Wall Street is recovering before market this Thursday, with the S&P 500 gaining 0.6%, the Dow Jones 0.5% and the Nasdaq 0.8%. The American market experienced a notable bout of weakness last night, with the Nasdaq falling by 1.5% and the Dow Jones by 1.27%. It was still the strongest correction session on the US market in almost three months. The American indices therefore fell for no fundamental reason, giving in to profit-taking after the records of the Dow Jones and the Nasdaq 100, and while even the S&P 500 was approaching its historic peaks. The mood seems more positive today, notably following the contrasting figures for GDP, employment and the manufacturing industry.
On the Nymex, a barrel of WTI crude lost 1.8% to $72.9. An ounce of gold gained 0.3% to $2,055. The dollar index fell by 0.5% against a basket of currencies. The yield on 2-year Treasury bonds stands at 4.32%, compared to 3.84% on the 10-year bond and 3.98% on the 30-year bond.
US GDP for the third quarter of 2023 has been revised down for its final reading. It still appears to be growing strongly at a rate of 4.9%, compared to 5.2% consensus and 5.2% for the previous assessment. Personal consumption expenditure increased at a rate of 3.1% in the third quarter, compared to +3.6% consensus. The price index rose by 3.3%, in line with the consensus.
Among the other statistics of the day, weekly unemployment registrations for the week ending December 16 stood at 205,000, against a consensus of 216,000. They stood at 203,000 a week earlier.
The Philadelphia Fed’s manufacturing index for the month of December came in at -10.5, compared to -3 consensus. It reflects a sharp contraction in manufacturing activity in the region in question.
The Conference Board’s leading indicators index for the month of November will be revealed at 4 p.m. (consensus -0.4% compared to the previous month). The Kansas City Fed’s regional manufacturing index for the month of December will finally be released at 5 p.m.
Patrick Harker, the head of the Philadelphia Fed, indicated in a radio interview yesterday that the US central bank should start cutting rates, but not immediately. According to him, it is therefore important that the Fed reduces its rates, but it would not have to do it so quickly and right now. “We should keep rates where they are and then start cutting them,” summarized Harker, who noted that the economy appears to be slowing faster than government data suggests, given that data is lagged. Finally, he indicates that the main challenge that companies are currently facing lies in the cost of capital…
Austan Goolsbee, president of the Chicago Fed, explained earlier this week that the US central bank would not be influenced by the markets. According to him, it is inflation which will determine the future monetary decisions of the Fed. The monetary institution may reconsider its restrictive policy if inflation continues to approach the 2% objective. Asked by Fox News, the official added that the stock markets had gotten a little carried away in reaction to the more dovish tone of Fed Chairman Jerome Powell, as part of his press conference following a third consecutive monetary status quo .
Raphael Bostic, who heads the Atlanta Fed, also spoke this week. According to him, it is likely that inflation will continue its gradual decline over the coming months, but slowly enough not to justify lifting the restrictive policy for the time being. Bostic therefore remains very conservative and is only considering two rate cuts next year, during the second half of the year. He nevertheless noted that the Fed should not do too much in the direction of tightening so as not to undermine the employment market… Bostic indicated that the Fed was in a good position and on the right track to correct inflation without too much difficulty on the labor market. He said he was paying a lot of attention to the 3- and 6-month inflation rates, which are falling, while adding that he still expected inflation to decline slowly and unevenly.
On Yahoo! Finance, Thomas Barkin, head of the Richmond Fed, estimated that the Fed would reduce its rates if inflation continued to fall. However, he also cautioned that he considered inflation to be more stubborn than the average person, and therefore could not predict where the data would head.
Despite numerous interventions by Fed officials this week, there is not much change in market expectations regarding rates, with the FedWatch tool giving a probability of about 12% now of a rate cut on January 31, 2024, compared to 83% on March 20. According to the same tool, the rates could be in a range of 3.75 to 4% (probability of almost 36%) or between 3.50 and 3.75% (probability of 37%) at the end of the year next.
Tomorrow Friday, investors will monitor durable goods orders, household income and spending (and the ‘core PCE’ price index tracked by the Fed), new home sales, as well as the consumer sentiment index from the University of Michigan.
In corporate news, Micron and BlackBerry published their latest quarterly financial results last night on Wall Street. Cintas, Paychex, Carnival and CarMax announce their pre-market results today, while Nike will follow in the evening.
