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OFFON

How yesterday’s data could affect Fed policy

06/16/2021 | 08:37am EDT

Wall Street indexes inched down on Tuesday, following the announcement of a larger-than-expected decline in retail sales. After a 0.9% increase in April, retail sales fell by 1.3% last month, way more than analysts expectations. This was partly attributed to production difficulties in the automotive sector.

Producer prices rose by 6.6% in gross terms over the last 12 months, accelerating from annual increases of 6.2% and 4.6% respectively in April.

Some investors fear that this acceleration indicates that inflation is strong enough to no longer justify the Federal Reserve's accommodating policy. This is why today is key: The Fed will announce its monetary policy decisions in just a few hours.

Investors are not sure what to expect. They do know what they don't want to hear, which is that inflation is slipping, or that major changes in monetary policy are on the way. In other words, it's the old "no news is good news" that would satisfy everyone.

In June 2021, markets want to hear that the economy is doing well, but not well enough to lift support programs. And it wants the message of a real but transitory inflation spike to continue to get through, because that would delay the need for tighter monetary policy. Investors are satisfied with markets as they are now, with small gains, volatility index at the floor, as they think about their summer holidays. Investors "have a high level of complacency," writes Credit Suisse. Beware of sleeping dogs, say some. All signals are green, say others.

The absence of real or perceived market stress does not prevent powerful forces from being at work. Economies need to tame the distortions and supply shortages that affect global trade. China announced this morning that it intends to release some of its base metal reserves for sale to its manufacturers in an attempt to curb price increases. At the same time, authorities have instructed state-owned companies to reduce their exposure to raw materials outside their borders. Initiatives to try to calm the overheating of certain sectors of the economy are sources of volatility. We are seeing some industrial metals correct heavily, such as copper. Even lumber in the United States, a symbol of an unbridled recovery, has been under pressure for a few days. At the same time, oil is returning to the area of its autumn 2018 peaks (Brent had then exceeded USD 86), i.e. its best level of the 2014 / 2021 period. On stock markets, this is reflected in clearly visible bouts of weakness in the commodity champions this week, while oil groups continue to hover at the top of the charts. 

Another major force at work is geopolitical. Joe Biden is replacing his predecessor's "US versus the rest of the world" doctrine with a more traditional "US and its allies" against a common enemy, in this case China. Messages sent by the White House could not be clearer: the barriers erected by Donald Trump with Europe are being deconstructed one by one, but hardly any of those built between Washington and Beijing. At the same time, Biden is keeping the channel open with stirring leaders Erdogan and Putin. The former met on the sidelines of the NATO summit in Brussels and the latter are meeting today in Geneva.

 

Economic highlights of the day:

All eyes are on the Fed. There’s also British inflation and US housing starts & building permits and weekly oil stocks.

USD/EUR flat at EUR 0.8250. Gold is under pressure at USD 1856 per ounce. Conversely, you need USD 74.3 to purchase a barrel of Brent and USD 72.3 a barrel of WTI. The T-Bond yield is rising slightly to 1.5% over 10 years. Bitcoin fell below USD 40,000.

 

On markets:

* Oracle lost nearly 5% in pre-market trading after it said it expects the current quarter's earnings to be below market expectations. However, several analysts have raised their price target on the stock.

* Regeneron Pharmaceuticals and Roche's anti-COVID-19 monoclonal antibody cocktail reduces mortality in hospitalized patients who did not develop their own immune response, suggest new results from a large British study published Wednesday.

* Moderna announced Wednesday that the U.S. government has ordered an additional 200 million doses of its COVID-19 vaccine.

* General Motors will increase its investment in electric and autonomous vehicles to $35 billion through 2025, a 30 percent increase from its most recent forecast, people close to the matter told Reuters.

* Blackstone - Soho China said on Wednesday it had received a buyout offer from the private equity group for HK$23.66 billion (about €2.5 billion).

* EBay will sell its South Korean subsidiary to the consortium of Shinsegae-owned retailer E-Mart and Internet platform Naver for about 4 trillion won (2.95 billion euros), Euromonitor reported Wednesday.

* Royal Caribbean is postponing the maiden voyage of its Odyssey of the Seas cruise ship by nearly a month after eight crew members tested positive for COVID-19, its chief executive said Wednesday.

* Altimmune is gaining 4% in pre-market trading after releasing positive interim data Wednesday from a study of its treatment for obesity and the metabolic dysfunction that causes NASH, a liver disease.

