Economists were expecting inflation to average 0.1% over the month, giving an annual variation of 3.4%, but it came in below, at 3.3%, as consumer prices remained unchanged on a monthly basis. Core inflation excluding the most volatile elements (core CPI) rose 3.4% on an annual basis, instead of 3.5% expected, and gained 0.2% on a monthly basis, instead of 0.3% expected. This level remains too high in relation to monetary policy targets, but it is a good improvement year-on-year (core CPI was 3.6% in April) and bodes well for a rate cut this year. Fed swaps now full price in a quarter-point rate cut in November.

After the release of the data, futures on all three Wall Street indices shoot up, as well as Europe’s main indices.

Later today, the Fed will almost certainly announce that it will maintain its key rate in the 5.25% to 5.50% range. Financiers will be hoping to learn more about the next move, both from Jerome Powell's speech and from the forward-looking document to be published at the same time as the decision. It is this document that contains the famous dot plot, which is of the utmost interest to the market because it is the barometer of each US central banker's sentiment on the future evolution of rates.

The market is relatively optimistic about today. Let's put it this way: it expects the combination of inflation and the outlook for monetary policy to lead to a strengthening of the US rate cut scenario this year. Specialists are hesitating between one and two rate cuts in 2024. Remember: financial markets like rate cuts for several reasons, not least because money becomes cheaper, making it more plentiful (i.e., people are less reluctant to invest) and better able to reduce short-term macroeconomic risks (i.e., fears about corporate financing or the real estate market recede).

Yesterday, stock markets in Europe looked gloomy for the second consecutive session. The chaotic political situation in France weighed on all markets, from Frankfurt to London to Milan. Wall Street didn't shine particularly brightly either, but the S&P500 and Nasdaq 100 nonetheless set new records, thanks to a blazing Apple share: +7.2% for the session! Of course, this contrasts with the previous day's 2% drop following the lukewarm reception of the artificial intelligence announcements. Well, you see, analysts have come to believe that, behind the varnish, the project is quite solid and could enable the group to catch up in AI. The market thought the opposite 24 hours earlier. It's not always easy to keep up... By the way, I titled yesterday's column “Investors aren’t fooled”. This morning, I could headline it “Investors are easily fooled”, but I think you would have insulted me, and you wouldn't have been wrong.

The spectacular turnaround in Apple's share price seems to be based, in particular, on the fact that analysts have perceived in certain announcements a new source of revenue for the group. They believe that beyond OpenAI's ChatGPT, agreements could be signed with other players in the ecosystem of machines that write what you ask them to. And that these players would probably be willing to pay (to pay Apple, of course) for access to the world of iPhone users.

Once again, we see the power of storytelling. In less than two days, Apple has gone from loser to Nvidia in terms of capitalization, behind on AI and the worst performer of the tech giants in 2024, to something else entirely. Capitalization ($3,176 bn) not only doubled Nvidia's ($2,971 bn) yesterday, but is also closing in on Microsoft's top spot ($3,216 bn). The stock is the second-best performer of the sector's stars over one month, and Apple is back in the saddle, at least in Wall Street's mind, on AI.

While we await the Fed decision, let’s talk about China. The country is not facing the same problems as the West. Annual inflation remains very low, at 0.3% in May (consensus 0.4%). As for producer prices, they continued to contract by -1.4%. These two figures are hardly compatible with an economic recovery. Moreover, the pressure on local industry is set to remain high, as the EU is about to raise its tariffs on Chinese electric vehicles, while rumors are circulating that Washington will further tighten its screws on semiconductors. According to Bloomberg, the White House could try to prevent Chinese companies from gaining access to a cutting-edge chip architecture known as GAA, which the industry's big names will begin using next year. The US would thus further hinder China's development in AI.

Asia-Pacific markets are again divided this morning. India and South Korea are up by around 0.5%, but other markets are looking down.

