The gap between fact and fiction

Powell will speak again today at 2 pm ET, and he will be followed by vice chair Lael Brainard and board governor Michelle Bowman.

He should reiterate that its priority is the fight against inflation, not pro-market paternalism, or anything like that.

This stance did not please investors, who thought that a happy ending scenario was still a possibility, without expecting another twist. This is the common gap between fact and fiction. The fiction is the rapid victory of central banks against inflation. The reality is that modern economies cannot be cleaned from top to bottom in a matter of months.

Jerome Powell reminded us of this again on Wednesday. He is a reliable indicator, firstly because he heads the most influential economy in the world. Second, because for a long time he himself thought that the US central bank would regain control of prices within a few weeks. Before changing his stance, obviously, but lately. The message is now: past efforts are not enough. The debt market understood this: the 10-year US bond yield rose to 3.71% yesterday, an unprecedented level in recent times.

Yesterday, the central banks of several countries also raised their rates. In particular Switzerland, Norway and the UK. The classic inflation bending tools are in place, but there is a sense that central bankers are not very much in control.

I’ll end this week’s column with an interesting piece by John Thornhill, in the Financial Times. He looked at what investors got during the latest tech bubble, which burst in December 2021. A similar exercise was done by Paul Graham after the internet bubble in 2000. Graham explained that stock market investors were right in time about the direction of travel, but wrong about its speed.

Thornhill posits five elements in investor credit. First, they are right to place enormous value on data. Second, they understood that while globalization is slowing down, electronic globalization is accelerating. Third, they realize that the labor market has been permanently disrupted by the coronavirus. Fourth, Thornhill thinks that the energy transition will result in great stock market wealth. I didn’t find it very clear at first, but he uses Tesla to illustrate this point: the company is undoubtedly overhyped and perhaps overvalued, but it leads the way. Finally, he mentioned blockchain and cryptocurrencies, believing that enthusiasts don’t give many answers but ask the right questions.

This seems to me a fair statement, though perhaps it is somewhat lacking, by the author’s own admission. Personally, I’d like to add a major underlying trend that will further shape the world, and investing, in the coming years: the interconnectedness enabled by social networks. It increases access to all kinds of information, right or wrong, and can divide or bring together segments of the population.

Economic highlights of the day:

Today, PMI indicators of major economies will be released throughout the day. They take the pulse of purchasing managers in industry and services. All the macro agendas are here.

The dollar is still strengthening, up 0.8% to EUR 1.0254. The ounce of gold rallied to USD 1,645. Oil retreated, with North Sea Brent at USD 87.74 per barrel and US WTI light crude at USD 80.58. The yield on 10-year US debt stands at 3.71%. Bitcoin is trading around USD 18,900.

In corporate news:

* Fedex, which issued the warning last week, confirmed on Thursday that its earnings per share fell 21.3% in the quarter ended Aug. 31. The group added that it wanted to cut costs by $2.2 billion to $2.7 billion in fiscal 2023. The stock was down 1.3% in pre-market trading.

* Costco Wholesale fell 3.5% in premarket trading as the company reported a drop in fourth-quarter profit margin on Thursday due to inflationary pressures and supply chain strains.

* Apple – The NFL, the US national soccer league, announced on Thursday that it has entered into a multi-year agreement with Apple Music to sponsor the Super Bowl halftime show starting in February 2023. Financial terms of the deal.

* The Boeing Company will pay $200 million to settle a lawsuit involving the 737 MAX, the aircraft manufacturer accused by the Securities and Exchange Commission of misleading investors by saying the plane was safe when it knew the MCAS Its anti-stall system brought safety. problem Boeing stock fell 1.5% in premarket trading.

* Raytheon Technologies, competing with Boeing and Lockheed Martin, won a $985 million Pentagon contract to develop hypersonic attack cruise missile prototypes.

* Tesla on Thursday filed a lawsuit against the California Civil Rights Department (CRD), California’s public civil rights agency, accusing the electric car maker of tolerating racial discrimination at one of its plants.

* Humana and CVS Health are cited by sources as possible acquisition candidates for health care group Cano Health, which has received expressions of interest. Cano shares rose 3.2% in pre-market trading.

Analyst recommendations:

  • Ally Financial: Wells Fargo Securities downgraded to equal-weight from overweight. PT rose 4.3% to $32.
  • Avista: Mizuho Securities raised its recommendation to buy from neutral. PT rose 9.1% to $44,.
  • Asos: RBC moved from Outperform to Sector Perform targeting GBp 1000.
  • Boyd Gaming: JMP Securities initiated coverage with a market outperform recommendation. PT rose 34% to $65.
  • CrowdStrike: MoffettNathanson initiated coverage with a Buy Rating, $280 Price Target.
  • Domino’s Pizza: BMO Capital Markets upgraded to outperform from market perform. PT rose 34% to $430.
  • Equifax: Autonomous initiated coverage with outperform recommendation. PT increased 25% from last price to $215.
  • Experian: Autonomous initiated coverage with outperform recommendation. PT is set at 3,300 pence.
  • Fair Isaac: Autonomous initiated coverage with a recommendation of poor performance. PT down 15% to $373.
  • First Solar: Morgan Stanley raised price target to $146 from $136, maintaining equal rating.
  • EUROLAB: Oddo BHF upgraded from neutral to outperform, targeting GBp 4500.
  • Marathon Petroleum: JPMorgan Chase adjusts price target to $136 from $110, maintains overweight rating.
  • Phillips 66: JPMorgan Chase adjusts price target to $118 from $112, maintains overweight rating.
  • ServiceNow: MoffettNathanson initiates hold rating, $553 price target.
  • Take-Two: Stifel adjusts price target to $163 from $180, maintains buy rating.
  • The Wendy’s Company: Stephens Starts Overweight with $25 Price Target.
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