Fed Holds Steady on Interest Rates, Bond Purchases
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The Federal Reserve held its key interest rate near zero and said it plans to continue supporting the economic recovery, while acknowledging recent progress in growth and employment. Fed officials voted unanimously Wednesday to maintain the central bank’s policies, aimed at holding down borrowing costs, until the economy heals further from the effects of the Covid-19 pandemic. “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the Fed said in a statement released after the conclusion of its two-day policy meeting. “The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors.” The Fed has held overnight interest rates near zero since March 2020, when the Covid-19 pandemic and related restrictions delivered a severe blow to the economy. Since June, the central bank has also been purchasing at least $80 billion of Treasury bonds and at least $40 billion of mortgage-backed securities to hold down longer-term borrowing costs for consumers and businesses.Fed officials have said they would hold rates steady until the labor market is back to full strength and inflation has reached the central bank’s goal of averaging 2%. Chairman Jerome Powell has said those conditions are unlikely to materialize this year, and most Fed officials indicated last month that they expect to hold off on raising rates until 2024 at the earliest.
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Despite a slight upturn, caution continued to dominate the Swiss stock market at midweek. The SMI improved by 0.1 percent to 11,103 points. Among the 20 SMI stocks, there were twelve price gainers and seven losers, and one share closed unchanged. A total of 43.45 (previously: 54.55) million shares were traded. Sentiment was supported above all by financial stocks, which also represented the strongest sector in Europe. There were surprisingly strong quarterly figures from Deutsche Bank and Lloyds Banking. In addition, there were positive analyst opinions on UBS and Credit Suisse. UBS shares rose by 1.9 percent, Credit Suisse gained 1.6 percent. In the wake, the shares of Swiss Re and Swiss Life also went up by up to 1.3 percent. In contrast, the defensive index heavyweights Roche, Novartis and Nestle showed a mixed trend. While Roche shares lost 1.0 percent, Novartis was unchanged and Nestle shares gained 0.2 percent. Shares of Barry Callebaut (-5.9 percent) were also very weak. Traders pointed to a placement of a pact of the Jacobs family. "This could only be accommodated at a discount of about 9 percent," said one trader.
European stock indexes closed slightly higher on Wednesday, after a flurry of corporate earnings. The Stoxx Europe 600 index was unchanged at the close, at 439.9 points. In Paris, the CAC 40 and SBF 120 rose 0.5% each. In Frankfurt, the DAX 30 gained 0.3%, as did the FTSE 100 in London. Bic (+9.9%) reported financial results for the first quarter that were well above expectations. The group published revenues up 20.9% on a like-for-like basis, to 411 million euros, while analysts were expecting only 364 million euros, according to the consensus quoted by Oddo BHF. Without changing its outlook for the current fiscal year, the manufacturer of pens, lighters and shavers is now targeting the top end of its forecast range of 5% to 7% sales growth at constant exchange rates. Lagardère (+1.9%) announced on Wednesday an agreement with its main shareholders to transform the media and specialized distribution group into a limited company (SA). The general meeting of June 30 will have to validate this agreement which marks the end of the contested status of limited partnership by shares (SCA). The Amber Capital fund and Vivendi (+0.6%), which had lobbied for this change, welcomed the agreement. Sopra Steria (+3%) maintained its guidance for fiscal 2021. Its revenues declined slightly on a like-for-like basis in the first quarter, penalized by an unfavorable comparison base. Coface (+2.5%) has seen its net result multiply by more than four in the first quarter, to 56.4 million euros. The credit insurer reported "excellent technical profitability in the first quarter, benefiting from a very low loss experience", commented Oddo BHF. Deutsche Bank (+10.7% in Frankfurt) reported robust and better-than-expected first-quarter results, and raised its revenue forecast for 2021. Lloyds Banking Group (+3.5% in London) reported a strong increase in pre-tax profit in the first quarter, supported by reversals of bad debt provisions. The British bank also raised its projections for fiscal 2021. WPP (+4.3% in London) reported unexpected organic growth in net income in the first quarter, achieving better-than-expected results like other advertising groups after a year marked by the coronavirus pandemic.
The New York Stock Exchange ended lower on Wednesday, digesting another round of quarterly results and the Federal Reserve's (Fed) decision not to change its monetary policy despite the improving economy. At the close, the Dow Jones Industrial Average (DJIA) lost 0.5% to 33,821 points. The broader S&P 500 index gave up 0.1% to 4,183 points. The Nasdaq Composite gave up 0.3% to 14,051 points. U.S. aircraft manufacturer Boeing (-2.9%) reported a larger net loss than analysts expected for the first quarter, as its commercial aviation business performed below expectations. Google's parent company, Alphabet (+3%), reported record results for the third consecutive quarter on Tuesday evening, benefiting from the strength of online advertising during the pandemic. Microsoft (-2.8%) lost ground despite the release of better-than-expected quarterly results, after a string of records over the past three sessions. Microprocessor maker AMD (-1.4%) raised its revenue forecast for the current fiscal year after posting a record quarter in terms of sales thanks to strong demand in the data center market. Apple (-0.6%) will cut its plans to produce AirPods wireless headphones by 25% to 30% this year, as intensifying competition hurts its sales, Nikkei Asia newspaper reported, citing sources close to the matter. The U.S. technology company now expects to produce between 75 million and 85 million AirPods this year, up from its previous plan to produce 110 million, the newspaper said. Credit card company Visa (+1.5%) on Tuesday reported lower earnings and revenue for its second-quarter off-year, amid an incomplete recovery in international transactions following the coronavirus crisis.
The stock markets in East Asia shake off on Thursday somewhat lighter specifications of Wall Street, crosswise the indices increase slightly. In Tokyo, there is no trading due to a holiday. In Shanghai and Hong Kong, but also in Seoul, the trend is well maintained in the course of trading.
The yield on the benchmark 10-year U.S. Treasury note erased earlier gains and closed at 1.621%, down from around 1.64% before the decision and barely below Tuesday's close.
Citi raises ABB target to CHF 34 (33) - Buy
Berenberg raises Schneider target to EUR 160 (145) - Buy
LBBW raises Kion target to EUR 100 (90) - Buy
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