Economic highlights of the day:

On the agenda today, Germany’s second estimate of its May inflation, the UK monthly GDP, the Consumer Price Index, Energy Department crude inventories and the FOMC rate decision. The full agenda is here

The dollar is down 0.6% against the euro to EUR 0.9256 and down 0.1% against the pound to GBP 0.7836. The ounce of gold is up to 2,327. Oil rebounds, with North Sea Brent at USD 82.94 a barrel and US light crude WTI at USD 78.99. The yield on 10-year US debt falls to 4.29%. Bitcoin trades at USD 69,000.

In corporate news:

  • Apple -The smartphone maker jumped more than 7% on Tuesday to reach a record level, making a major contribution to the Nasdaq's rise, a day after unveiling new artificial intelligence features designed to revive demand for its devices.
  • The technology company also became the first brand to surpass $1,000 billion in brand value, an increase of 15% on last year, according to a global ranking published Wednesday by Kantar.
  • Oracle said Tuesday evening it expects double-digit sales growth for fiscal 2025, beating analysts' estimates, citing in particular strong demand for its AI-powered cloud services. The share price is up nearly 9% in pre-market trading.
  • Paramount Global - Shari Redstone, Paramount's main shareholder, abruptly ended negotiations with David Ellison's Skydance Media on Tuesday, scuppering the potential sale of a majority stake in the group to the independent studio, sources said. Paramount shares are down 2.3% in pre-market trading.
  • Tesla- Elon Musk made billions of dollars selling shares in the carmaker using insider information, an institutional shareholder accused in a lawsuit filed Tuesday, asking the court to order Tesla's CEO to return "illegal profits".
  • Semi-conductors - The U.S. government plans to announce greater sanctions Wednesday on the export of semiconductors and other products to Russia, with the aim of targeting third-party vendors in China in particular, sources familiar with the matter said Tuesday.
  • Automotive sector - The European Commission announced on Wednesday that it would impose additional customs duties on imports of electric vehicles from China, a decision that follows an investigation launched in October into subsidies allegedly enjoyed by Chinese automakers from Beijing.
  • Amazon - Thousands of drivers on the Amazon Flex platform filed arbitration claims with the American Arbitration Association on Tuesday alleging they were misclassified as independent delivery drivers rather than employees, their lawyer told Reuters.

Analyst recommendations:

  • Apple Inc.: William O'Neil & Co Incorporated upgrades to buy from dropped coverage, and LightShed Partners upgrades to neutral from sell.
  • Ciena Corporation: Morgan Stanley upgrades to overweight from equal weight with a target price raised from USD 53 to USD 55.
  • Darling Ingredients Inc.: Citi upgrades to buy from neutral with a target price reduced from USD 50 to USD 48.
  • Klaviyo, Inc.: Barclays upgrades to overweight from equal weight with a target price raised from USD 25 to USD 29.
  • Mccormick & Company, Incorporated: Citi upgrades to neutral from sell with a target price raised from USD 68 to USD 69.
  • Nextera Energy: Mizuho Securities downgrades to neutral from buy with a target price of USD 71.
  • Paramount Global: Wells Fargo downgrades to underweight from equal weight with a target price reduced from USD 14 to USD 9.
  • Pure Storage, Inc.: Morgan Stanley downgrades to equal weight from overweight with a target price of USD 60.
  • Brown-Forman -A and Brown-Forman -B: Truist Securities maintains its buy recommendation and reduces the target price from USD 80 to USD 50 for both classes.
  • Nvidia Corporation: DZ Bank AG Research maintains its hold recommendation with a target price reduced from USD 1025 to USD 120, while Phillip Securities maintains its buy recommendation and reduces the target price from USD 1400 to USD 140.
  • Broadcom Inc.: SWS Research initiates a buy recommendation with a target price of USD 1716.
  • Valvoline Inc.: Piper Sandler & Co initiates an overweight recommendation with a target price of USD 49.
  • Procore Technologies, Inc.: TD Cowen initiates a buy recommendation with a target price of USD 85.
  • Fiserv, Inc.: Wells Fargo initiates an overweight recommendation with a target price of USD 180.