Fed chair Jerome Powell and his right-hand man Lael Brainard will be before the US Senate tomorrow for a hearing prior to their new mandate. Economists are expecting a confirmation of the institution's tightening policy on key rates, especially after the figures published Friday on the U.S. job market in December. The unemployment rate fell below 4%, while wages continued to rise. There are still more than 10 million jobs in the U.S. that are looking for takers. America has a rich man's problem, which it is unable to solve by the simple game of supply and demand.
The cocktail of a tight labor market and ramping inflation is forcing the Fed to raise rates to avoid an uncontrolled slide. The content of the consumer price increase will be known on Wednesday. Inflation is expected to have reached 7% year-over-year in December across the Atlantic. In the forecasting game, 80% of the markets now expect a first rate hike in March, and 70% expect a second in June. The strategists of the investment bank Goldman Sachs have for their part now anticipate four rate hikes in 2022, up from three previously forecast. "We continue to see hikes in March, June and September, and now we've added a December hike," they explain. They call it getting out heavy artillery in the face of soaring prices.
Should we run away from stocks when central banks are turning hawkish? As is often the case in economics, the answer is not binary. In fact, periods of rising interest rates are not necessarily negative for equities. Especially when the cycle starts from very low rates and they do not rise too high. Since rates have never been so low, this raises some hopes. Episodes of complicated monetary tightening have coincided with much higher rate levels than now and/or more severe economic shocks. Specifically, stocks do quite well when real rates rise. Real rates are calculated by deducting inflation expectations from nominal rates. So monetary tightening is not necessarily bad news. But investors must adapt, as this is a good time to rotate sectors and change investment styles.
Meanwhile, the parliamentary debates on Joe Biden's social plan return. The $2,000 billion "Build Back Better" project,, suffered a major setback in December when the influential Democrat Joe Manchin publicly declared that he would not support it. Debate will resume this week. "We expect a smaller version to pass, but the risk that nothing will pass increases," said economist Stephen Gallagher of Société Générale.
Economic highlights of the day:
Two statistics today, the Eurozone unemployment rate in November and the US wholesale inventories for November.
The dollar is up slightly after rising to EUR 0.8853. Gold is stagnant at USD 1,795, while oil remains firm at USD 81.32 a barrel of Brent and USD 78.47 a barrel of WTI. US debt yields are up four points to 1.76%, while German Bund yields stand at -0.05%. Bitcoin is down to USD 40710.
* Tesla - The automaker is down 1.3 percent to $1,013.8 in pre-market trading, heading for a fifth straight session of declines, after a tweet from CEO Elon Musk announcing a price hike for the autonomous driving assistance option in vehicles sold in the U.S. to $12,000 starting Jan. 17.
* Take-Two Interactive Software, Zynga - U.S. video game publisher Take-Two will buy mobile game specialist Zynga, creator of FarmVille among other games, on the basis of a global valuation of nearly $12.7 billion, including debt, the two groups announced Monday. Zynga shares gained 53% in pre-market trading, while Take-Two lost 8%.
* Moderna - The company raised its sales forecast for its COVID-19 vaccine this year to about $18.5 billion from the $17 billion to $22 billion range announced in November.
* The Boeing Company - A U.S. appeals court on Friday night revived a lawsuit filed by a group of the aircraft manufacturer's shareholders in the case of the deadly 737 MAX accidents in Indonesia and Ethiopia in 2018 and 2019 by overturning a lower court's decision. Among other things, the plaintiffs accuse Boeing officials of public misrepresentation.
* General Motors announced Sunday that it recognizes California's authority to set emissions standards under the federal Clean Air Act, making the automaker's vehicles eligible for state fleet purchases.
* Meta Platforms - Facebook's parent company announced Friday night that its chief communications officer, John Pinette, is leaving the company and will be replaced on an interim basis by Chris Norton, the company's vice president of global communications.
* Nike - The sports equipment maker's shares lost 0.6% to $156 in pre-Wall Street trading as HSBC lowered its recommendation on the stock to "hold" from "buy", with a price target reduced from $184 to $182. The intermediary notes persistent problems with supply chains.
* Lululemon Athletica - The sportswear retailer said Monday it expects the Omicron variant of the coronavirus to have a negative impact on its fourth-quarter results, as the company was forced to reduce store hours during the holiday season. The stock plunged 5% in pre-market trading.
* AirBnb - Shares of the hospitality platform are down 1.8% to $163.2 in premarket trading after Piper Sandler lowered its recommendation on the stock to "neutral" from "overweight."
* Beyond Meat- The meat substitutes company gained 1.2% in premarket trading after Pizza Hut, a restaurant chain owned by Yum Brands, launched a permanent menu offering of its "plant-based sausage.
* Expedia Group - The online travel booking group's stock gained 2% in premarket trading after Piper Sandler upgraded its advice on the stock to "overweight" from "neutral", with a price target raised to $216 from $197.
* Reviva Pharma - The pharmaceutical company's stock jumps 24.5% in premarket trading after the Food and Drug Administration gives the green light to continue two late-stage clinical trials of an experimental schizophrenia treatment, with brilaroxazine meeting its primary endpoint in an interim study.
* Amazon - The U.S. online retail giant has filed new legal challenges in its dispute with Indian retailer Future Group after the competition authority suspended a 2019 deal between the two groups, four sources close to the matter told Reuters on Sunday.
* KKR - A group of directors of Telecom Italia (TIM), a company the U.S. fund wants to buy, has asked the telecom operator's chairman to call a special meeting to appoint a new chief executive, two sources close to the matter said.
* Royal Caribbean Cruises announced Friday evening the suspension of some of its cruise operations due to the increase in cases of contamination by the Omicron variant of the coronavirus.
- Aviva: Jefferies maintains a Hold rating with a price target raised from GBp 425 to GBp 435.
- CenterPoint Energy: BMO Capital Markets to outperform from market perform. PT up 12% to $31
- Crown Castle: Jefferies downgrades to hold from buy. PT up 4.2% to $203
- Eagle Materials: Northcoast Research upgrades to buy from neutral. PT up 20% to $193
- Electrocomponents : Jefferies remains Buy with a price target raised from GBp 1,500 to GBp 1,520 .
- Eversource Energy: BMO Capital Markets downgrades to market perform from outperform. PT up 6% to $95
- Expedia: Piper Sandler upgrades to overweight from neutral. PT rises 20% to $216
- L3Harris: Wells Fargo Securities upgrades to overweight from equal-weight. PT up 16% to $254
- Mohawk industries: Evercore ISI downgrades to inline from outperform. PT up 10% to $195
- National Grid: Bernstein upgrades from Outperform to Market Perform targeting GBp 1105.
- National Retail: Jefferies downgrades to hold from buy. PT up 4.3% to $50
- Northrop Grumman Corporation: Wells Fargo Securities upgrades to equal-weight from underweight. PT down 0.4% to $399
- Oneok: Wolfe Research downgrades to underperform from peerperform. PT down 3.9% to $60.
- Public Storage: Jefferies upgrades to buy from hold. PT up 22% to $433
- Toll Brothers: RBC Capital Markets downgrades to sector perform from outperform. PT up 6.8% to $70
- Unilever: Citigroup resumes follow up to buy targeting GBp 4500.
- WPP: Exane BNP Paribas upgrades from Underperform to Neutral with a target of GBp1060.
- Xcel Energy: Mizuho Securities upgrades to buy from neutral. PT rises 4.2% to $72