What a relief!

08/10/2022 | 09:15am

The much-awaited US inflation figures have finally been released. Investors were very nervous ahead of the publication, since a bad reading had the potential to greatly impact global markets, and force the Federal Reserve to be even more aggressive with interest rate hikes.

But things turned out to be better than expected! July consumer prices remained unchanged between June and July, while estimations were for an increase of 0.2%. On a yearly basis, the rise stands at 8.5%, while 8.7% was expected. This is partly due to a drop in gas prices.

The gasoline index fell 7.7 percent in July and offset increases in the food and shelter indexes, the U.S. Bureau of Labor Statistics said.  The food index continued to rise, gaining 1.1 percent over the month.

However, the core CPI, for all items less food and energy, rose 0.3 percent in July, a smaller increase than in April, May, or June.

Futures on the three main Wall Street indexes soared after the release of the data, which eased worries about the need for a more aggressive Fed monetary policy.

This comes after the publication of CPI and PPI numbers in China, which showed core inflation remained low.

In the US, prices rose 1.3% between May 2022 and June 2022, which is significant. To give you an idea, a $1 product that would experience a monthly increase of this magnitude for 12 months would be worth almost $1.17 one year later. This is not quite what happened in the United States in one year, but prices still soared by 9.1%. Energy prices have risen the most in one year (gasoline has risen 60%, for example), but food products are also overheating: +12.2%. At the bottom end of the scale, the price of services has risen by only 5.5%, except for those related to transportation, which have passed on the rise in energy prices. Investors are following both core inflation, and so-called "underlying" inflation, which is the increase in prices excluding food and energy, which are the two most volatile components. Core inflation in the US was 0.7% between May and June 2022 and 5.9% over one year.

It looks like we've passed the peak of inflation, which means households will be happy because the erosion of their purchasing power will be reduced. And investors will also be happy because it shows the US central bank is winning its battle against inflation and that rate hikes will stop piling up a little sooner than expected.

 

Economic highlights of the day:

US July inflation is today's main data. The entire macro agenda is here. This morning, China posted lower than expected inflation in July at 2.7% (consensus 2.9%). Producer prices are up 4.2% but also below expectations (4.9%).

The dollar is down 1.2% to EUR 0.9673. The ounce of gold is up to USD 1802. Oil lost some ground, with North Sea Brent at USD 95.92 per barrel and U.S. WTI light crude at USD 90.15. The yield on 10-year U.S. debt stands at 2.80%. Bitcoin is close to USD 24,000.

 

On markets:

* Tesla - Elon Musk, the chief executive of the electric vehicle maker, sold $6.9 billion worth of shares, explaining that the proceeds could partially fund a deal with Twitter at the end of ongoing legal proceedings. Twitter shares gained 1.8% in pre-market trading.

* Foxconn, one of Apple's main suppliers, issued a cautious forecast for the current quarter on Wednesday, citing a slowdown in smartphone demand.

* Meta Platforms announced Tuesday night that it had raised $10 billion in its first-ever bond issue, a move that will allow it to finance share buybacks and new investments, among other things.

In addition, Bofa Global Research has added Meta to its "US 1 list" of U.S. stocks it recommends to its clients and removed Alphabet.

* Coinbase Global - The cryptocurrency exchange reported a larger-than-expected quarterly loss on Tuesday, the result of a more than 50 percent drop in trading volumes, a decline the company expects to continue in the current quarter. The stock lost 6.1% in after-hours trading.

* Roblox - The online video game group reported lower than expected quarterly results on Tuesday. The stock was down nearly 14% in after-hours trading.

* Alibaba was down 1.7% in premarket trading after SoftBank announced plans to reduce its stake in the Chinese online retail giant from 23.7% to 14.6%.

* Wendy's reported same-store sales growth in the U.S. below market expectations due to inflation. The fast-food chain lost 4% in pre-market trading.

 

Analyst recommendations:

  • BJ's Wholesale Club: J.P. Morgan raises price target to $58 from $57. Maintains underweight rating.
  • CF Industries: Barclays raised the recommendation to overweight from equal-weight. PT up 17% to $120.
  • CMS Energy: Finam Investment moves to hold from buy. PT set to $69.89.
  • Epam Systems:  Susquehanna Financial raised the target to $496 from $370. Maintains positive rating.
  • Federal Realty Investment Trust: BofA Securities upgrades to buy from neutral. PT up to $130 from $110.
  • Fidelity National Information Services: Susquehanna Financial maintains positive rating. PT down to $160 from $176.
  • Formula One Group: Morgan Stanley adjusts price target to $75 from $72. Keeps overweight rating.
  • 10x Genomics: Stifel maintains buy rating and adjusts price target to $65 from $115.
  • Glencore: SBG Securities downgrades to hold from buy. PT down 3.1% to 450 pence.
  • Moody's: Deutsche Bank cut the recommendation to hold from buy PT set to $324.
  • Ryman Hospitality Properties: J.P. Morgan maintains underweight rating. PT adjusts to $85 from $83.
  • Safestore Holdings: HSBC upgrades to buy from hold. PT up 29% to 1.414 pence.
  • Sarepta Therapeutics: RBC Capital Markets raised the target to $182 from $160. Maintains outperform rating.
  • Segro: Kepler Cheuvreux raised the recommendation to hold from buy. PT up 7.4% to 1.120 pence.
  • Stanley Black & Decker: UBS maintains buy rating. PT down to $120 from $204.
  • Take-Two Interactive Software: DZ Bank AG cut the recommendation to hold from buy. PT set to $135.
  • Target: J.P. Morgan maintains overweight rating. PT up to $190 from $180.
  • Trex: Benchmark cut the target to $70 from $95. Maintains buy rating.
MarketScreener.com 2022
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