Investors roared with delight on Wednesday morning after the release of weaker-than-expected consumer price data. The probability of a Fed rate cut as early as September rose from 52% to 72% just after the release. However, it fell back to 60% a little later, when the Fed announced that there will only be one rate cut this year... but this might be a tactical move to try and fit two rate cuts by the end of the year into the calendar. Let's see why.

The Fed has confirmed that its policy is restrictive and that the time has probably come to start easing it. It has six months to decide when. For all that, the central bank's median projection has gone from three rate cuts in 2024 (in the March quarterly forward-looking document) to just one rate cut (in the June quarterly forward-looking document, published last night). In absolute terms, this is a considerable change, but investors had already been aware for weeks that three rate cuts was too optimistic a scenario. What's more, the Fed remained fairly cautious on rate trends in its document, while slightly strengthening its inflation forecasts. The speech by Jerome Powell that was more dove than hawk. He opened the way for a second rate cut and acknowledged that the inflation data published earlier in the day was hopeful. Moreover, the Fed's dot plot, which provides the position of each of the institution's bankers, aptly reflects the range of possibilities: four members expect no cut this year. Seven expect one rate cut. And eight are in favor of two rate cuts.

Wall Street welcomed the news, as shown by the gains of the Nasdaq 100 (1.3%) and the S&P500 (0.85%). The Dow Jones was in the red, pulling away from its record highs. This was due to the lackluster performance of its heavyweights in healthcare, industry and financial services, which could not be offset by the strong month-on-month gains of Microsoft, Apple and Walmart. The Dow Jones is a narrow index (30 stocks) that varies according to the price of its constituent shares, not market capitalization.

Today, futures on the Dow are just below zero, but the Nasdaq and the S&P 500 are still in the green, buoyed by another set of data that further strengthens the case for a rate cut. US May producer price, released this morning, fell by 0.2% on a monthly basis, while a 0.1% fall was expected. On an annual basis, they rose by 2.2%, while 2.5% was forecast. Meanwhile, jobless claims reached 242,000 last week, higher than the 225,000 expected.

Elsewhere in the world, the leaders of the Group of Seven are said to be close to an agreement to provide $50 billion in aid to Ukraine, using funds from the seizure of Russian assets. The G7 meets in Italy this week.

In the Asia-Pacific region, things are still not well in Tokyo, where indices are losing ground for the third consecutive session. Traders are worried about the Bank of Japan's monetary policy announcements, which are due on Friday morning. In particular, the BOJ could reduce its bond-buying program, and thus its support for the market. Mainland China continued to decline, but Hong Kong attempted a small rebound. In South Korea, the strength of the Nasdaq gave a boost to the technology sector and enabled the KOSPI to gain 1.2%. Growth was more measured in India (+0.3%) and Australia (+0.4%). European indices are bearish.

Today's economic highlights:

On the agenda today, industrial production in France, US new jobless claims and the Producer Price Index. The full agenda is here. 

The dollar is worth EUR 0.9258 and GBP 0.7822. The ounce of gold is trading at USD 2317. Oil is firm, with North Sea Brent at USD 82.30 a barrel and US light crude WTI at USD 77.90. The yield on 10-year US debt falls to 4.26%. Bitcoin trades at USD 67,700.

In corporate news:

  • Tesla advances 5.9% in pre-market trading. The carmaker's shareholders approved the CEO's $56 billion compensation plan, as well as the transfer of the company's legal place of registration from Delaware to Texas, Elon Musk said on X.
  • Apple, which on Wednesday dethroned Microsoft as the most valuable company on the stock market, with a market capitalization of over $3,000 billion, gained a further 0.2% before the Wall Street opening.
  • Broadcom raised its annual sales forecast for artificial intelligence chips by 10% on Wednesday, and announced a ten-for-one stock split. The stock jumped 13.5% in pre-market trading.
  • Amazon announced its intention to invest $230 million in the form of Amazon Web Service (AWS) credits in artificial intelligence start-ups, the latest example of cloud specialists trying to capture AI customers at an early stage.
  • Boeing has assured the U.S. Department of Justice that it has not breached the agreement relating to the fatal 737 MAX accidents in 2018 and 2019, a source familiar with the matter told Reuters on Wednesday.
  • JPMorgan Chase raised its revenue outlook for investment banking, forecasting a jump of 25% to 30% in the second quarter, a group executive said on Wednesday.
  • Pfizer announced Wednesday that its experimental gene therapy for Duchenne muscular dystrophy (DMD) had failed to improve patients' motor function in a late-stage trial.
  • Virgin Galactic announced a 1-for-20 reverse stock split on Wednesday, sending the stock down 7.8% in pre-market trading.
  • Walt Disney and Florida Governor Ron DeSantis put an end to their dispute by signing an agreement that allows the entertainment giant to develop its Walt Disney World Resort near Orlando for the next 15 years.

Analyst recommendations:

  • 3M Company: Wolfe Research upgrades to outperform from peerperform with a target price of USD 125.
  • Aflac Incorporated: Baptista Research downgrades to underperform from hold with a price target raised from USD 75 to USD 83.20.
  • Ares Management Corporation: Deutsche Bank upgrades to hold from not rated with a target price of USD 132.
  • Corning Incorporated: Morgan Stanley downgrades to equalwt from overwt with a price target raised from USD 35 to USD 38.
  • Lululemon Athletica Inc.: Deutsche Bank upgrades to hold from not rated with a target price of USD 357.
  • Micron Technology, Inc.: Haitong International Research Ltd upgrades to outperform from neutral with a price target raised from USD 105 to USD 178.
  • Roper Technologies, Inc.: Wolfe Research downgrades to peerperform from outperform.
  • Zebra Technologies Corporation: BNP Paribas Exane upgrades to neutral from underperform with a price target raised from USD 258 to USD 305.
  • Amphenol Corporation: Stifel maintains its hold recommendation with a price target reduced from USD 112 to USD 66. Evercore ISI maintains its outperform rating and reduces the target price from USD 150 to USD 75.
  • Broadcom Inc.: Bernstein maintains its outperform rating and raises the target price from USD 1600 to USD 1950.
  • Casey's General Stores, Inc.: BMO Capital Markets maintains its market perform recommendation and raises the target price from USD 305 to USD 400.
  • Dollarama Inc.: Stifel Canada maintains its hold recommendation and raises the target price from 100 to CAD 125.