is stabilizing around USD 56,500.
- AbbVie: Societe Generale raised the recommendation to buy from hold. PT surges 49% to $172
- The Allstate Corporation: Goldman Sachs reinstated coverage with a recommendation of sell. PT set to $106
- American International Group: Goldman Sachs reinstated coverage with a recommendation of buy. PT set to $74,
- Ametek: Loop Capital Markets initiated coverage of with a recommendation of buy. PT set to $175
- BHP Group: Cut to Underperform at Oddo BHF
- Big Yellow: Jefferies upgrades from buy to hold on GBp 1,686.
- CBRE: Keefe, Bruyette & Woods upgrades to outperform from market perform. PT up 16% to $115
- Copa Holdings: J.P. Morgan raised the recommendation on Copa Holdings SA Class A to neutral from underweight.PT up 15% to $90
- Chubb: Goldman Sachs reinstated coverage of Chubb Ltd. with a recommendation of buy. PT set to $230
- Epam Systems: VTB Capital raised the recommendation to buy from hold. PT up 22% to $750
- Eversource Energy: Morgan Stanley adjusts PT to $85 from $86, keeps Equalweight rating
- Hammerson: Societe Generale upgraded from Hold to Sell targeting GBp 27.50.
- The Hartford Financial Services Group: Goldman Sachs reinstated coverage with a recommendation of buy. PT set to $84
- Idex: Loop Capital Markets initiated coverage with a recommendation of hold. PT set to $250
- Micron Technology: Mizuho Securities upgrades to buy from neutral. PT set to $95, implies a 13% increase from last price. Micron average PT is $93.63.
- Progressive: Goldman Sachs reinstated coverage with a recommendation of buy. PT set to $104
- Royal Bank of Canada: BofA Securities downgrades to Underperform From Neutral
- Stoneco: Bradesco downgrades StoneCo’s PT to underperform from neutral, Adjusts Price Target to $17 from $49
- Vonage: Baird downgrades to neutral from outperform. PT up 1% to $21
- Western Digital: Mizuho Securities raised its recommendation to buy from neutral. PT up 32% to $75