 

Analyst recommendations:

  • Amazon: Jefferies stays a Buy. The target price continues to be set at USD 4200.
  • AMN Healthcare Services : BofA Securities adjusts price target to $110 from $105, maintains buy rating
  • EasyJet: Bernstein stays Buy. The target price is unchanged and still at GBp 1150.
  • HCA Healthcare : BofA Securities raises price target o $260 from $242, maintains buy rating
  • HSBC: Citigroup upgrades from neutral to buy.
  • Motorpoint: Liberum remains Buy with a price target raised from GBP 290 to GBP 435.
  • Pets at Home: Berenberg remains Buy with a price target raised from GBP 510 to GBP 540.
  • PerkinElmer : Wolfe Research upgrades to outperform from peer perform
  • Rolls-Royce: JP Morgan's research confirms its neutral opinion on the stock. The target price is still set at GBp 105.
  • Royal Bank of Canada : National Bank changes pt to c$140 from c$137, maintains outperform rating
  • RyanAir: JP Morgan gives a Neutral rating to the stock. The target price is unchanged and still at EUR 15.80.
  • Select Medical : BofA Securities adjusts price target to $48 from $46, maintains buy rating
  • Tenet Healthcare : BofA Securities lifts price target to $86 from $69, maintains buy rating
  • Tesco: AlphaValue remains Buy with a target price cut from GBP 280 to GBP 276. 
  • Universal Health Services : BofA Securities raises price target to $153 from $142, maintains underperform rating

© MarketScreener.com 2021
Stocks mentioned in the article
ChangeLast1st jan.
ALTIMMUNE, INC. 0.11% 9.07 Delayed Quote.-19.59%
AMAZON.COM, INC. -7.56% 3327.59 Delayed Quote.2.17%
AMN HEALTHCARE SERVICES, INC. 0.58% 100.56 Delayed Quote.47.34%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.71% 0.7343 Delayed Quote.-3.87%
BITCOIN - EURO -0.66% 35084.74 Real-time Quote.42.33%
BITCOIN - UNITED STATES DOLLAR -0.62% 41661.21 Real-time Quote.38.28%
BLACKSTONE MORTGAGE TRUST, INC. -0.22% 32.42 Delayed Quote.17.76%
BRITISH POUND / US DOLLAR (GBP/USD) -0.47% 1.38978 Delayed Quote.2.12%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.00% 0.8013 Delayed Quote.2.23%
CITIGROUP INC. -1.00% 67.62 Delayed Quote.9.67%
CREDIT SUISSE GROUP AG -0.04% 9.106 Delayed Quote.-20.12%
EASYJET PLC -4.02% 846.2 Delayed Quote.1.95%
EBAY INC. -7.08% 68.21 Delayed Quote.35.74%
EURO / US DOLLAR (EUR/USD) -0.18% 1.18684 Delayed Quote.-2.65%
GENERAL MOTORS COMPANY -0.77% 56.84 Delayed Quote.36.50%
HCA HEALTHCARE, INC. 0.12% 248.2 Delayed Quote.50.92%
HSBC HOLDINGS PLC -0.89% 397.45 Delayed Quote.4.91%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.00% 0.013452 Delayed Quote.-1.63%
LONDON BRENT OIL -0.82% 75.16 Delayed Quote.44.56%
MODERNA, INC. 2.30% 353.6 Delayed Quote.238.47%
MOTORPOINT GROUP PLC 0.57% 352 Delayed Quote.22.86%
NAVER CORPORATION -1.37% 433500 End-of-day quote.48.21%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.49% 0.6974 Delayed Quote.-2.36%
ORACLE CORPORATION -0.56% 87.14 Delayed Quote.34.70%
PERKINELMER, INC. 1.63% 182.23 Delayed Quote.24.95%
PETS AT HOME GROUP PLC -0.97% 468 Delayed Quote.12.45%
REGENERON PHARMACEUTICALS -1.46% 574.61 Delayed Quote.20.70%
ROCHE HOLDING AG 0.79% 350.35 Delayed Quote.13.38%
ROLLS-ROYCE HOLDINGS PLC -2.42% 99.71 Delayed Quote.-10.37%
ROYAL BANK OF CANADA -0.65% 126.18 Delayed Quote.20.64%
ROYAL CARIBBEAN GROUP -3.94% 76.87 Delayed Quote.7.14%
RYANAIR HOLDINGS PLC -0.81% 16.575 Real-time Quote.1.97%
S&P 500 -0.54% 4395.26 Delayed Quote.17.16%
S&P GSCI CRUDE OIL INDEX 1.07% 405.2942 Delayed Quote.51.73%
S&P GSCI INDUSTRIAL METALS INDEX -0.52% 477.1085 Delayed Quote.25.59%
SELECT MEDICAL HOLDINGS CORPORATION 0.74% 39.45 Delayed Quote.42.62%
SHINSEGAE INC. -2.03% 266000 End-of-day quote.11.06%
SOHO CHINA LIMITED -4.64% 2.88 End-of-day quote.24.68%
TENET HEALTHCARE CORPORATION -0.42% 71.84 Delayed Quote.79.91%
TESCO PLC -0.11% 233 Delayed Quote.0.69%
THE BLACKSTONE GROUP INC. -0.63% 115.27 Delayed Quote.77.86%
UNIVERSAL HEALTH SERVICES, INC. 0.91% 160.41 Delayed Quote.15.61%
WTI 0.53% 73.659 Delayed Quote.50.25%