The Personal Consumption Expenditures (PCE) Price Index fell to 5% on a yearly basis in February from 5.3% in January, according to data released today by the US Bureau of Economic Analysis. Economists were expecting 5.3%.

The annual Core PCE Price Index, which is known as the Fed’s favorite gauge of inflation, inched down to 4.6% from 4.7% in the same period, compared to forecasts of 4.7%. On a monthly basis, Core PCE inflation and PCE inflation both gained 0.3%. In addition, Personal Income advanced by 0.3% between January and February, while Personal Spending rose by 0.2%.

Yesterday, German inflation cooled to 7.8% YoY in March, not as much as expected but still down from 9.3% in February, whilst Spanish inflation dropped from 6% in February to 3.1% in March, thanks to the decline in energy prices.

On Thursday, Wall Street had another good session, with gains ranging from 0.4% for the US Dow Jones to 0.9% for the Nasdaq. Elsewhere, European markets such as London, Paris and Frankfurt gained between 0.7 and 1.3%. All sectors stood out, except for the more defensive segments of the market, which were abandoned in favor of slightly riskier bets. However, the results for March - as this is the last day of the month - will be disparate. So far, up to this morning, the Nasdaq 100 is up 7.7% on the month. But the UK FTSE 100 is down 3.3%, a performance gap of 11%. Overall, it's not too bad if you remember that two major US banks failed in March, and that Credit Suisse had to be rescued by its rival UBS.

The big rebound in US technology stocks, after a catastrophic 2022, is based on the lull in the banking crisis and the prospect of the Fed eventually cutting rates to avoid further shocks in the financial sphere. Faced with the power of this belief, even iconic "bears" like Michael Burry, the man who predicted the 2008 crisis, have toned down their stance. He said yesterday that he was wrong to predict a new cataclysm and was a good sport to congratulate those who had bought the recent lows.

Burry's story, romanticized in the movie "The Big Short" for those who don't know it, leads me to a little digression on the concept of luck. I believe that Michael Burry earned his stripes by being right in the right place at the right time, against the prevailing sentiment. That is how legends are made. After that, he didn't really sparkle, but he still has the ear of the markets when he unleashes an apocalyptic rant. Remember that risk is what happens when you make good decisions but end up with a bad outcome. Luck is what happens when you make bad or mediocre decisions but get a great result. The authorship of both of these statements is attributed to journalist and writer Morgan Housel, who is unparalleled in putting financial concepts into words. I'm not saying that Burry and his cohorts were just lucky, as they had identified some of the problems. But it often takes luck to be in the right tempo.

The current context is therefore favorable to the rise, but with obvious fragilities. Any destabilizing event, especially on the financial strength front, can plunge investors back into an abyss of doubt. But the narrative of the moment is well established: central banks are watching. At this point of devotion, I feel that even a further systemic blow could fuel equity market gains, because it would reinforce the belief that it won't be long before policy rates start to fall. Basically, there is quite a disconnect between what the majority of investors think and what central banks are saying. I would even say that there is also a kind of gap between what some investors think ("this rise is risky") and what they do ("we are positioning ourselves anyway"). FOMO is also at play.

 

Economic highlights of the day:

The preliminary estimate of European inflation for March, the February PCE inflation in the US, the Chicago PMI and the University of Michigan's Consumer Sentiment Index are on the agenda today. This morning, China reported a slightly higher than expected manufacturing PMI (51.9) and a jump in the services PMI (58). Japan's February industrial production rose more than expected (4.5%).

The dollar is rather unchanged at EUR 0.9187 and GBP 0.8071. The ounce of gold rises to around USD 1980. Oil is looking up, with North Sea Brent at USD 78.78 a barrel and US WTI light crude at USD 74.88. The yield on US 10-year debt stands at 3.55%. Bitcoin is trading around USD 28,200.

 

In corporate news:

  • Kraft Heinz - The U.S. food giant has agreed to sell its baby food business in Russia to local soda and snack maker Chernogolovka, a representative of the Russian company told Reuters on Friday, estimating the value of the deal at between 2.5 billion and 3 billion rubles (35 million dollars).
  • Valero, the second-largest U.S. oil refiner, is seeking permission from Washington to import Venezuelan crude, according to four people familiar with the matter, hoping for a repeat of the approval granted to oil giant Chevron last November. The US has imposed an embargo on Venezuelan oil exports in 2019.
  • Virgin Orbit announced on Thursday that it would cut about 85% of its workforce after failing to find new investment, adding that it expects to face related charges of about $15 million. The stock is down 49.6% in pre-market trading.
  • Netflix is restructuring its film group and cutting back on production to ensure high-quality titles, which will result in layoffs and the departure of two of its most experienced executives, Bloomberg reported Thursday.
  • Tesla - Tesla CEO Elon Musk plans to visit China, the company's second-largest market after the United States, as early as April and wants to meet Chinese Premier Li Qiang, two sources familiar with the trip told Reuters.
  • United Health - The CMA, the British competition authority, announced on Friday it would refer UnitedHealth's acquisition of healthcare technology company EMIS to a phase two investigation after rejecting remedies proposed by the U.S. company to mitigate the competitive impact of the combination.
  • BlackBerry - The New York-listed Canadian software company's shares drop 4% in premarket trading following disappointing results and outlook.
  • Rumble - The Canadian video-sharing platform, popular with conservatives, is up 14.6% in premarket trading as it reported higher fourth-quarter revenue.
  • Nike - Activist investor platform Tulipshare on Thursday called on the company to offer more transparency on working conditions in its supply chain.
  • Verizon - The U.S. Federal Aviation Administration (FAA) announced Thursday that it has awarded Verizon a contract worth $2.4 billion over 15 years to design, build and operate the government agency's new next-generation communications platform.

 

Analyst recommendations:

  • Ceres Power: HSBC upgrades from hold to buy targeting GBp 440.
  • Cintas: Jefferies analyst Stephanie Moore cut the recommendation on Cintas Corp. to hold from buy. PT set to $487, implies a 4.1% increase from last price.
  • DiscoverIE: Liberum starts tracking as a hold with a target of GBp 105.
  • Highwoods Properties: Morgan Stanley lowers PT to $23 from $26. maintains equal-weight rating.
  • Jack in the Box:  Loop Capital Markets initiated coverage  with a recommendation of buy. PT set to $114.
  • Kingfisher: Morgan Stanley starts in line tracking targeting GBp 290.
  • Pearson: Exane BNP Paribas upgrades from neutral to outperform targeting GBp1050.
  • Spire Healthcare: Jefferies upgrades from hold to buy targeting GBp 250.
  • Zimmer Biomet: Jefferies raised the recommendation to hold from underperform. PT up 2.6% to $130.