Inflation vigil sees single stock sideshows

By Thomson Reuters May 14, 2024 | 5:11 AM

A look at the day ahead in U.S. and global markets from Mike Dolan

Macro markets have basically frozen ahead of this week’s big U.S. inflation releases, with sideshow entertainment provided by a fresh burst in activity in so-called ‘meme stocks’ while earnings updates and deals sagas dominated overseas.

With Wednesday’s April consumer price report this week’s focus, Tuesday’s release of the month’s producer price index provides the appetizer – with core annual factory gate price readings expected to be steady at 2.4%.

Although these critical data inputs likely set the tone for the public rather than the other way around, the backdrop on household inflation expectations has not been great. The New York Federal Reserve’s April survey showed Americans project inflation a year from now at 3.3% – up from the 3% level seen in all the first three months of this year – and gloomier jobs outlook and it reinforced similar readings from University of Michigan on Friday.

Fed vice-chair Phillip Jefferson was not giving much away but said that “the decline in inflation has attenuated in the first quarter of this year and that, for me, is a source of concern.”

Still, with so much riding on this week’s data blockbusters, U.S. Treasury yields edged lower and the S&P500 was caught in a narrow range. Stock futures weren’t inclined to challenge that pattern early on Tuesday.

Optimism that rate cuts are coming this year persists. Bank of America’s monthly survey of global fund managers found 82% expect the first Fed cut in the second half and they identified “long U.S. dollar” as the second ‘most-crowded trade’ in May.

Nevertheless, the dollar was firmer on Tuesday.

It got another lift against Japan’s yen even as speculation swirled about a possible Bank of Japan pullback from its yield-capping bond-buying program – talk that’s lifted 10-year government bond yields there to six-month highs just under 1%. Some market participants believe the yen’s excessive weakness may be forcing the BOJ’s hand into allowing interest rates and yields to rise more rapidly.

The dollar also gained against sterling even after Britain’s latest wage inflation data came in above forecasts. Bank of England chief economist Huw Pill remained cautious but said it was “not unreasonable” to expect rate cuts this summer.

Much of the rest of the big market moves in Europe were earnings related.

Germany’s Delivery Hero shares soared 20% after Uber announced a $1.25 billion deal to take over its foodpanda business in Taiwan and buy new shares in the German firm.

Chinese stocks were subdued as U.S. President Joe Biden unveiled a bundle of steep tariff increases on an array of Chinese imports including electric vehicles, computer chips and medical products – suggesting an election-year standoff with Beijing.

Back on Wall St, much of the buzz was on the revival of the ‘meme stock’ craze.

Shares of videogame retailer GameStop surged nearly 75% on Monday after “Roaring Kitty”, an account associated with a social media influencer Keith Gill and credited with sparking the 2021 meme stock rally, returned to X.com after a three-year hiatus from the app.

The rally was replicated in other meme stocks, such as Theater group AMC and extended further ahead of Tuesday’s bell.

In tech ChatGPT-maker OpenAI said late on Monday it would release a new AI model called GPT-4o, capable of realistic voice conversation and able to interact across text and image.

Apple supplier Foxconn reported a 72% rise in first-quarter profit, boosted by strong demand for computer servers and coming off a low base from the period a year earlier – but it missed forecasts.

In a big week for retail earnings that sees Home Depot report later on Tuesday, Walmart was reported to be cutting hundreds of corporate jobs and asking most remote workers to move to offices, the Wall Street Journal said.

And in deals, BHP is expected to sweeten its $43 billion takeover offer for Anglo American for a second time and possibly add cash after the London-headquartered target rejected a higher bid. BHP has until May 22 to return with a binding offer or walk away under UK takeover rules.

Anglo American, meantime, laid out a strategic review that includes a potential break-up of the company by demerging or selling its steelmaking coal, nickel, diamonds and platinum businesses as it tries to fend off the BHP swoop.

Key diary items that may provide direction to U.S. markets later on Tuesday:

* US April producer price report, US NFIB April small business survey

* US corporate earnings: Home Depot

* Federal Reserve chair Jerome Powell speaks in Amsterdam; Dutch central bank chief and European Central Bank policymaker Klaus Knot speaks; Fed Governor Lisa Cook speaks; Kansas City Fed President Jeffrey Schmid speaks; ECB board member Isabel Schnabel speaks; Bank of England chief economist Huw Pill speaks

* ECOFIN group of European Union finance ministers meets in Brussels, with ECB board member Luis de Guindos attending

* US Treasury auctions 12-month bills

(Editing by Bernadette Baum)