Today on Wall Street: Prices rise faster than expected in May

06/10/2021 | 09:27am

Today is the day that investors were waiting for, with May inflation figures in the U.S. We also have the decision of the European Central Bank on its monetary policy.

And here it is: The Labor Department said its consumer price index increased 0.6% last month after surging 0.8% in April. Economists were expecting an average increase of 0.4%. This figure does not look very impressive, but it is a monthly variation. On a yearly basis, prices show a much more impressive increase. In the 12 months through May, the CPI accelerated 5.0%. This is the biggest year-on-year increase since August 2008 and followed a 4.2% rise in April. April's increase was driven by energy prices (25%) and, as we have been reading a lot recently, by the used car market (21%). Food prices were up only 2.4% and core inflation, i.e. excluding energy and food, was 3% year-on-year.

The number of Americans filing new claims for unemployment benefits declined last week to 15-months low, while consumer prices continued to rise last month, along with domestic demand as the economy reopens. Claims reached 376,000 for the week ended June 5, compared to 385,000 in the prior week, the Labor Department said.

If markets are watching transport, cookie or furniture prices fluctuate in the United States, it is because they see them as an indicator of the future monetary policy of the American central bank. If inflation gets out of hand for too long, the Fed will have to act to reduce the amount of money in circulation. It has several levers at its disposal, the first of which is to start unraveling its asset purchase programs. Ultimately, it will have to raise interest rates, both to curb inflation or prevent the economy from overheating and to replenish its monetary arsenal to deal with future shocks. But what does this have to do with financial investors? By pursuing a more restrictive policy, the central bank is reducing the amount of available funding and money in circulation, which is not viewed very favorably by financiers and explains their resistance to the change in central bank posture.

So more than this day of June 10, it is the day of June 16 that carries more risk in this matter, since it will be the Fed's turn to pronounce on its intentions. Be prepared to be overwhelmed by expert opinions, some of them contradictory. But keep in mind that it is normal for monetary policies to adapt continuously because economic cycles always carry their share of uncertainty and linear or constant developments only exist in theoretical models.

Meanwhile, the European Central Bank continues its accommodating policy. It is maintaining the status quo on its key rates and has confirmed that it will maintain the purchases of its "emergency pandemic" plan at a significantly high level. The deposit facility rate remains at -0.5%, the refinancing rate at zero and the marginal lending rate at 0.25%. Regarding the ECB's "emergency pandemic" purchase program (EPPP) the institution said that "based on a joint assessment of funding conditions and the inflation outlook, the Governing Council expects purchases under the EPPP over the next quarter to be made at a significantly higher pace than in the first few months of this year. "

The ECB has no reason to change course for the time being, as its basic scenario is unfolding. And then it has to continue to use its soothing rhetoric. It is the joint guarantor of all the eurozone countries that have been spending lavishly since the beginning of the pandemic. In other words, its blank check and deep pockets allow the "whatever it takes" policy.

In other news, the US and China seem to have resumed trade talks, which is benefiting the Hong Kong and Shanghai markets this morning. At this stage, it is only telephone contacts, but the Biden administration has made no secret of its intention to revive the free trade that was undermined by its predecessor. But not at any cost.

 

Economic highlights of the day

Two major events today, the European Central Bank meeting in June, and the May inflation figures in the United States and the weekly unemployment figures.

The dollar is trading slightly higher at $0.8203. The ounce of gold is up to USD 1,891. You need USD 72.62 for a barrel of North Sea Brent and USD 70.33 a barrel of U.S. light crude WTI. U.S. debt is yielding 1.48% over 10 years. Bitcoin is consolidating after its rebound to USD 37,500.

 

On markets:

* GameStop posted a loss of $66.8 million, or $1.01 per share, in the quarter ending May 1, 2021. This compares with a loss of $165.7 million last year, equivalent to $2.57 per share. The group's sales, on the other hand, rose 25.1% to $1.277 billion.

* The European Union has decided not to exercise an option to buy 100 million doses of Johnson & Johnson Covid vaccine, Reuters revealed. Brussels had placed a firm order for 200 million doses. The U.S. laboratory was supposed to deliver 55 million doses to the EU by the end of June, but has so far only shipped about 12 million.

* Pfizer is expected to receive an order for 500 million doses of Covid-19 vaccine from the US. The White House aims to distribute them to more than 90 countries around the world.

 

Analyst recommendations:

  • Ally Financial : BMO Capital adjusts PT to $70 from $58, maintains Outperform rating
  • Bank of America : BMO Capital changes PT to $35 From $38, maintains Market Perform rating
  • Darktrace: Berenberg starts tracking as Buy with a target of GBp 450.
  • Delta Air Lines : MKM Partners starts Delta Air Lines at Buy with $59 Price Target
  • EasyJet: JP Morgan's research maintains its neutral opinion on the stock. The target price continues to be set at GBp 845.
  • Enerplus : Scotiabank downgrades Enerplus to Sector Perform from Sector Outperform, Adjusts PT to C$9.25 from C$8.50
  • International Consolidated Airlines Group : JP Morgan analyst David Perry has maintained his recommendation on the stock with a Buy rating. The target price remains unchanged at EUR 2.70.
  • Iovance Biotherapeutics : JMP Securities upgrades Iovance Biotherapeutics to Market Outperform from Market Perform. Price Target is set at $32
  • The Middleby Corporation : Barclays starts Middleby at Overweight with $195 Price Target
  • Morgan Stanley : BMO Capital adjusts Morgan Stanley PT to $99 from $94, maintains Outperform rating
  • Pennon: Citigroup upgraded from Buy to Neutral with a target of GBP 1072.
  • Ryanair: JP Morgan analyst David Perry maintains his Neutral opinion on the stock. The target price is still set at EUR 15.80.
  • Senior: Peel Hunt starts tracking to Accumulate, targeting GBp 168.
  • ServiceNow : Goldman Sachs adds Buy-Rated ServiceNow to conviction list; Price Target is $695
  • Whitbread: Peel Hunt upgraded from Hold to Hold with a target of GBp3,600.
  • United Parcel Service : JPMorgan upgrades United Parcel Service to Overweight From Neutral; Price Target is $243
Romain Fournier
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