Wall Street rose on Tuesday to its best levels of the year, the S&P 500 gaining 0.46% to 4,643 pts and the Dow Jones +0.48% to 36,577 pts, the two indices gradually getting closer from their historic peaks… The Nasdaq for its part gains 0.70% to 14,533 pts. The week is animated from an economic and monetary point of view by the two main meetings concerning inflation and the Fed. Today’s consumer price figures did not reveal any major surprises and therefore fuel the thesis that inflation is now generally under control… In corporate news, Oracle disappointed by revealing quarterly revenues “a a little short”.
The American consumer price index for the month of November 2023 thus showed an increase of 0.1% compared to the previous month, against a stable consensus and after a month of October without change… Sliding annual, the American CPI for November increased as expected by 3.1%. Excluding food and energy, this price indicator increased by 0.3% compared to the previous month and by 4% over one year. Finally, the average hourly wage appreciated a little more than expected, up 0.4% compared to the previous month and 4% over one year.
Janet Yellen, American Secretary of the Treasury and former head of the Fed, delivers economic comments this Tuesday, in the middle of a blackout preventing officials of the American central bank from speaking – on the eve of the FOMC monetary decision. Yellen says she sees no reason why inflation should not return to the Fed’s 2% target. She notes that inflation is moderating significantly and believes that the economy is on track for a soft landing.
She added that the high level of long-term rates should put pressure on the fiscal outlook. According to the head of the US Treasury, the rise in real rates could impact the Fed’s decisions on the pace of rates. In any case, inflation expectations would be “largely under control”, according to Yellen, who rules out a entrenchment of inflation or an inflationary wage spiral. She also specifies that the job market remains strong but is easing, and judges that it is not necessary to have high unemployment to bring down inflation…
The Fed’s monetary meeting (FOMC) began on Tuesday. The Fed’s monetary statement will be revealed Wednesday evening at 8 p.m., while Jerome Powell’s conference will be held at 8:30 p.m…. The American central bank should very probably leave its rates unchanged between 5.25 and 5.5% on fed funds (probability of more than 98% according to the FedWatch barometer). The markets anticipate a potential monetary easing on March 20 (approximately 50% probability) or May 1, 2024… Also on Wednesday, the producer price index in the United States, the index of expectations of inflation from the Atlanta Fed, as well as the weekly report on US domestic oil stocks.
Thursday, the day will be marked by announcements of weekly unemployment registrations, retail sales, import and export prices, as well as business stocks and sales.
Finally, Friday, “Four Witches” day (simultaneous expiry of 4 types of contracts: options on indices and on stocks, as well as futures contracts on indices and stocks), investors will follow the manufacturing index Empire State from the New York Fed, industrial production figures, as well as the US composite flash PMI index…
On the business side, Adobe and Nordson Corporation will reveal their results on Wednesday evening. Costco Wholesale (after market), Lennar, Jabil and Manchester United announce Thursday. Darden Restaurants will finally be on the Friday menu.
On the Nymex, a barrel of WTI crude lost almost 5% to $68. The dollar index lost 0.1% against a basket of reference currencies. On the bond market, the yield on the 2-year T-Bond stands at 4.73%, the 10-year at 4.23% and the 30-year at 4.33%.
Values
Oracle, the American business software giant, lost 12.4%. For its second fiscal quarter, the group posted adjusted earnings per share of $1.34 per share, compared to a consensus of $1.33, as well as adjusted revenues of $12.94 billion, slightly lower than market expectations (13.1 billion), growing by only 5%. Safra Catz, the group’s chief executive, indicated that demand for the group’s generative AI and cloud infrastructure services was “growing at an astronomical pace”, which did not really convince investors…
In the quarter ended November 2023, the group’s cloud revenues increased by 25% to around $4.8 billion. This is nevertheless a slowdown, since these cloud revenues had increased by 30% year-on-year in the previous quarter. This is the second consecutive quarter of slowdown in the cloud. The Austin group, which intends to compete with the cloud giants, is struggling for the moment, but has ambitious forecasts. Larry Ellison, chairman of the board of directors, intends to continue spending to expand capacity in cloud services, including 100 new data centers on the program. During the results presentation last night, Ellison estimated that infrastructure growth is expected to be more than 50% for several years. “The demand is dazzling,” assured the manager. Catz added that Oracle would have been able to record hundreds of millions of dollars in additional cloud sales in the quarter if capacity had been available.
For the current quarter, Catz expects total revenues to grow 6.5% year-on-year. Here again, the guidance remains too short compared to the market consensus, which stood at 7.5%. Cloud sales, excluding revenues from the Cerner health unit, are expected to increase by 27% compared to last year, which would represent a slight acceleration.
Casey’s General Stores (-0.4%), the American neighborhood grocery chain announced adjusted earnings per share of $4.24 for its second fiscal quarter, compared to a consensus of $3.74 and a level from $3.67 a year earlier. Revenues totaled $4.06 billion over the period, compared to $3.98 billion a year before. They miss the analyst consensus by 2%. For the 2024 fiscal year, the group envisages growth in Ebitda “in line with the objective of the long-term strategic plan of 8 to 10%”. The group plans to repurchase at least $100 million worth of shares throughout the financial year. Internal same-store sales are expected to increase 3.5% to 5%. Net interest expense is expected to be approximately $53 million.
Johnson Controls (-5.9%), a global leader in smart building technologies and solutions, announced adjusted earnings per share of $1.05 for its fourth fiscal quarter, including 4 cents of impact from a cybersecurity incident, up 6% year-on-year. Consolidated revenues increased by 3% to $6.91 billion, with organic growth of 2%. The consensus was for $1.09 in adjusted earnings per share on $7.09 billion in revenue. Over the year, revenues improved by 6%, while adjusted earnings per share rose 17% to $3.50. Fourth quarter orders increased by 9% organically, while annual orders increased by 7%. Adjusted EPS for fiscal 2024 is finally expected between $3.65 and $3.80.
Bristol-Myers Squibb (-1.1%) will pay $800 million initially and up to $8.4 billion in total to Sichuan Biokin Pharmaceutical, for the development and marketing of one of the Chinese group’s anticancer treatments outside of China. BMS will pay Sichuan’s SystImmune unit up to $500 million in short-term conditional payments to co-develop a promising antibody-drug conjugate against a range of solid tumors, including non-small cell lung cancer and breast cancer. The treatment is currently in the early phase of clinical trials. SystImmune will also be eligible for additional payments of up to $7.1 billion.
Epic Games, the publisher of Fortnite, yesterday won its lawsuit against Google (Alphabet -0.5%) in the United States… Epic accused Google of illegal monopoly via its Google Play application store. Google intends to appeal this unfavorable decision. Reuters indicates that the jurors unanimously ruled in favor of Epic on all points, after a trial lasting more than a month. Epic believes that Google has managed to crush the competition and impose very high costs of up to 30% on smartphone application developers. The federal court in San Francisco must now specify the measures to be adopted to remedy the problem. Such a ruling against Google could subsequently give developers greater control over their applications and the revenue generated.
Nvidia (+2.2%) reacted little to information according to which the Biden administration would discuss with the processor designer about the possibility of selling AI chips in China… The American Secretary of Commerce, Gina Raimondo, said in an interview with Reuters that Nvidia can, will and should sell AI chips to China. “What we can’t allow them to ship are the most sophisticated and powerful AI chips,” said Raimondo, who spoke a week ago with Nvidia’s CEO, Jensen Huang. She said yesterday Monday that the US Department of Commerce was working with Nvidia on the subject. “They want to do the right thing. Obviously, they want to sell as many chips as possible.”
