Daily Markets: Has Inflation Peaked?

Today’s Big Picture

Asia-Pacific equity indexes ended today’s session mixed as Korea’s KOSPI declined 0.17%, Taiwan’s TAIEX fell 0.35% and India’s Sensex dropped 0.51% while Japan’s Nikkei rose 0.18%, Australia’s ASX All Ordinaries gained 0.26% and China’s Shanghai Composite advanced 0.75%. Hong Kong’s Hang Seng led the way today closing up 0.97%. By mid-day trading, major European equity indices are up across the board, and U.S. futures point to another strong market open later this morning.

Before U.S. equity markets begin trading, we’ll receive the April reading for the Consumer Price Index, which is expected to clock in at +8.1% YoY on a headline basis and 6.0% for its core reading, which excluded food and energy. Excluding food and energy from “core” inflation, given the impact they have on consumer finances, is rather suspect, but today the focus will be not only on those reported figures but how they stack up against their respective readings of 8.5% and 6.5% in March.

The growing narrative is that inflation has peaked in March; today’s data could start to confirm that. Based on this morning’s futures the stock market would not only welcome that news but is expecting it. However, should the April CPI data come in higher than expected, equities are likely in for another volatile session as questions surrounding the Fed’s pace of monetary policy tightening will continue to percolate. In addition to food and energy prices, one of the factors behind the sticker shock in the CPI index earlier this year was the surge in used car prices, given the contraction in new car production. Offering some hope that the CPI may have peaked in March is the move lower in used car prices during April, which according to some reports fell 1% MoM, marking the fourth consecutive month of such declines. While today’s CPI outcome will drive today’s trading, we will have a “wash, rinse, repeat” day tomorrow as the April Producer Price Index is reported.

Data Download

International Economy

Last night saw the release of April YoY CPI (2.1%) and PPI (8.5%) for China with CPI coming in slightly hotter than the expected 1.9% and higher than the previously reported 1.5% and PPI reading higher than expectations of 7.8% but slightly lower than the previously reported 8.7%. April marks the first time that the BLS will be incorporating real-time car price data from JDPower.com, using reported car sale prices.

This morning saw the preliminary release of Japan’s March Leading Index at 101.0 which was higher than both expectations of 99.0 and the previously reported 100.1.

Final April YoY German CPI was confirmed at the same rate as the preliminary figure of 7.8% which set yet another 10-year high as elevated energy costs continue to put pressure on not just energy prices but just about every aspect of manufacturing and distribution.

Domestic Economy

As discussed above, 8:30 AM ET will see the April release of YoY CPI. Expectations are for top line inflation to have moderated somewhat to an annualized 8.10% from the previous 8.5% reading and for Core CPI (ex Food & Energy) to have come down slightly to 6.0% from the previous 6.5% print. 8:30 AM ET will also see the release of final YoY hourly earnings growth and the current state of the average work week in hours. Preliminary figures printed at 5.5% and 34.6 hours, respectively.

The House of Representatives passed a bill (368-57) which will provide approximately $40 billion in funding for Ukraine. The bill now heads to Senate where it is expected to pass later this week.

Markets

In a trading session that can be best compared to a playground teeter-totter, the S&P 500 rose 0.3% yesterday while a rebound in growth stocks led the Nasdaq Composite to finish the day 1% higher. Both the Dow Jones Industrial Average and the Russell 2000 lagged, falling 0.3% and 0.02%, respectively. Including yesterday’s moves, here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: -11.5%
• S&P 500: -16.1%
• Nasdaq Composite: -25.0% 
• Russell 2000: -21.5%
• Bitcoin (BTC-USD): -33.5%
• Ether (ETH-USD): -35.4%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, Krispy Kreme (DNUT), Wendy's (WEN) and Yeti Holdings (YETI) will be among the companies reporting their quarterly results. 

Shares of Roblox (RBLX) were under pressure last night after the company reported first quarter results that missed consensus expectations for its top and bottom lines as did expected bookings for the quarter. Average daily active users (DAU) rose 28% to a record 54.1 million, and hours engaged climbed 22% to a record 11.8 billion. Average bookings per DAU was $11.67.

Coinbase (COIN) shares were also under pressure in aftermarket trading last night as the company posted a surprise bottom line loss of $1.96 vs. expected EPS of $0.86. Revenue for the quarter also came up short at $1.17 billion vs. the $1.48 billion consensus. Trading volume during the quarter fell 7.8% YoY and 43.5% sequentially, and Coinbase shares its sees total trading volume sequentially lower in the current quarter. 

Unity Software (U) also reported a top and bottom line miss for its March quarter, sending its shares lower in aftermarket trading as well last night. The company issued downside guidance for both the current quarter and all of 2022, primarily due to challenges with monetization products. The company expects sales between $290-$295 million for the current quarter compared to the $359.7 million consensus. For the full-year, Unity sees its top line in the range of $1.35-$1.425 billion vs. the $1.49 billion consensus. 

Allbirds (BIRD) reported a larger than expected bottom line loss for its March quarter despite revenue soaring 26.4% YoY to $62.8 million vs. the $62 million consensus. The miss was due to the decline in gross margin that was attributed to higher distribution center and logistics costs, lower mix of international sales, and unfavorable foreign exchange rates. Allbirds issued downside guidance for both the current quarter and 2022 with revenue of $75-79 million for the current quarter and $335-$345 million for the full year. Those compares to the consensus expectations of $88.2 million and $362.35 million. 

On a more positive, quarterly results at Global Foundries (GFS) topped revenue and EPS expectations and guided its revenue for the current quarter up modestly on a QoQ basis. the company shared its smart mobile devices segment posted 28% revenue growth on a YoY basis while its communications infrastructure business saw strong demand from customers, and its Industrial IoT end market rose 55% YoY. 

Reuters reports Alphabet’s (GOOGL) Google unit signed deals to pay more than 300 publishers in Germany, France and four other EU countries for their news and will roll out a tool to make it easier for others to sign up too,

IPOs

Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Beyond Meat (BYND), Dutch Bros (BROS), and Walt Disney (DIS) are slated to report their latest quarterly results. Investors should remain on watch for companies that pre-announce their March quarter results. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. 

On the Horizon

Thursday, May 12

• China: Foreign Direct Investment – April
• UK: Construction Output, Industrial Production, Manufacturing Production – March
• UK: GDP – 1Q 2022
• US: Weekly Initial & Continuing Jobless Claims
• US: PPI – April 
• US: Weekly EIA Natural Gas Inventories

Friday, May 13

• Eurozone: Industrial Production - May.
• US: Import/Export Prices – April 
• US: Michigan Sentiment Index (Preliminary) – May 

Thought for the Day

"The thing is, it's very easy to be different, but very difficult to be better." ~Jony Ive 

Disclosures

• Beyond Meat (BYND) is a constituent of the Foxberry Tematica Research Sustainable Future of Food Index
• Beyond Meat (BYND), Allbirds (BIRD) are constituents of the Tematica BITA Cleaner Living Index
• Beyond Meat (BYND), Allbirds (BIRD) are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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