"Markets call Fed's rate hike bluff." This is how the Wall Street Journal comments on the reaction of the financial markets to the statements of Jerome Powell who, with modest results, reiterated yesterday that "there is still work to be done", or a "couple of increases" and that he sees no room to reduce rates within the year. It's the latest news from the Stock Exchanges in the middle of the day.
Almost in real time, following the words of the Fed chairman who raised rates eight times in a row to curb inflation, there was Meta's answer, the former Facebook who was one of the most targeted stocks in the black year of technology: Mark Zuckerberg has launched a 40 billion dollar buyback on the stock, proving the potential for relaunching the social network thanks to cost savings ( 11 fewer employees) and the growth in the contribution of profits from Artificial Intelligence.
Stock exchanges latest news: Wall Street believes little in the Fed and is enthusiastic about the Meta buyback
“Vaste programme”, General De Gaulle would have said. But the Stock Exchange believed it: within a few hours the Meta stock gained 20% approximately confirming that the market appreciates the choice of the king of social networks to bet on himself. As indeed they are doing the US corporations, deaf to signs of recession coming from the real economy: in recent days, underlines Bloomberg, the total buybacks approved by US companies have exceeded trillion dollars: a sign of confidence that contrasts with fears of a recession. But leading the trend are the big oil, hated by President Biden, who accuses the oil companies, starting with Chevron (a monstrous 75 billion buyback) of favoring shareholders' remuneration rather than investments, despite the hostility of the White House.
In Europe, the stock exchanges focus on banks and on ECB rate hikes
And in Europe? Markets assume that after today's increase, the ECB will have to insist to lower the data oncore inflation, still well above the 2% target. But that doesn't prevent buybacks from spreading on this side of the Atlantic. This morning Shell it imitated its American sisters by launching a second, together with the increase in dividends purchase plan for 4 billioni of dollars after the recently approved one. But, beyond the oil sector, the "fashion" of the buyback has now invested the banking sector of the Old Continent, returning from the season of Lent imposed by EU Supervision. This morning it was the turn of the Banco Santander deliver a record profit of €9.605m, up 18% on 2021, supported by strong growth in client business, solid asset quality and good cost control.
Unicredit leads the rise of the buyback in Europe, banks on the rise
Driving the rise of the phenomenon in Europe is Unicredit. Imported from Wall Street, the trend of buying back own shares is appreciated by institutional investors who dominate public companies. The reduction in the number of shares makes it possible to increase profitability per share and increase the rprice/earnings ratio. It is the policy undertaken by Unicredit but also by Ing, while BNP Paribas will begin its buyback program as soon as the BancWest transaction closes. All of this should continue to support the index EuroStoxx Banks which, given the promising trend of the financial results, allows us to predict in several cases a return on capital for 2023 of 10% (6,7% for the year, 3,3% for buybacks). And beyond, in some cases.
The sector thus consolidates the trend of outperforming the global index that started last October: since the beginning of the year it has grown by +13,50% vs +6,50% of the Stoxx 600 index.
In the meantime, brokers are adjusting bank ratings. The last to move were the analysts of Intesa Sanpaolo, which will give the expected data tomorrow, which have their view on Italian banking stocks. In detail: the target price of Banco BPM goes from 4,0 to 4,90 euros, Mediobanca goes from 11,70 to 11,90 euros, Unicredit goes from 16,40 to 19,30 euros. All are already one Buy.
