The return to work after the long weekend was a bit brutal yesterday on Wall Street, with a drop of 2% for the S&P500, -2.06% for the Dow Jones and -2.4% for the Nasdaq 100. Only the most defensive segments of the market held up. In finance, the companies perceived as the most defensive are those that will continue to sell commodities when consumers have cut the superfluous. Specifically, yesterday, food, gas and beer sellers. Add to this weapon manufacturers, after the further deterioration of relations between the West and Russia, after Vladimir Putin's decision to suspend a nuclear weapon control treaty.

The lack of appetite for risk assets prolongs a phase of doubt that has been building over the past week. The powerful rebound following the annus horribilis 2022 was based on two pillars: the recovery of the Chinese economy and the proximity of the end of the Fed's rate hike cycle. At the moment, the Chinese reopening has not delivered its promises, while the Fed's supposed victory over inflation doesn't look so clear anymore. This victory was personalized by the decline in price increases and several macroeconomic indicators showing that the economic overheating was cooling. The problem is that these indicators have tended to stabilize, or even accelerate for some in recent days. As a result, the big bet that investors would return to a looser monetary policy is now fading. Yesterday, the US PMI indicators were quite clearly above expectations, a further signal of caution for the market, on the grounds that good news for the economy is not necessarily good news for finance, which prefers low rates to any other scenario.

The yield on US 10-year debt jumped to 3.94% yesterday, whereas it was 50 points lower not so long ago. This means that the market expects the Fed Funds rate to rise to more than 5.3% this summer, whereas the expectation was still 4.9% at the beginning of February. Investors now believe the Fed will raise rates beyond what they feared and the debate is still open about how long the rates will stay high. That's not good news for stocks. Nor for bonds, some of which have lost almost all of their 2023 gains (bond prices move inversely to their yield).

Today, earnings releases continue with some big names like Nvidia, Pioneer Natural Resources and eBay. Investors are trading cautiously this morning ahead the publication of the minutes of the last Fed meeting (3:00 pm), and Wall Street's three main indices are flat. In other news, the yield on Japanese public debt has settled for the second day above the theoretical ceiling set by the Bank of Japan. Washington is threatening to sanction Chinese companies that support Russia's invasion of Ukraine and oil is contracting in a market that doubts the global economic momentum ahead.

 

Economic highlights of the day:

The Fed will release the minutes of its last meeting at 3pm. All the agenda is here. Hong Kong's GDP contracted by 3.5% in 2002, while the city is aiming for growth between 3.5 and 5.5% this year.

The dollar is up 0.2% to EUR 0.9408 and GBP 0.8275. The ounce of gold is worth USD 1,835. Oil is chipping away, with North Sea Brent at USD 82.18 per barrel and U.S. WTI light crude at USD 75.70. The yield on 10-year US debt rises sharply 3.94%. Bitcoin is down to USD 24100.

 

In corporate news:

* Tesla has begun assembling battery systems at its German plant, but most of the production will be concentrated at U.S. sites where the automaker receives subsidies under the U.S. Inflation Reduction Act (IRA), a group spokesman said Wednesday.

* KKR has extended its non-binding offer for Telecom Italia's (TIM) fixed-line network by four weeks to March 24, TIM said late Tuesday.

* Baidu jumped 7.8% in pre-market trading on Wall Street after the Chinese internet search engine reported better-than-expected fourth-quarter revenue and announced a share buyback plan of up to $5 billion.

* Coinbase Global falls 1% in pre-market trading as the cryptocurrency exchange platform reported a fourth-quarter net loss of $557 million on Tuesday, compared with a profit of $840 million a year earlier.

* Palo Alto climbs 9% in pre-market trading after the telecommunications equipment specialist raised its full-year profit forecast as demand for cybersecurity products remains strong.

* Chesapeake Energy sold assets in South Texas for $1.4 billion to chemical company Ineos, which will enter the oil and gas business for the first time in the U.S.

* AMC Entertainment Holdings - Shareholders of the movie chain filed a lawsuit in Delaware in connection with an allegedly unsolicited issuance of new shares.

* Nvidia and eBay are scheduled to report quarterly results after the close on Wall Street.

 

Analyst recommendations:

Autonation: Guggenheim Securities raised the target to $181 from $169. Maintains buy rating.

Comcast: KGI Securities downgrades to neutral from outperform. PT up 8.4% to $41.

Dillard's: J.P. Morgan downgrades to underweight from neutral. PT down 20% to $286.

Home Depot: D.A. Davidson & Co cut the target to $306 from $334. Maintains neutral rating.

InterContinental Hotels: Deutsche Bank downgrades to hold from buy and increases the price target to 58.50 pounds sterling from 57.30 pounds.

Manhattan Associates: D.A. Davidson & Co initiated coverage with a recommendation of neutral. PT set to $145.

Martin Marietta: On Field Investment Research upgrades to neutral from underperform. PT up 21% to $436.

Nordson: KeyBanc Capital Markets upgrades to overweight from sector weight. PT up 20% to $255.

Vulcan Materials: On Field Investment Research upgrades to neutral from underperform. PT up 33% to $241.