Morning bid: Earnings hurdle cleared - CPI fence up next
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[May 13, 2024] A
look at the day ahead in U.S. and global markets from Mike Dolan
Wall Street and world stock markets have cleared the first-quarter
corporate earnings season comfortably enough to be back stalking record
highs, but macro markets don't want to budge much further until they see
this week's U.S. inflation update.
Wednesday's U.S. consumer price report sucks much of the oxygen out of
the early part of the markets week - critical as it is in revealing
whether disinflation has resumed after a sticky Q1, and at least enough
to keep Federal Reserve easing expectations this year in the frame.
For what it's worth, consensus forecasts for the April print see monthly
core CPI gains slowing to a 0.3% pace from 0.4% in March - dragging the
annual rate down to 3.6% from 3.8%. The headline rate is expected to
slip back to 3.4% from 3.5%.
The New York Fed's survey of inflation expectations for last month gets
released later on Monday to give color to the picture in advance - and
provide a reality check to the uptick in the equivalent University of
Michigan poll that ruffled feathers on Wall Street on Friday.
Despite the bumpier U.S. CPI readings through the first quarter,
one-year ahead inflation expectations in the NY Fed survey stayed
constant at 3% through the first three months of the year. The
University of Michigan's 1-year outlook, however, jumped to 3.5% this
month from 3.2% in April - even as consumer sentiment fell sharply.
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Also unusual compared to recent months is that the CPI data is released
after the April producer price report, which is due out Tuesday. The
core annual PPI rate is expected to be steady at 2.4%.
And whatever heat is left in U.S. inflation, it's certainly not there in
China. Although CPI rose above forecast there last month, it is still
running at only 0.3% year-on-year while producer price deflation
continues at an annual 2.5%.
With new bank lending in China falling more than expected in April, and
broad credit growth hitting a record low, pressure for more stimulus to
support the economy remains intense.
China's finance ministry said it will this week start the long-awaited
sales of 1 trillion yuan ($138.23 billion) of long-term treasury bonds,
proceeds from which Beijing hopes to use to help spur key sectors.
Beginning on Friday, Reuters sources said there will be 300 billion yuan
worth of 20-year bonds, 600 billion yuan worth of 30-year bonds and 100
billion yuan worth of 50-year bonds sold.
For Chinese stocks, however, geopolitics is never far from the
headlines. Even though Hong Kong stocks rose again on Monday, mainland
shares were more subdued as new energy vehicle shares lost 2.2%
following Friday's news that U.S. President Joe Biden's planned new
China tariffs would including a major hike in levies on electric
vehicles.
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![](../images/051324PIX/busine57.jpg)
People walk around the Financial District near the New York Stock
Exchange (NYSE) in New York, U.S., December 29, 2023.
REUTERS/Eduardo Munoz/File Photo
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World stocks were flat more generally, with Tokyo off a touch as a
slightly weaker yen mostly held the line.
In a sign that recent government intervention to support the yen may
be shifting market psychology, the latest Commodity Futures Trading
Commission data showed that hedge funds and speculators slashed
their short yen positions by 20% in the week to May 7 - the biggest
weekly yen-bullish swing since 2020.
Back on Wall Street, the CPI vigil left the S&P500 little changed on
Friday and futures are likewise ahead of today's bell.
But with the Q1 earnings season petering out, it is not hard to see
why stocks are back near record highs. S&P500 firms are now tracking
annual profit growth of some 7.4% for the quarter - higher than
expectations at the start of the year. Excluding the energy sector,
that pace is now in double digits and estimates for the equivalent
quarter next year are as high as 15%.
On Monday, Treasury yields were generally steady and the dollar
mostly flat.
In Europe, macro markets will keep half an eye on the euro group
finance ministers meeting in Brussels - where national budgets,
competitiveness and banking and capital markets union are being
discussed.
Danish shipping giant AP Moeller-Maersk stood out as its shares
jumped 7.1%, boosted by a rise in freight rates amid higher trade
volumes and the Red Sea crisis.
Key diary items that may provide direction to U.S. markets later on
Monday:
* New York Federal Reserve's April inflation expectations survey
* Federal Reserve Board Vice Chair Philip Jefferson and Cleveland
Fed President Loretta Mester speak
* Eurogroup finance ministers meet in Brussels, European Central
Bank board member Piero Cipollone attends
* US Treasury auctions 3-, 6-month bills
(By Mike Dolan, editing by Ed Osmond mike.dolan@thomsonreuters.com)
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