Wall Street drops as oil rebounds

Posted 17 March, 2022

The American rating takes a breather on Thursday, the day after a session of strong growth (+1.55% yesterday on the DJIA and +3.77% on the Nasdaq). The Dow Jones lost 0.26% to 33,975 pts and the Nasdaq 0.53% to 13,370 pts. The S&P 500 lost 0.29% to 4,345 pts. The barrel of WTI crude rebounded nearly 8% today on $102 on the Nymex, while Brent North Sea crude gained 8% to $106. An ounce of gold gained 2.1% to $1,949. The dollar index fell 0.5% against a basket of currencies.

The trend is therefore much more cautious, while the markets had reacted sharply higher last night in hopes of a close compromise between Russia and Ukraine. However, the conflict seems to be bogged down, with the fourth week of the war in Ukraine, Moscow continuing its offensive. Yesterday, an article in the Financial Times reporting on a comprehensive 15-point agreement discussed since the beginning of the week between Russia and Ukraine had boosted stock market indices... Talks between Moscow and Kyiv began on Monday via video link and must resume today.

In the aftermath of the announcements from the Fed, which is therefore beginning to toughen its positions with an initial rate hike of a quarter of a point in order to fight against inflation, operators will be following a fine series of statistics on the other side of the Atlantic on Thursday, with housing, employment, manufacturing or production figures.

U.S. housing starts for February came in higher at 1.769 million units, versus a consensus of 1.7 million. Building permits fell to 1.859 million, against 1.85 million market consensus.

According to the US Department of Labor on Thursday, weekly jobless claims in the US for the week ended March 12 came in at 214,000, versus a consensus reading of 220,000 and a revised reading of 229,000 for the previous week. The four-week average stands at 223,000.

The Philadelphia Fed's regional manufacturing index for the month of March 2022 climbed to 27.4, from a consensus of 15 and 16 a month earlier, signaling a strong acceleration in growth.

According to the Fed on Thursday, US industrial production for the month of February 2022 increased by 0.5% compared to the previous month, in line with market consensus. Manufacturing production rose 1.2%, against 0.7% consensus. The production capacity utilization rate was 77.6%, against 77.9% consensus.

The President of the American Federal Reserve, Jerome Powell, does not foresee a recession in the United States despite the cycle of hikes in key rates started on Wednesday by the central bank to curb the outbreak of inflation.

The economy "no longer needs a very accommodating policy", and it "can support a tightening of monetary policy", he estimated, during the press conference following the announcement by the Fed a quarter-point increase in its main key rate, the first stage of a bullish cycle aimed at curbing inflation and bringing it back towards the Fed's 2% target. "From my point of view, the probability of a recession in the next year is not particularly high," he added.

Stressing on several occasions the "solidity" of the American economy, Jerome Powell estimated that American households and businesses were in good financial health and should be able to absorb the rate hikes planned by the central bank. "All signs show that we have a robust economy. Household and corporate balance sheets are strong," he said.

Asked about the pace of future rate hikes, he said the process would be “steady, year-round,” but added that the Fed needed to be “agile,” and that “if the inflation shows that it is necessary to raise rates more quickly, we will do it".

He acknowledged that inflation "will take longer than expected to return to the" 2% target set by the Fed, but reiterated that "we will take the necessary measures to avoid an entrenchment of high inflation ". According to him, inflation should start to decline in the second half of 2022 and continue on this path in 2023.

In its statement, the Fed said Russia's invasion of Ukraine would have "highly uncertain" implications for the US economy. "But in the short term, the invasion and subsequent events are likely to create further upward pressure on inflation and weigh on economic activity."

According to the Fed's new macroeconomic projections published on Wednesday evening, the Fed is considering another 6 quarter-point tightenings by the end of 2022 to raise its key rate between 1.75% and 2%. Three other increases should still occur in 2023 to reach 2.8%, according to these projections.

Inflation, as measured by the Core PCE Index, was revised up sharply to 4.1% in 2022 from the 2.7% expected in December, and is expected to return to 2.6% in 2023 (against 2.3% in December) and then 2.3% in 2024 (2.1% in December).

