Daily Markets: Key Inflation Data in Focus

Today’s Big Picture

Asia-Pacific equity markets finished the day mostly down except for Australia’s ASX All Ordinaries which gained 0.27% and Japan’s Nikkei which rose 1.29% on semiconductor chip names and an overall upbeat outlook on future Bank of Japan actions. India’s SENSEX declined 0.24%, China’s Shanghai Composite and South Korea’s KOSPI both fell just over 0.60%, Taiwan’s TAIEX dropped 0.71% and Hong Kong’s Hang Seng closed 1.68% lower led by Technology Services names.

By mid-day trading, major European equity indices are down across the board, and US futures point to a lower open. 

Before equity markets open at 8:30 AM ET, we will get the January Personal Income & Spending Report. Contained in that report is one of the Fed’s preferred gauges of inflation, the Personal Consumption Expenditure (PCE) Price Index. As we learned in yesterday’s second revision for U.S. 4Q 2022 GDP, the PCE Price Index for the quarter was revised up to 3.7% from 3.2%. The core-PCE Price Index was also revised higher to 4.3% from 3.9% in the initial estimate and 4.7% in 3Q 2022. These figures build on other recent inflation data, indicating inflation pressure has been more resilient than expected despite the Fed’s efforts thus far. The January PCE Price Index is expected to tick lower to 4.8% from 5% in December with the core reading inching lower to 4.3% in January from 4.4% the prior month. 

Ahead of the January data, the CME FedWatch Tool currently sees a 76% chance for a 25-basis point increase at that meeting but the probability of a 50-basis point rate hike has been steadily increasing over the last month. Should the January data come in higher than expected, the market is likely to interpret it as giving the Fed ammunition to take more aggressive action at its upcoming March policy meeting. As market watchers ruminate on the data, they will be listening to Fed Governor Philip Jefferson and Cleveland Fed President Loretta Mester to assess how the Fed sees the recent string of hotter-than-expected inflation data and the likely size of the action it will take in the coming weeks.  

That same CME FedWatch Tool currently sees the fed funds rate topping out at 525-550 basis points following the Fed’s June meeting vs. the current 450-475 range. We are already seeing investors re-think equity valuations against the backdrop of higher interest rates ahead and concerns the Fed’s efforts could torpedo the economy. Next week brings several key pieces of data that will continue that re-thinking.

Data Download

International Economy

The annual inflation rate in Japan rose to 4.3% in January from 4.0% in the prior month, marking the highest reading since December 1981, amid a rise in prices of imported raw commodities and yen weakness.

Germany's GfK Consumer Climate Indicator rose to -30.5 heading into March from a marginally revised -33.8 in February and compared with market expectations of -30.4.

The German economy expanded 0.9% year-on-year in 4Q 2022, slightly less than a 1.1% rise in the initial estimate, and the lowest reading in seven quarters of growth.  

In coordination with G7 partners and allies, the Departments of the Treasury and State will implement sweeping sanctions against key revenue-generating sectors to further degrade Russia's economy and diminish its ability to wage war against Ukraine. 

Domestic Economy

In addition to the 8:30 AM ET release of the January Personal Income & Spending data mentioned above, today also brings January New Home Sales data and the final February reading for the University of Michigan Consumer Sentiment Index. January New Home Sales will be published at 10 AM ET and are expected to tick higher to 0.62 million vs. 0.616 million the prior month. 

Also at 10 AM ET, the consensus view for the final February University of Michigan Consumer Sentiment Index reading is 66.4, up from 64.9 the prior month. Eyes are more likely to be focused on what that data says about the inflation expectation component and whether it climbed to 4.2% from January’s 3.9% as expected. 

Markets

Traders perked up a little yesterday as worries of an impending 50 basis point rate hike seemed to fade away. Technology (1.66%) and Real Estate (0.96%) reacted positively to this sentiment shift. Energy has been trading on its own set of fundamentals lately but also had a strong day, up 1.51%. The Dow gained 0.33%, the S&P 500 rose 0.53% and both the Russell 2000 and the Nasdaq Composite returned just over 0.70% by the close. While markets had a respite of sorts yesterday, Domino’s Pizza (DPZ) had no such luck as the company reported lower Q4 earnings than expected as also reduced forward guidance to a 5% - 7% mid-term growth rate from the previous 6% -8%, prompting traders to bid the name down 11.65%.   

