Investors are anxiously awaiting the consumer price index report tomorrow, as they believe a strong increase could lead the Federal Reserve to change its accommodating monetary policy.

Inflation fears are fueling the rotation from growth stocks to cyclicals. The debate about economic overheating due to the multiplication of support promises in the US is gaining momentum and shaking up US growth values. Should inflation be allowed to run its course to allow the economy to erase the trauma of 2020? The U.S. central bank's answer is yes, and it is betting on a temporary episode. Critics say it is a risky move, especially if more wheelbarrows of dollars come flooding into the country.

The nine largest caps on the U.S. technology index lost between 2.09% for Microsoft and 6.44% for Tesla yesterday. Given the weight of these stocks in the S&P500, the broader, more generalist index lost 1%. In the end, the Dow Jones fared best - not for the first time this year - with a limited contraction of 0.1%, thanks to the good performance of the old economy, notably UnitedHealth, The Home Depot and McDonald's. In Europe, the session was soporific in France, Belgium and Germany, where the indices closed unchanged or nearly so. The Swiss SMI was the exception with a drop of 0.45%, due to the health sector, which is so heavy in Zurich.

The great inflationary threat has finally taken hold, after so many comments: a self-fulfilling prophecy. But to be fair, it is difficult to consider how consumer prices will not be caught up by the combination of rising agricultural commodity or base metal prices, shortages in supply chains and logistical bottlenecks. The term "inflation" on Google Trends is at 100 in the U.S., the highest level since 2004, i.e. since the search engine compiles this type of data.

The "non-digital" economy continues to take its revenge in the stock market, where discounted stocks, especially financials and mining, continue to do wonderfully. In the meantime, the comet tail of earnings releases is looming at the end of an exceptional quarterly season. Even though the term "inflation" is omnipresent in analyst conference calls, it has not yet affected the companies' recovery plans. But there is no doubt that all executives have the overheating scenario in the back of their minds.

 

Today's economic highlights:

Two surveys will be closely watched today, the German ZEW financial confidence index in May and the JOLTS job openings survey in the US in March. This morning, China announced a 6.8% year-on-year increase in producer prices in April, above expectations, but consumer prices still contained, up 0.9%.

The dollar is down to EUR 0.8224. So is the ounce of gold, around USD 1826. Oil is losing ground with North Sea Brent at USD 67.50 and U.S. light crude WTI at USD 64.10. U.S. debt is yielding 1.59% over 10 years, up slightly. Bitcoin is losing some altitude at USD 55,000.

 

On markets:

* Pfizer, the U.S. Food and Drug Administration (FDA) approved Pfizer and BioNTech's COVID-19 vaccine for use in children 12 to 15 years old on Monday night, and the European Medicines Agency (EMA) could follow suit as early as the end of the month.

* Moderna, whose vaccine competes with Pfizer's and BioNTech's, lost nearly 4% in pre-market trading.

* Novavax on Monday shifted the production ramp-up schedule for its COVID-19 vaccine from the second quarter to the third quarter, saying it now plans to file for approval in the U.S., U.K. and the European Union. The stock lost 11.6% in pre-market trading.

* Apple - Production of the iPhone 12 at a Foxconn factory in India has fallen by more than 50% due to the resurgence of coronavirus infections in the country, the world's second largest market for the product, two sources said.

* IBM presented on Tuesday, during its annual "Think Conference", a series of new projects focusing on artificial intelligence, cloud computing and quantum computing.

* L Brands has decided to spin off the Victoria's Secret lingerie brand instead of selling it, and the deal could close in August, The Wall Street Journal reported Tuesday, citing sources. L Brands did not immediately respond to a Reuters request for comment.

* Occidental Petroleum reported better-than-expected quarterly results Monday night on the strength of its chemicals business and crude oil exports.

 

Analyst recommendations:

  • Activision Blizzard : Deutsche Bank Adjusts Price Target for Activision Blizzard to $118 From $115, Maintains Buy Rating
  • Barclays: AlphaValue remains Buy with a target price raised from GBp 170 to GBp 216.
  • Cisco : Baird Adjusts Price Target for Cisco Systems to $53 From $46, Maintains Neutral Rating
  • Goldman Sachs Adjusts Corteva's Price Target to $46 From $45, Maintains Neutral Rating
  • Deliveroo: Goldman Sachs is positive on the stock with a Buy rating. The target price remains unchanged at GBX 420.
  • DWS  : Gets a Buy rating from UBS
  • GlaxoSmithKline : Deutsche Bank reiterates its Sell rating. The target price remains unchanged at GBX 1200.
  • Eastman Chemical: Goldman Sachs t raised the recommendation on Eastman Chemical Co. to buy from neutral. PT set to $148, implies a 19% increase from last price. Eastman Chemical average PT is $127.95.
  • FMC: Goldman Sachs Adjusts Price Target for FMC Corp to $147 From $142, Maintains Buy Rating
  • Newmark  : Wedbush Raises Price Target for Newmark Group to $14 From $12 on Above Consensus Q1 Results, Reiterates Neutral Rating
  • Nikola  : Deutsche Bank Adjusts Price Target for Nikola to $16 From $26, Maintains Hold Rating
  • Novartis AG  : Deutsche Bank reiterates its Buy rating. The target price remains set at CHF 100.
  • Novo Nordisk  : Deutsche Bank gives a Buy rating. The target price is unchanged at DKK 500.
  • Nutrien  : Goldman Sachs Adjusts Nutrien's Price Target to $69 From $68, Maintains Buy Rating
  • Park Hotels & Resorts  : Deutsche Bank Adjusts Price Target for Park Hotels & Resorts to $23 From $22, Maintains Hold Rating
  • Shake Shack  : Deutsche Bank Adjusts Price Target for Shake Shack to $95 From $107, Maintains Hold Rating
  • The British Land: RBC upgrades from underperform to sector perform with a target of GBP 465.
  • Total: Berenberg raises its target from EUR 39 to EUR 42.
  • Travis Perkins: Berenberg remains Buy with a price target reduced from GBp 2020 to GBp 1910.
  • Wizz Air: Oddo BHF upgrades its Outperform rating to Neutral with a target of GBp 5100.
  • Zur Rose: Citigroup upgrades from neutral to buy.