And it was a relief for investors since US inflation data came in just as expected, even slightly below. In April, core consumer prices rose by 0.4% month-on-month, which is what was expected in the Bloomberg consensus of economists. It shows that core inflation - which doesn’t include energy and food - fell back after March’s higher-than-expected reading. The US Bureau of Labor Statistics said that the Consumer Price Index (CPI) declined to 4.9% on a yearly basis in April from 5% in March, which is slightly below the 5% expected. Futures on the S&P 500, the Dow Jones and the Nasdaq 100 all rose after the data, as it is expected to support the prospect of a halt in the US central bank's rate hike cycle.

Yesterday, all three Wall Street indices lost ground, including the Nasdaq 100 which fell 0.7%. The regional banks held their own, while speculators continued to play with the securities of failed banks such as Signature and First Republic. It was much less festive for PayPal, which finished down 12% after figures that show that the payment system is no longer a prophet in his own country. PayPal, which is evolving on levels that had not been seen since 2017.

This small bout of caution comes against a backdrop of all-out optimism on equity markets, a vaguely suspect optimism as red lights continue to flash left and right. There is the monetary policy path and its corollary, the risk of recession, of course.

There are also the bearish positions on the indices, which are not working: the three-month skew of the S&P 500, i.e. the gauge of bearish bets compared to bullish bets, is at its highest since the end of 2021. Investors continue to buy both stocks and bearish positions against stocks to hedge because they are not very comfortable with the risks. It's a bit weird...

Then there's the banking crisis, which looks like a slow fuse, as well as the issue of the US debt ceiling, which comes up at regular intervals. One-month US Treasuries have risen to a yield of 5.59%, a sign that tensions are high. Former Pimco boss Bill Gross has been quoted all over the place after his statements about how you absolutely have to invest in these products because historically there has always been a deal on the debt ceiling. However, ING economist Robert Carnell wrote yesterday that "while this time may be no different, people think that politics and individuals are certainly much more focused on ideology and dogma... the divides between the parties are deeper... it's not inconceivable that this could go wrong". Well, Carnell isn't much of an optimist under normal circumstances, but still. We can't rule out a hard-line Republican strategy to further weaken a Joe Biden whose popularity is waning.

A bit of caution seems necessary at the moment because there are too many uncomfortable variables...

 

Economic highlights of the day:

It's inflation day. Along with the US CPI, we have Germany’s inflation data. All the agenda is here. 

The dollar is down 0.2% against the euro and the pound to EUR 0.9095 and GBP 0.7900. The ounce of gold is trading just below USD 2040. Oil is consolidating its recent gains, with North Sea Brent at USD 77.37 per barrel and US WTI light crude at USD 73.57. The US 10-year debt yield is steady at 3.51%. Bitcoin is under a bit of pressure at USD 28,000.

 

In corporate news:

  • Airbnb plunged 13% in premarket trading after the short-term accommodation services specialist said it expected booking growth to slow in the current quarter.
  • Electronic Arts was up about 3% in after-hours trading after reporting better-than-expected net bookings for its fiscal fourth quarter on Tuesday evening, thanks in part to titles such as "FIFA" and "Madden NFL".
  • Occidental Petroleum was down 1.6% in premarket trading after reporting adjusted quarterly earnings below analysts' expectations.
  • Uber Technologies is now offering a booking service in Britain for international and domestic flights via its app, the Financial Times reported Wednesday.
  • Tesla announced Tuesday that its Texas plant is now producing 5,000 Model Y vehicles a week, bringing its capacity to about 260,000 vehicles a year.
  • Rivian Automotive on Tuesday reported quarterly sales that exceeded Wall Street expectations and confirmed its annual production forecast of 50,000 electric vehicles. The stock jumped 6.1% in pre-market trading.
  • Virgin Galactic Holdings was down 4.16% in premarket trading after the group announced a worsening of its net loss in the first quarter compared to the same period a year ago.

 

Analyst recommendations:

  • Albemarle: Scotiabank upgrades to sector outperform from sector perform. PT up 34% to $250.
  • Burlington Stores: Goldman Sachs cuts Price Target on Burlington Stores to $229 from $235, maintains Buy rating.
  • Cummins: Evercore ISI downgrades to inline from outperform. PT up 5.5% to $236.
  • Hain Celestial: Piper Sandler upgrades to neutral from underweight. PT up 3.8% to $16.
  • Intertek: RBC Capital Markets upgrades to sector perform from underperform. PT down 7.5% to 3,900 pence.
  • Radian: BofA Global Research downgrades to underperform. PT down 3.4% to $24.
  • Ross Stores: Goldman Sachs adjusts price target on Ross Stores to $129 from $132, maintains Buy rating.
  • Sealed Air: Morgan Stanley downgrades to equal-weight from overweight. PT down 13% to $48.
  • Skyworks: Stifel lowers PT to $130 from $150. Maintains buy rating.
  • Trex:  BofA Global Research upgrades to buy from neutral. PT up 17% to $66.