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: 0.02%
• S&P 500: 4.50%
• Nasdaq Composite: 10.74%
• Russell 2000: 8.34%
• Bitcoin (BTC-USD): 44.22%
• Ether (ETH-USD): 37.72%

Stocks to Watch

Before trading kicks off for US-listed equities, Carter’s (CRI), Cinemark (CNK), DigitalBridge (DBRG), Scripps (SSP), and Taboola (TBLA) will be among the companies reporting their quarterly results.  

Beyond Meat (BYND) reported a smaller-than-expected bottom-line loss for its December quarter as revenue topped expectations rising 20.6% YoY to 79.94 million vs the $75.8 million consensus. The company sees 2023 revenue in the range of $375-$415 million vs the  $391.37 million consensus. CEO Ethan Brown shared that the company is making solid progress in the transition to a sustainable growth model that emphasizes the achievement of cash flow positive operations within the second half of 2023.

While Farfetch (FTCH) reported December quarter results that largely matched consensus expectations, the management team shared that the company’s partnerships with Neiman Marcus Group and Ferragamo are on track to launch as expected in 2023. And its announced transaction with Richemont is currently progressing through the regulatory review process.  

December quarter results from Block (SQ) were mixed with softer-than-expected EPS despite revenue for the quarter rising 14% YoY to $4.65 billion, nicely ahead of the $4.559 billion consensus. Transaction-based revenue was $1.47 billion, up 13% YoY, and the company processed $53.16 billion in GPV, up 15% YoY. On the management described 2023 as a year focused on operating with efficiency with the expectation ”to slow our pace of expense growth meaningfully compared to prior years. We expect to deliver approximately $1.3 billion in adjusted EBITDA in 2023, growth of more than 30%, and at least 1 point of margin expansion year-over-year.”

Taiwan Semiconductor Manufacturing (TSM) plans to construct a second chip plant in Japan for manufacturing 5 and 10-nanometre chips beginning in the second half of the decade. 

IPOs

The near-term IPO calendar is relatively light, so no significant IPOs slated to price this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page. 

After Today’s Market Close

That’s right folks, it is once again Friday! We made it, and there are no companies expected to report their quarterly results when US equities stop trading for the day. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. 

On the Horizon

Monday, February 27

• Eurozone: Business and Consumer Survey – February
• Eurozone: Consumer Inflation Expectation - February
• US: Durable Orders – January
• US: Pending Home Sales – January

Tuesday, February 28

• Japan: Industrial Production, Retail Sales, Housing Starts – January
• Germany: Import Prices – January
• US: Advance Retail, Wholesale Inventories – January
• US: Chicago PMI – February
• US: FHFA Housing Price Index – December
• US: Consumer Confidence – February 

Wednesday, March 1

• Japan: Manufacturing PMI - February
• China: Manufacturing & Non-Manufacturing PMI, Caixin Manufacturing PMI - February
• Germany: Retail Sales – January
• Eurozone: S&P Global Manufacturing PMI - February 
• UK: Manufacturing PMI - February
• US: Weekly MBA Mortgage Applications 
• US: S&P Global Manufacturing PMI – February
• US: ISM Manufacturing Index – February
• US: Construction Spending – January
• US: Weekly EIA Crude Oil Inventories

Thursday, March 2

• Japan: Household Confidence – February
• Eurozone: Consumer Price Index - February
• US: Weekly Initial & Continuing Jobless Claims
• US: Productivity & Unit Labor Cost – 4Q 2022
• US: Weekly EIA Natural Gas Inventories

Friday, March 3

• Japan: Services PMI - February
• China: Caixin Services PMI – February
• Eurozone: S&P Global Services PMI – February
• Eurozone: Producer Price Index - January
• UK: Services PMI - February
• US: S&P Global Services PMI – February
• US: ISM Non-Manufacturing Index – February 

Thought for the Day

“Music always sounds better on Friday.” ~ Lou Brutus

Disclosures

• Beyond Meat (BYND) is a constituent of the Foxberry Tematica Research Sustainable Future of Food Index
• Beyond Meat (BYND) is a constituent of the Tematica BITA Cleaner Living Sustainability Screened Index
• Farfetch (FTCH) is a constituent of the Tematica BITA Big Spenders & Savers 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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