Investors went through all kinds of emotions yesterday, with one real constant: there is a lot of confusion. The Nasdaq and the S&P500 lost about 0.9%. It was a peculiar session, as one of the main focus of the day was to closely scrutinize the USD/EUR pair until it reached perfect parity. After a little suspense, it happened - a first in 20 years. Everybody was waiting for today's US consumer prices, which were announced at 8:30 am. The last nine readings have either exceeded economists' expectations or have been just in line with them. This time, it was no different.
In June, the Consumer Price Index for All Urban Consumers rose 1.3 %, seasonally adjusted, and surged 9.1 % over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.7 % in June - up 5.9 percent over the year.
This is way above analysts expectations, which expected inflation to stand at 1.1% between May and June in the United States, reaching 8.8% annual pace. In May, the annual change was 8.6%.Core inflation (which does not include energy and food) was expected to be 0.5% on a monthly basis. Given the economic momentum in the U.S. and the marked improvement in the labor market, it is reasonable to expect that this higher-than-expected inflation rate will lead the Fed to raise rates by at least 75 basis points at the end of the month, or even by 100 bps.
In other news, OPEC has published its first forecasts for 2023 and they are quite alarming. Despite fears of recession, the oil cartel expects demand to grow next year by around 2.7 million barrels per day (mbpd), while at the same time there is little or no room to increase global supply. This outlook suggests a market deficit, with global demand exceeding supply by one million barrels per day. Supply is struggling to keep up with the breakneck pace imposed by demand. Market experts believe that Russian production should at best stabilize at its current levels, although it has already contracted by almost 10% since the start of the war in Ukraine.
It is also difficult to count on an increase in OPEC production as most of the cartel members are having difficulty meeting their production quotas. Finally, in the United States, while high prices should boost domestic production, it is clear that US producers are still on the sidelines, as evidenced by the number of active drilling rigs, which is increasing at a much slower pace than the price per barrel. The latest report from the US Energy Agency (EIA) also supports this view, as the agency expects US production to reach 12.77 mbpd in 2023, compared with 11.91 mbpd in 2022.
In the absence of swing producers, the market can only balance itself by destroying demand. In other words, oil markets need a recession to balance. This has not stopped oil prices from going under the USD 100 a barrel barrier.
This morning, all three Wall Street indexes are deep in the red, hit by CPI figures. Investors should brace for a choppy session.
Today's economic highlights:
Two important dates with the US inflation figures for June at 8.30 am and oil inventories at 10.30 am The Bank of Canada will also make a decision on its rates at 10:00 am and hold a press conference at 11:00 am. The Fed will also release the Beige Book later today. All the macro agenda here.
The dollar has briefly reached parity with the euro, and is now trading at 0.9942 The ounce of gold is losing ground at USD 1729. Oil is regaining some height after its violent decline the day before with North Sea Brent at USD 100.39 per barrel and US WTI light crude at USD 96.74. U.S. debt has a 10-year yield at 2.97%. Bitcoin is trading below USD 20,000.
* Twitter gained 1.4% in pre-market trading after filing a lawsuit Tuesday against Elon Musk for violating the social network's $44 billion buyout deal after the multibillionaire decided to walk away from the project.
* Alphabet announced Wednesday that it will slow hiring through the end of the year, explaining that it is "not protected against economic headwinds."
* Delta Air Lines - The airline said Wednesday it expects a "significant" profit for the full year, as strong demand helped it post its best quarterly result since the start of the pandemic in the second quarter. In addition, Delta is in talks with Airbus about possible new A220 orders, two sources close to the matter said.
* Illumina - The European Union's General Court has ruled that the European Commission can investigate the life sciences group's takeover of its compatriot Grail, rejecting its appeal against the review.
* KKR - Australia and New Zealand Banking Group has confirmed it is in negotiations with the private equity group to buy software company MYOB Group, in a deal that local media have valued at more than A$4.5 billion.
- Advanced Micro Devices: Cowen remains long but lowers its price target from USD 160 to USD 120.
- Armstrong World: Goldman Sachs upgrades to buy from neutral. PT up 20% to $93.
- Aviva: Citi downgrades to neutral from buy. PT up 4% to 420 pence.
- BioNTech ADRs: SVB upgrades to outperform from market perform. PT rises 38% to $223.
- Brunswick Corporation: MKM Partners initiated coverage with a recommendation of buy. PT rises 36% to $96.
- Celanese: RBC Capital Markets downgrades to sector perform from outperform. PT up 3.9% to $116.
- Cintas: Wells Fargo Securities initiated coverage with a recommendation of equal-weight. PT up 4.1% to $393.
- Citigroup: UBS maintained its neutral advice and lowered its price target from USD 53 to USD 48.
- CommVault: Piper Sandler downgrades to neutral from overweight. PT up 8% to $69.
- Constellation Brands: Redburn initiated coverage with a recommendation of buy.
- D.R. Horton: JP Morgan remains Buy but with a price target reduced from USD 82.50 to USD 80.
- Equifax: Wells Fargo Securities initiated coverage with a recommendation of equal-weight. PT up 6.8% to $200.
- F5, Inc: Piper Sandler downgrades to neutral from overweight. PT up 15% to $173.
- Gartner: Wells Fargo Securities initiated coverage with a recommendation of overweight. PT up 28% to $305.
- Juniper: Piper Sandler downgrades to underweight from neutral. PT down 4.8% to $27.
- Lazard: Keefe, Bruyette & Woods downgrades to underperform from market perform. PT down 11% to $30.
- Meritage Homes Corporation: JP Morgan remains neutral and lowers its price target to $91 from $94.
- Molson Coors: Redburn raised its recommendation on Molson Coors Beverage Co. Class B to neutral from sell.
- OneMain: Wells Fargo Securities downgrades to equal-weight from overweight. PT up 2.9% to $40.
- The Clorox Co: Raymond James initiated coverage with a recommendation of outperform. PT up 11% to $160.
- The Gap: BofA Securities maintains its Sell rating and lowers its price target to $8 from $9.60.
- Toll Brothers: JP Morgan remains neutral and lowers its target from USD 53.50 to 48.
- Vista Outdoor: MKM Partners initiated coverage with a recommendation of buy. PT set to $54.
- Wells Fargo: Citigroup remains Buy but with a price target reduced from USD 56 to USD 47.