Wall Street plunges after rising US inflation

The New York Stock Exchange plunged red on Friday after announcing inflation of 8.6% over the year in May in the United States, but the market expected a stability of about 8.3%. Yields have risen further in anticipation of the Fed and ECB rate hikes, with the US 10-year contract currently trading at 3.15%. Consumer confidence in the United States plummeted in June, raising concerns about a recession and leading to a correction in oil prices.

Two hours before the closing, the Dow Jones fell 2.12% to 31,587 points, the broad S & P 500 index fell 2.37% to 3,922 points, and the Nasdaq Composite Index, rich in technology and biotechnology stocks, fell 3%. I got 11,400 points. If these losses are confirmed at the closing price, the three indices will fall by 4%, 4.5% and 5% in a week, respectively, and from the beginning of the year, DJIA will fall by about 13% and 17%, respectively. 27% for the S & P 500 and 27% for the Nasdaq.

The S & P 500’s 11-sector index started at consumer discretion (-4%), technology (-3.4%), and finance (-3.2%) and was dismissed in the session. Among the biggest dips of the day were Meta Platforms (ex-Facebook), Netflix (-4.6%), Apple (-3.1%), Tesla (-3.8%) and Nvidia (-3.8%) who lost 4.5%. There are “high-tech” giants such as. -5.1%). Alphabet decreased by 2.9%, Microsoft decreased by 3.7%, but Amazon decreased by 5.7%.

Earlier that day, the European market also ended half-mast, with Eurostocks 50 down 3.3% and DAX 30 down 3.1% in Frankfurt, while CAC 40 fell 2.7% and 4.5% in Paris. did. Over a week. In Asia, the Nikkei Stock Average fell 1.5% in Tokyo, while the Shanghai Composite Index rose 1.4% in China.

U.S. inflation has been high for over 40 years and household morale is low

Investors were double shocked this Friday. Inflation has accelerated in the United States, and the morale of US consumers, especially concerned about fuel prices at record levels, has plummeted. 1 gallon of gas).

The Consumer Price Index (CPI) rose 1% in May against + 0.7% in the FactSet consensus, and US inflation rose from 8.3% consensus to 8.6% year-on-year, 8.3% in April and March. Was 8.5%. .. Thus, price increases have reached new highs for 41 years across the Atlantic Ocean, shattering recent hopes in the market that thought they had detected signs that price increases had peaked …

Excluding food and energy, the CPI also exceeded expectations, rising 0.6% in a month (+ 0.5% forecast). Over the course of the year, the pace slowed slightly from + 6.2% in April to + 6% in May (+ 5.9% compared to expectations).

As for American consumer sentiment as measured by the University of Michigan, it collapsed to 50.2 in the first reading, the lowest ever, far from the market consensus of 58.2. The index for May was 58.4.

Financial puzzles in the Fed outlook

These worse-than-expected numbers further complicate the Fed’s mission to launch a rate hike cycle in March to combat inflation, and are more aggressive in the face of soaring prices at the next meeting. You may be tempted to act on Tuesdays and Wednesdays. So far, the market has been banking up another 0.5 points to keep the June 15 “Federal Funds” interest rate in the range of 1.25% to 1.50%.

US central bank officials have recently shown that they are ready to raise at least another halving in July, and could slow again in September if inflation shows no clear signs.

Central banks in the United States have to deal with a particularly unfavorable environment after interest rates are too low and too long. In these situations, the risk of a more pronounced economic slowdown rises sharply. FedWatch data show a potential cumulative rate hike of 215 basis points in 2022. As a result, the federal funds rate will be about 3% at the end of December next year.

The two-year rate in the United States has exceeded 3%!

In the bond market, interest rates soared on Friday, following US inflation. The 10-year T-Bond yield rose 11 basis points to 3.15%, while the Fed-sensitive two-year T-Bond rate surged 23bps to 3.04%, the highest since mid-2008. ..

