The producer price index jumped 0.6% on a monthly basis, the Labor Department’s Bureau of Labor Statistics revealed. The Bloomberg consensus was only calling for a 0.3% rise after a 0.3% increase in January. On a yearly basis, the index climbed 1.6%, the biggest rise since September 2023. Excluding food and energy, the monthly core PPI gained 0.3%, versus 0.2% expected.

Another set of data just showed that retail sales bounced back up 0.6%, while initial filings for unemployment insurance reached 209,000 last week, below the estimate for 218,000.

So far, there is no sign of turmoil on the market, which seems a bit strange, given that a few months ago, everybody would have freaked out, fearing that inflation would be picking up, that wages would start to rise again and that the Fed would have to raise rates to 8%. Then real estate would have collapsed, and then the economy, and then all of us…

But these days, no more panic. On Tuesday, when the US Department of Labor announced that February inflation was a little higher than expected, the market decided it didn't really care. Well, not exactly, since yesterday bond yields did accelerate to their highest level in two weeks, and US technology stocks took a nosedive. The result was -0.2% for the S&P500 and -0.8% for the Nasdaq 100. No cause for alarm, but a little retro effect after the publication of the data.

Europe was a mixed. Benelux and Scandinavia retreated, Germany did nothing and France ended on a record high with the CAC40 at 8138 points.

Investors' fears, or lack of them, regarding the evolution of prices in the United States, and therefore the trajectory of monetary policy, will be tested once again today.

I read an interesting column this morning from Bloomberg’s John Authers. He believes that investors don’t care so much about the timing of rate cuts, because they believe that they will eventually come, even if the process is slow. Another reason, according to him, is that corporate earnings have turned up very significantly, along with projected profits. “Providing the profits of the big US companies prove to be sustainable, and the predictions for the future are broadly accurate, then the market is comfortable that the rally can carry on a while longer. Stronger profitability would tend to imply a better economy and less need for rate cuts, but the calculation is that a higher rate isn’t a problem if it’s discounting substantially higher profits”, he wrote. If you add that the incredible momentum of the US stock market, you understand why investors don’t care as much about higher inflation data.

I'll round off this morning column with a research paper published by UBS earlier this week, which I found interesting because it gives a better idea of the markets' state of mind. Basically, it's a summary of what the Swiss bank's major investor clients think after a series of meetings in Europe and North America.

To begin with, the people we spoke to are optimistic and no longer believe in a marked economic slowdown. If it makes you feel any better, they also don't really know what to do with AI at the moment (apart from semiconductors). Investors are pretty much all wondering whether the technology boom can continue (UBS tells them yes, and sees the current phase looking more like 1997/1998 than 2000).

Interestingly, and unrelated to the above, investors believe that PMI indicators are becoming less and less relevant for judging the health of cyclical sectors and markets (PMI and GDP are decoupled in record proportions). UBS's pertinent comment on this subject is that cyclical stocks are increasingly driven by structural factors such as electrification and automation, while many defensive stocks are considered structurally fragile (consumer staples, parts of utilities, healthcare equipment, pharmaceuticals excluding GLP1).

In the Asia-Pacific region, the Nikkei 225 gained 0.3% this morning, even though investors are still concerned about the end of the Bank of Japan's negative interest rate policy, which will be decided next week. China is losing ground, with declines of 0.7% in Hong Kong, as uncertainty persists over economic recovery and the health of property developers. South Korea, India and, to a lesser extent, Australia, are up. European leading indicators are mixed and Wall Street opened in the green.

Economic highlights of the day:

New jobless claims, the Producer Price Index and advanced retail sales are on the agenda, along with Business inventories. The full agenda is here

The dollar rises to EUR 0.9152 and GBP 0.7821. The ounce of gold reaches USD 2163. Oil is on the rebound, with North Sea Brent at USD 84.81 a barrel and US light crude WTI at USD 80.30. The yield on 10-year US debt has risen to 4.20%. Bitcoin trades just below USD 73,000.

In corporate news:

  • KKR - The US private equity firm announced on Thursday that it had launched a €2.8 billion takeover bid for German energy producer Encavis.
  • Oracle announced on Thursday that it has integrated generative artificial intelligence functions into its enterprise software range, in a bid to compete with Microsoft and other technology groups.
  • Intel and Micron Technology rebounded by 1.1% and 0.8% respectively in pre-market trading on Thursday, after falling by more than 3% each on Wednesday due to profit-taking in the semiconductor sector. NVIDIA, on the other hand, lost a further 0.6% in pre-market trading after a 1.1% decline the previous day, while TESLA dropped 1.5% after a 4.5% fall.
  • Boeing - The acting executive director of the European Union Aviation Safety Agency (EASA) warned on Wednesday that the agency could withdraw indirect approvals granted to Boeing for aircraft production if necessary.
  • Delta Air Lines announced on Wednesday evening that it would resume flights to Israel as of June 7, making it the second US airline after UNITED AIRLINES to re-establish this route since the October 7 Hamas attack on Israel.
  • UnitedHealth Group announced on Wednesday that the pharmacy network of its Change Healthcare division was back up and running, a few weeks after a cyberattack that affected the entire US healthcare system.
  • Robinhood Markets climbed 11.1% in premarket trading, as the trading app operator announced that its assets under custody had increased by 16% in February.
  • Dollar General jumped more than 6% in premarket trading, as the low-cost retailer said it expected sales in 2024 to beat expectations thanks to strong demand for cheaper food and household essentials.

Analyst recommendations:

  • Chubb Limited: Citi downgrades to neutral from buy with a price target raised from USD 238 to USD 275.
  • Citigroup Inc.: Goldman Sachs upgrades to buy from neutral with a price target raised from USD 55 to USD 68.
  • Rtx Corporation: Wells Fargo upgrades to overweight from equalweight with a price target raised from USD 100 to USD 120.
  • The Goldman Sachs Group, Inc.: Daiwa Securities upgrades to outperform from neutral with a price target raised from USD 410 to USD 430.
  • Diageo Plc: Kepler Cheuvreux upgrades to buy from hold with a price target raised from GBX 3050 to GBX 3500.
  • Thomson Reuters Corporation: Barclays upgrades to overweight from equalweight with a price target raised from USD 150 to USD 180.
  • Airbnb, Inc.: Truist Securities maintains its hold recommendation with a price target raised from USD 118 to USD 131.
  • Netflix, Inc.: Evercore ISI maintains its outperform recommendation and raises the target price from USD 600 to USD 640.
  • Oracle Corporation: President Capital Management Corp maintains its buy recommendation and raises the target price from USD 125 to USD 150.
  • Trimble, Inc.: Oppenheimer maintains its outperform rating and raises the target price from USD 65 to USD 72.