Equity markets confirmed the rubber band theory on Thursday, with a one-of-a-kind session. The rubber band has been tightening in recent weeks, as investors got desperate for a reliable macroeconomic sign that the US central bank's austerity policy was about to be reversed. They got it yesterday at 8:30 a.m., in the form of lower-than-expected inflation in the United States in October. Instead of breaking, the rubber band suddenly sprung. As a result, the Nasdaq 100, the barometer of risky assets, rose by 7.5%. There was a 5.5% gain for the S&P500, which is more varied. Algorithms and hot-blooded investors rushed in on all sorts of stocks, including the most leveraged ones.

The new prevailing sentiment is that rate hikes are starting to pay off by bending inflation, so the Fed will not have to go too far with its punitive policy. The classic mechanics are in place: the dollar has fallen, strongly, as have US bond rates, with a 10-year maturity paying 3.81% this morning compared to 4.10% 24 hours ago. The shorter maturities are still reversed, which means that the market continues to see an economic slowdown coming. It is even hoping for it, since it is a condition for the US central bank to return to a more flexible policy. The bad news of an economic slowdown is actually good news for Wall Street, which is always in anticipation.

This has been the best session for the Nasdaq since March 2020 and the worst session in the last ten years for the Dollar Index, which compares the greenback to a basket of major currencies. Some commentators will surely be calling for caution, that nothing is done yet, that inflation remains crazy and that other confirmatory signs are needed before a real inflexion of monetary policy. This is true, but in the short term, investors had the wow moment they had been waiting for.

The rally continues today, with futures on the three main Wall Street indexes up by 0.5%. In China, authorities announced a slight easing of Covid restrictions.

 

Economic highlights of the day:

The University of Michigan's November consumer confidence index is today's main indicator. All the macro agenda is here.

The dollar is down 1% against the euro to EUR 0.9717 and down 0.7% against the pound to GBP 0.8487. The Gold ounce validates its rebound to 1761 dollars. Oil rebounds, with North Sea Brent at USD 96.12 per barrel and US WTI light crude at USD 88.99. The yield on 10-year U.S. debt fell to 3.81%. Bitcoin stabilized after its plunge and a partial rebound at 17,400 dollars.

 

In corporate news:

* Elon Musk, Tesla's chief executive, said Friday on Twitter that his companies are well positioned heading into 2023 despite the risk of a worsening economy.

* Berkshire Hathaway, the group led by Warren Buffett, announced Thursday that it has sold more than 91 million shares of US Bancorp since the beginning of the year, or 63% of its stake, down to 3.6%.

* Blue Apron fell 36% in premarket trading to $1.11 a share, as a stock exchange document showed that the meal kit delivery group had reached an agreement with Canaccord Genuity to sell $30 million worth of shares.

 

Analyst recommendations:

Altria: UBS downgrades to Sell from Neutral, adjusts Price Target to $38 from $43

GSK: UBS cut its recommendation to sell from neutral. PT down 4.4% to 1,300 pence.

Intel: J.P. Morgan downgrades to underweight from rating suspended. PT up 7.5% to $32.

M&G: Jefferies initiated coverage with a recommendation of buy. PT set to 235 pence.

Roku: Jefferies initiated coverage with a recommendation of hold. PT set to $45.