Inflation watch sees sideshows of single stocks

A Day Ahead View in US and Global Markets by Mike Dolan

Macromarkets essentially froze ahead of this week’s big US inflation releases, with secondary entertainment provided by a fresh burst of activity in so-called ‘meme stocks’, while earnings updates and business sagas dominated overseas.

With April’s consumer price report on Wednesday the focus this week, the release of the month’s producer price index on Tuesday is the appetizer – with key annual factory gate price readings expected remain stable at 2.4%.

While this critical data likely sets the tone for the public rather than the other way around, the outlook for household inflation expectations has not been good. The New York Federal Reserve’s April survey showed that Americans project inflation of 3.3% a year from now – above the 3% level seen in all of the first three months of this year – and a bleaker outlook for the employment and reinforced similar readings from the University of Michigan on Friday.

Fed Vice Chairman Phillip Jefferson didn’t reveal much, but said “the decline in inflation eased in the first quarter of this year and that, to me, is a source of concern.”

Still, with so much riding on this week’s big data hits, U.S. Treasury yields fell and the S&P500 was stuck in a narrow range. Stock futures were not inclined to challenge that pattern on Tuesday morning.

Optimism that rate cuts will occur this year persists. Bank of America’s monthly survey of global fund managers revealed that 82% expect the Fed’s first cut in the second half of the year and identified the “long US dollar” as the second “busiest trade” in May.

Even so, the dollar was firmer on Tuesday.

It got another rise against the Japanese yen even as speculation about a possible retreat by the Bank of Japan from its yield-capping bond-buying program – talk that has sent 10-year government bond yields to six-month highs , just below 1%. Some market participants believe that excessive yen weakness may be forcing the Bank of Japan to allow interest rates and yields to rise more quickly.

The dollar also gained against the pound sterling, even after Britain’s latest wage inflation data came in above forecasts. Bank of England chief economist Huw Pill remained cautious but said it was “not unreasonable” to expect rate cuts this summer.

Most of the remaining major market movements in Europe were earnings related.

Shares in Germany’s Delivery Hero rose 20% after Uber announced a $1.25 billion deal to take over its foodpanda business in Taiwan and buy new shares in the German company.

The story continues

Chinese stocks were subdued as US President Joe Biden unveiled a package of steep tariff hikes on a range of Chinese imports including electric vehicles, computer chips and medical products – suggesting an election-year standoff with Beijing.

Back on Wall Street, much of the buzz was on the revival of the “meme stock” craze.

Shares of video game retailer GameStop rose nearly 75% on Monday after “Roaring Kitty,” an account associated with social media influencer Keith Gill and credited with sparking the 2021 meme stock rally, returned to X.com after a three-year hiatus from the app.

The rally was replicated in other meme stocks, such as theater group AMC, and extended further before Tuesday’s bell.

In technology, OpenAI, maker of ChatGPT, said on Monday night that it would launch a new AI model called GPT-4o, capable of realistic voice conversation and capable of interacting through text and image.

Apple supplier Foxconn reported a 72% rise in first-quarter profit, driven by strong demand for computer servers and coming off a low base from the year-ago period – but missed forecasts.

In a big week for retail profits, Home Depot reported Tuesday, Walmart would be cutting hundreds of corporate jobs and asking most remote workers to move to offices, the Wall Street Journal said.

And in business, BHP is expected to soften its $43 billion takeover bid for Anglo American for a second time and possibly add cash after the London-based target company rejected a higher offer. BHP has until May 22 to return with a binding offer or walk away under UK takeover rules.

Anglo American, meanwhile, has presented a strategic review that includes a potential disintegration of the company through the spin-off or sale of its coal, nickel, diamonds and platinum steel businesses, as it tries to fend off BHP’s onslaught.

Top daily items that could guide US markets later this Tuesday:

* April US Producer Price Report, April US NFIB Small Business Survey

* US Corporate Profits: Home Depot

* Federal Reserve Chairman Jerome Powell speaks in Amsterdam; The head of the Dutch central bank and European Central Bank legislator, Klaus Knot, speaks; Fed Governor Lisa Cook Speaks; Kansas City Fed President Jeffrey Schmid speaks; ECB board member Isabel Schnabel speaks; Bank of England chief economist Huw Pill speaks

* The ECOFIN group of European Union finance ministers meets in Brussels, with the presence of ECB board member Luis de Guindos

* US Treasury auctions 12-month bonds

(Edited by Bernadette Baum)