At the same time, the Federal Reserve has significantly revised its forecast for economic growth in the United States for 2022, now expected at 2.8% instead of a 4% forecast in December. GDP growth forecasts then remain unchanged for 2023, at 2.2%, and 2024, at 2%. The unemployment rate is still expected at 3.5% this year and in 2023, then at 3.6% in 2024.

The Federal Reserve began its monetary tightening cycle as planned on Wednesday to fight against soaring inflation, which should be aggravated in the short term by the war in Ukraine, estimated the American central bank, showing itself very determined to control prices in the medium term.

The Fed announced as expected a quarter-point increase in its main key rate, the "fed funds" rate, which is raised to 0.25%-0.50$, and added that further increases of rates will be "appropriate" in the coming months. According to the Fed's new macroeconomic projections published on Wednesday evening, the Fed is thus considering six other tightenings of the same type by the end of 2022 to bring its key rate between 1.75% and 2%. Three other increases should still occur in 2023 to reach 2.8%, according to these projections.

The markets had been well prepared for this first tightening, but they were a little surprised by the firmness of the US central bank's tone in the face of inflation deemed "high" and likely to be further reinforced by the Ukrainian crisis, which complicated the task of the institution. Consumer price inflation accelerated to 7.9% year on year in the United States in February, the highest in 40 years, even before suffering the inflationary effects of the invasion of Ukraine, which began on 24 February.

The Fed press release adds that it plans to begin reducing its balance sheet, which has grown to more than 8.5 trillion dollars by years of massive purchases of bonds on the markets, “at an upcoming meeting”. During his press conference, Fed Chairman Jerome Powell indicated on Wednesday evening that the reduction in the balance sheet “could start as early as May”.

 

Values

 

Accenture (-1%). The consulting giant, which is based in Dublin and listed on Wall Street, is now hesitating after the publication of quarterly accounts that exceed expectations and raised forecasts. For the second fiscal quarter, the group's earnings per share and its revenues exceeded forecasts. The IT consulting firm is still cautious about the geopolitical context, pointing out a possible impact of the Russian-Ukrainian conflict.

Accenture announced for the second fiscal quarter revenues of 15.05 billion dollars (+24%!), compared to a consensus of 14.6 billion. The group, which invests strategically in the cloud and acquisitions, posted a quarterly level of new bookings of 19.6 billion, with cloud and security services. For the third fiscal quarter, the period started, revenues are expected between 15.7 and 16.15 billion dollars, against 15.1 billion consensuses. Second-quarter earnings per share climbed 14% to $2.54. Adjusted EPS improved by 25%.

Lennar (stable), the American real estate developer, beat the consensus for the quarter ended. For the first fiscal quarter, the group announced adjusted earnings per share of $2.7 and revenues of $6.2 billion, up more than 16%. The group is raising its 2022 estimates for deliveries and gross margin.

Dollar General (+3%) climbed on Wall Street on Thursday, while the American discount retailer has just published for its fourth fiscal quarter a net profit of 597 million dollars and 2.57 $ per share, against 643 million dollars a year earlier. Revenues were $8.65 billion, compared to $8.41 billion a year earlier. The consensus was $2.57 EPS and $8.7 billion in revenue. Like-for-like sales fell 1.4%, slightly more than expected. Nevertheless, the group provides optimistic sales guidance for the year underway.

KKR (+1%) announces the acquisition of 230 billion yen (1.75 billion euros) of the Japanese real estate asset manager MC-UBSR, a joint venture between Mitsubishi and UBS Asset Management created in 2000.

KKR. Telecom Italia would also have started negotiations this week with KKR to assess its takeover offer, for a potential amount of 10.8 billion euros presented in November. This was said on Thursday by sources familiar with the matter quoted by Reuters. TIM requested clarification on KKR's offer. According to these sources, KKR should answer questions from TIM in the coming days.

Yum China (-5%) announced that its board had raised the amount of its share buyback plan by $1 billion to $2.4 billion.

Tesla (stable) said it was "doing its best" to maintain production at its Shanghai site while cooperating with Chinese authorities in the fight against the resurgence of the pandemic.

GameStop (-3%), Adobe (-1%) or FedEx (stable), publish their quarterly accounts tonight, after the close of Wall Street.

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