In the euro area, yields on 10-year German foreign bonds rose 9bp to 1.51%, the highest since April 2014, more than eight years ago. To be on the safe side, Germany’s “10 years” is in the negative territory, at the end of December 2021 at -0.18%, while in the US “10 years” was 1.5% and “2 years” was only 0.74%. .. ..

Dollars and gold act as a safe haven

In the forex market, the dollar index acted as a safe haven, rising 0.85% against a basket of reference currencies to 104.13 points on Friday evening. After the ECB’s announcement on Thursday, the euro fell 0.93% to $ 1.0516, creating tensions in Italy’s debt. While the ECB has finished buying bonds in the market, the “widening” (difference) in yields between southern Eurozone countries and the German Nada is increasing, reflecting investor concerns about Italy’s debt. It exceeds 150% of GDP. Italy’s 10-year yield ended the week at 3.83%, with a spread of 232 basis points against the Bund of the same maturity.

In the Comex August futures contract, gold rose 1.2% to close at $ 1,875.50 an ounce, up 1.4% this week. Bitcoin was $ 29,085 on Friday night, down 3.5% in 24 hours.

The oil market lost ground on Friday for fear of a slowdown in global demand, but remains above the $ 120 / barrel threshold. US WTI light crude (July futures contract) barrels fell 0.8% on Friday to $ 120.47 on Friday, and Brent North Sea crude oil due in August fell 0.9% to $ 121.97 on ICE. Investors are wondering about American demand, but also Chinese demand after Shanghai announced on Saturday the recontainment of 2.7 million residents to screen them for Covid-19. ..

Value to follow

DocuSign, a California specialist in digital signatures and digital transactions, plummeted 24% on Wall Street. The group certainly missed a quarterly profit consensus and revised its forecast downwards. In the first quarter of 2023, which ends at the end of April 2022, Group revenue increased 25% to $ 589 million and subscription revenue increased 26% to $ 569 million. GAAP net loss was 14 cents, compared to 4 cents the previous year. Adjusted earnings per share was 38 cents, compared to 44 cents last year and a consensus of 46 cents. Nevertheless, free cash flow has increased to 175 million. The group for the fiscal year ending at the end of January 2023 expects sales of 2.47-2.482 billion and an adjusted operating margin of 16-18%.

Stitch correction (Thursday -10.5% followed by -17%). Online personal styling services in the United States have lost two-thirds of their value since the beginning of the year, more than ten times more than their peak in January 2021. Accounts released on Thursday night weigh in on rising costs and lower demand. The group also plans to reduce hundreds of positions. 15% of office workers, or 330 jobs, are affected. For the third quarter, the Group announced an adjusted loss per share of 72 cents compared to a consensus of 57 cents. A year ago, the loss was 18 cents per share. Sales for the quarter ended in April reached $ 439 million, as expected, compared to $ 535 million in the year-ago quarter.

Netflix lost another 4.6% and Goldman Sachs downgraded the value of the streaming giant from neutral to sale! The target price will be reduced from $ 265 to $ 186. Keep in mind that Netflix’s setbacks continue and the group is at the expense of a combination of unfavorable factors such as massive password sharing, intensifying competition, and seemingly unrated price increases. .. Netflix needs to do what it needs to do to solve these various problems, which is time consuming. The service lost 200,000 subscribers in the quarter for the first time in 10 years. After a “stock market bubble” of confinement to Netflix and a certain number of other values ‚Äč‚Äčadapted to the situation, the return to reality will be tough. Netflix’s share price has fallen 68% of its value this year. Goldman Sachs justifies the deterioration caused by the deterioration of the economic environment, predicts a slowdown in Netflix’s growth, and lowers its earnings forecasts for 2022 and 2023.

In the same report, GS also downgraded from “neutral” to “sale” video game group Roblox (-8.2%) and online auction giant eBay (-4%).

Apple (-3.1%) / Alphabet (-2.9%). CMA, a UK competition authority, said it is considering investigating the position of Apple and Google (Alphabet) in the mobile device browser market and the restrictions Apple has imposed on online gambling through store apps. I am.