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Micron, the American chip designer, exceeded expectations on Wall Street for its first fiscal quarter and also delivered solid forecasts. The group posted an adjusted loss per share of 95 cents in the first fiscal quarter of 2024, compared to a consensus of -$1. Revenues were $4.73 billion in the period ending November 2023, up 16% year-on-year, compared to $4.54 billion expected. The American leader in memory chips forecasts, for the second fiscal quarter, revenues ranging from 5.1 to 5.5 billion dollars, while the consensus was less than 5 billion. The adjusted loss per share over the period is expected between 21 and 35 cents, compared to a deficit of 62 cents according to the consensus.
The group would therefore be moving closer to profitability, helped in particular by the boom in artificial intelligence. Sanjay Mehrotra, CEO of Micron, discusses the strong demand for data center memory intended to help develop AI software. The executive maintained that 2024 was going to be a rebound year for the industry as a whole. The Boise, Idaho, group has already sold all the high-bandwidth memory it could make in 2024 — a type of ultra-fast chip needed by computers that create AI software. Management cites a high revenue and profit opportunity for the industry. The group is trying to recover after a year in which smartphone and PC makers cut orders. Customers had built up excess inventory, driving memory prices below their production cost.
BlackBerry lost ground after trading on Wall Street last night. However, the former star of the personal assistant market posted an unexpected profit for the quarter ended, with the demand for cybersecurity services. The Canadian group listed on the American market thus generated an adjusted quarterly profit of one cent per share for the quarter ended at the end of November, against a consensus of -5 cents. Third-quarter revenue was $175 million versus $169 million a year earlier. The consensus was 173 million. For its fourth quarter, the group is cautiously forecasting revenues ranging from 150 to 159 million dollars, which disappoints the markets since the consensus was 200 million.
BlackBerry also intends to simplify its structure so that each activity can operate independently with the objective of being profitable and generating cash. John Giamatteo, new general manager of the group, indicates that this work of separation of activities and resizing has begun, with the group planning to further reduce the use of operating cash flow in the fourth fiscal quarter.
Tesla regains some ground before the market on Wall Street this Thursday, while the group is the subject of an investigation by the Norwegian Public Roads Administration regarding the suspension of its vehicles which could be subject to ‘a reminder. At least that’s what the local road safety authority, the NPRA, told Reuters. The title of the Texan electric automobile giant, however, benefits from information according to which the Biden administration should increase customs duties on Chinese electric vehicles. Thus, according to the Wall Street Journal, Washington is considering increasing customs duties on certain Chinese products, notably electric vehicles. The WSJ cites people with knowledge of the matter on this subject.
This would at first glance be positive news for Tesla, as Chinese vehicle exports have increased in recent years, fueled by overcapacity and slowing domestic demand in the world’s largest auto market. That would follow a request last month for the Biden administration by a bipartisan group of U.S. lawmakers to increase tariffs on Chinese-made vehicles and study ways to prevent Chinese companies from exporting. to the United States from Mexico.
Boeing will resume deliveries of its 787 Dreamliner to China within a few days, a source close to the matter told Reuters. It could also pave the way for a thaw in deliveries for the 737 MAX to China after a four-year hiatus. Juneyao Airlines, a Chinese airline group, will therefore receive a new 787 Dreamliner in Shanghai from Seattle. The trade publication The Air Current reported that Boeing had obtained a key authorization this month from the Chinese aviation regulator which would bring the American manufacturer closer to a thaw in deliveries of the 737 MAX. Reuters recalls that Chinese orders and deliveries of Boeing planes have been suspended since 2019 after two fatal 737 MAX accidents in 2018 and 2019 led to the grounding of the MAX worldwide. Security bans were lifted, but new deliveries remained suspended.
CarMax, the American used vehicle distribution giant, climbs before the market on Wall Street following the publication of its quarterly results. For its third fiscal quarter 2024, ended at the end of November 2023, the group posted revenues of $6.15 billion (-5.5%), slightly below consensus, but adjusted diluted earnings per share of 52 cents to compare to a consensus of 42 cents. The group benefited from the price effect and cost reductions. Despite pressures in the used vehicle sector, management welcomes sequential improvements in several key components of the business. Quarterly net profit was $82 million, compared to $38 million a year earlier.
Paychex, specializing in the development of integrated management software packages, announced revenues of $1.26 billion for its second fiscal quarter ended at the end of November, an increase of 6% year-on-year, and operating profit up 7% to 506 million dollars and adjusted diluted EPS per share of $1.08, an increase of 9%. Over the financial year, revenues increased by 6% to 2.54 billion, while adjusted EPS increased by 10% to $2.23. The group is also raising its annual profit forecasts.
