The major US indices renewed record before the much-expected Federal Reserve (Fed) decision. And if there is no sign of stress across the risk markets, it’s mostly because we all think we know what will come out from today’s meeting: a gradual start of the tapering of the bond purchases program. This should be the first baby step towards a policy tightening, though it is not a tightening for now, as the Fed will continue buying bonds, and expanding its balance sheet to fresh all time highs, and never-ever-seen levels, but it will continue doing so in a less aggressive speed than the actual $120 billion worth of bonds and mortgage-backed securities that it has been buying so far.
The QE taper announcement will likely be seamless, what may be less seamless is the rate discussion. Now that the major central banks are shifting towards a more hawkish policy stance, except for Japan and the European Central Bank (ECB), there is a rising pressure on the Fed to start thinking about ‘thinking about’ raising rates. Mr. Powell is ideally not willing to touch the US interest rates until 2023, but with the inflation that proves stickier than he first thought, keeping the rates near zero would be a policy mistake that could cost him and the US economy dearly.
From a pricing point of view, most of the price action in bond markets seems to be done into the meeting. The US 2, 10 and 30-year bond yields are stabilizing around the expectation that we could see up to two 25-bp rate hikes, with a first rate hike as soon as next summer. Only very soft economic data could push the expectation of a summer rate hike farther next year.
Due today, the US ADP report will give the first hint on how well the US jobs market did last month. The expectation is that the US economy added 400’000 new private jobs in October versus some 568’000 printed a month earlier, and the Friday’s NFP is expected to come in at 455K. These expectations are far lower than the pandemic months, where a 700K or a million job additions were ‘normal’. Of course, this slowdown is normal, as well, but given the global chip and labour shortages, the energy crisis and the rising inflation, a too soft figure has the power to temper the Fed hawks.
Who is lying?
Tesla is down 3% from sky highs on the confusion regarding the latest Hertz deal. Hertz says that they already started getting the Tesla cars, while Tesla’s Elon Musk says there is no signed contract yet.
The news of a 100’000-vehicle Hertz deal sent the Tesla shares above the $1000 mark, it will be interesting to see if calling off the deal would pull them back below.
Deal or no deal, we should see some consolidation and even a downside correction in Tesla shares, where the technical indicators are screaming that the share is overbought at the current levels. Also the Ford and Amazon-backed Rivian IPO, which is due next week, should divert the EV bulls’ attention from Tesla to the newcomer.
Netflix enters the gaming space
Netflix steps into the online gaming arena with the introduction of five mobile games playable on Android devices, because Netflix knows that video games is the next big thing, and it could create interesting synergies with its original series and films.
The decision is promising. First, the video game business is bigger than the streaming business. Then, there is a larger growth potential including an eventual shift to the metaverse environment, virtual reality, virtual interactions, which also involves the building and marketing of the headsets and hardware that go with it.
