Yesterday, the main US indices hovered around equilibrium at the end of a rather soporific session. They have traded in a fairly narrow channel since the record highs of March 21. Earnings season is about to star, with the first reports scheduled for Friday. Before that, we’ll have the eagerly-awaited US inflation figures for March, to be announced tomorrow.
While the Fed's rate cut path seems to be less of a priority for investors than just a few months ago, it remains the main factor likely to change the game by fracturing the "Goldilocks" scenario. You know, an economy that's neither too hot nor too cold, that would allow rate cuts and inflation reduction to coincide. While awaiting the release of new indicators, central bankers send conflicting signals. There are those that continue to suggest that there will be three rate cuts this year, those who think that two isn't bad, and then there are the noisy ones, torn between zero rate cuts and four or five. Minneapolis Fed President Neel Kashkari said there may be no rate cuts this year if inflation continues to move sideways. To confuse investors, Chicago Fed chief Austan Goolsbee said the Fed must weigh how much longer it can maintain its current interest rate stance without it damaging the economy.
What's more, the non-central bankers are getting in on the act too. Former Fed member James Bullard, now in academia, advised taking Jerome Powell's and the committee's position at face value: three rate cuts seem reasonable to him. But Jamie Dimon, the influential head of JPMorgan, pointed out in his annual letter to the bank's shareholders yesterday that current economic conditions could lead to higher inflation and rates than the market thinks. In the end, everyone has an opinion, as they always do, and we're no further ahead. The latest forecast for the Fed's decision on June 12 illustrates this perfectly: 48.7% probability for no cut and 51.3% for a rate cut.
On the financial markets, discussions are swirling around the rumored takeover of L'Occitane by Blackstone. The French company, listed in Hong Kong, could be valued at $6.5 billion. There's also talk of Elon Musk and his prophecy that AI will be smarter than the smartest human by next year. What remains to be agreed is the term intelligence, which is not the least of the problems.
In the Asia-Pacific region this morning, green dominated, while European leading indicators are mixed and futures on the main three Wall Street indexes are in the green.
Today's economic highlights:
The dollar is slightly down to EUR 0.9198 and GBP 0.7880. The ounce of gold is firm at USD 2,349. Oil remains close to its recent peaks, with North Sea Brent USD 90 a barrel and US light crude WTI at USD 85.77. The yield on 10-year US debt remains at 4.41%. Bitcoin is trading at USD 70,910.
In corporate news:
- Microsoft will invest around $2.9 billion over the next two years to develop its artificial intelligence (AI) business in Japan, the Nikkei newspaper reported on Tuesday, citing group president Brad Smith.
- Applied Materials may postpone or abandon its planned $4 billion semiconductor R&D center due to a lack of funding, the San Francisco Chronicle reported on Monday.
- SouthWest Gas Holdings - The Centuri Holdings division announced on Monday that it was targeting a valuation of up to $1.8 billion for its US IPO.
- Norwegian Cruise Line has placed the largest ship order in its history to meet the growing demand for cruise ships, the group announced on Monday. The company will order eight new ships for delivery between 2026 and 2036, its executives told Reuters.
- Tesla has reached an out-of-court settlement to resolve a dispute over the 2018 accident in which an Apple engineer was killed after the Model X vehicle, powered by the Autopilot driver assistance system, went off the road near San Francisco.
- Blackstone is set to sign an agreement to delist French cosmetics group L'Occitane International from the Hong Kong stock exchange, Bloomberg reported on Tuesday, citing sources close to the matter.
Analyst recommendations:
- American Express Company: Barclays downgrades to equalweight from overweight with a price target raised from USD 220 to USD 221.
- Cisco Systems, Inc.: Morgan Stanley upgrades to overweight from not rated with a target price of USD 58.
- Digital Realty Trust, Inc.: Wells Fargo upgrades to overweight from equalweight with a price target raised from USD 135 to USD 155.
- Lpl Financial Holdings Inc.: Morgan Stanley upgrades to overwt from equalwt with a price target raised from USD 254 to USD 315.
- Medtronic Plc: Daiwa Securities upgrades to buy from outperform with a price target raised from USD 89 to USD 100.
- Nasdaq, Inc.: Morgan Stanley upgrades to overweight from equal weight with a price target raised from USD 59 to USD 80.
- Wells Fargo & Company: Compass Point Research & Trading downgrades to neutral from buy with a target price of USD 64.
- Marathon Petroleum Corporation: Citigroup remains neutral recommendation with a price target raised from USD 155 to USD 244.
- Old Dominion Freight Line, Inc.: JP Morgan maintains its neutral recommendation with a price target reduced from USD 465 to USD 231.
- Vertiv Holdings Co: Goldman Sachs maintains its buy recommendation and raises the target price from USD 73 to USD 98.
- Western Digital Corporation: Mizuho Securities maintains its buy recommendation and raises the target price from USD 66 to USD 80.
- Amphenol Corporation: Jefferies initiates a Hold recommendation with a target price of USD 125. Goldman Sachs maintains its buy recommendation and raises the target price from USD 119 to USD 130.
- Broadcom Inc.: President Capital Management Corp initiates a Buy recommendation with a target price of USD 1620.
- Snowflake Inc.: China Securities Co., Ltd. initiates a Buy recommendation with a target price of USD 185.07.
- Halma Plc: Barclays upgrades to overweight from equalweight with a price target raised from GBP 24.25 to GBP 26.50.