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Busy Week Highlighted by Next Fed Rate Move

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Monday, December 12, 2022

Pre-market futures are drifting up mildly to start a new trading week, apparently rinsing out the last of the proper valuations ahead of the next Federal Open Market Committee (FOMC) meeting, which starts tomorrow and announces a new interest rate level Wednesday afternoon. Consensus is currently for a 50 basis point (bps) hike mid-week, which will bring the Fed funds rate over +4% for the first time in 15 years.

Elsewhere, we do see more economic activity throughout this week, not the least of which is the November print on the Consumer Price Index (CPI) — the same day the FOMC meeting commences. Later this week, we’ll see new data on Retail Sales, Empire State and Philly Fed reports, Industrial Production/Capacity Utilization numbers and Weekly Jobless Claims, just to name a few.

The issue at hand is not so much whether inflation metrics for this cycle have peaked — they certainly appear to have — but whether they will stay elevated as the Fed continues to tighten the screws on the Fed interest rates. If something in the economy “breaks,” that will increase the likelihood the U.S. suffers a recession in the coming year. Although Treasury Secretary (and former Fed Chair) Janet Yellen noted on “60 Minutes” last night that a recession is not necessary to tame inflation.

As we see inflation creeping from Goods to Services over the past year and a half, making it harder to flush out of the system, many economists don’t see a “soft landing” as much as they do a conundrum for the Fed: keep tightening rates to work prices back down to an optimum 2% inflation rate, or establish a new optimum level of inflation. Tightening for longer only increases the chances of something “breaking.” Thus, the 50 bps move (unless it is a surprise 75 bps for the fifth straight month) is really only part of the story.

Biotech giant Amgen (AMGN - Free Report) has announced that it is buying Horizon Therapeutics for a whopping $26.4 billion, or $116.50 per share in cash. This is +20% higher than the rare diseases firm closed on Friday, and shares of HZNP are up +15% thus far in the pre-market. Amgen expects the deal to be accretive to non-GAAP earnings by 2024.

And Coupa Software is being brought private at $81 per share by private equity software company owner Thoma Bravo. Shares of Coupa are up +27% on the news, seemingly finalizing what has been a far-ranging battle for ownership of the San Mateo-based business spending tech company and making it one of the top performers of the early trading session.

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