Sticky US inflation pushes rate cuts further away

US equities plunged on Wednesday as hopes for imminent Fed rate cuts diminished amid another hotter-than-expected inflation report. The S&P 500 fell 0.9%, the Nasdaq dropped 0.8%, and the Dow Jones tumbled 422 points, leading to decreased expectations for June rate cuts. Megacaps like Microsoft, Apple, Alphabet, and Tesla declined, while Nvidia rose 2%. Despite surpassing earnings predictions, Delta Air Lines closed 2.2% lower. Meanwhile, European equities closed mixed but mostly recovered from initial losses, with gains in the tech and financial sectors offsetting losses in rate-sensitive consumer cyclicals. 

Summary for 11.04.2024 

• Asian shares declined as US and Chinese inflation data raised worries about interest rate hikes. China’s CPI contracted more than anticipated, indicating persistent deflationary pressures. Mainland equity losses affected Hong Kong and Australia, while Japan’s exporters benefited from a weakened yen. Market sentiment soured on reduced expectations for a June rate cut by the Fed. 
• European equities are set for a mixed open while US equity futures declined amid worries over Fed rate cut expectations and rising Treasury yields ahead of Q1 bank earnings. 
• Oil prices steadied in early Asian trading amid fears of escalating Middle East tensions involving Iran, OPEC’s third-largest producer. Brent crude futures inched up to $90.52 a barrel, while US West Texas Intermediate crude rose to $86.24. Concerns over potential supply disruptions persisted following recent events, with market focus on OPEC’s and the International Energy Agency’s upcoming reports. 
• China’s consumer prices rose less than expected in March, edging up only 0.1% year-on-year, below forecasts of 0.4%. The slowdown, post-Lunar New Year, saw non-food inflation easing, while food prices fell steeper, contributing to a 1.0% monthly CPI decrease. In contrast, China’s producer prices continued their contraction, declining by 2.8% year-on-year in March, marking the 18th consecutive month of decline and highlighting persistent deflationary pressures in the economy. 
• The annual inflation rate in the US rose to 3.5% in March, surpassing forecasts, driven by higher energy costs and transportation expenses, while food and shelter prices remained stable. Despite declines in vehicle prices, the CPI increased by 0.4% monthly. Core inflation remained steady at 3.8% annually, with a matching monthly rate, defying expectations of a slowdown. 
• Minutes from the FOMC meeting in March revealed the Federal Reserve’s cautious stance on reducing the target range until sustained inflation at 2% is assured. Policymakers expressed uncertainty about inflation persistence, maintaining the fed funds rate at 5.25%-5.5%. Despite anticipating three rate cuts in 2024, recent data hasn’t bolstered confidence. 
• Wells Fargo revised its forecast, now expecting two 25 basis points rate cuts in the third and fourth quarters. Wednesday’s CPI data, showing a 0.4% rise in both headline and core CPI, surpassed expectations. Despite inflation acceleration in Q1, Wells Fargo anticipates a gradual decline but suggests the Fed may delay rate cuts amid strong labour market conditions. 
• Goldman Sachs anticipates that corporate profits, supported by healthy economic growth, will primarily drive forward equity returns. They suggest that shares with high operating leverage stand to benefit the most, expecting faster earnings growth and margin expansion. Positive sales growth revisions and ISM Manufacturing Index expansion further bolster the case for these equities. 
• Delta Air Lines reported robust first-quarter earnings, beating Wall Street expectations with adjusted EPS of $0.45 and revenue of $12.6 billion, marking a 6% increase. The company foresees record revenue for the June quarter and maintains a positive outlook for the full year 2024, backed by strong operational performance. 
• Tesco forecasts increased profits for 2024, buoyed by improving consumer sentiment and market share gains. CEO Ken Murphy remains optimistic due to easing food inflation and strong employment levels. Sales rose 7.4%, with Tesco’s premium brand performing well. Cost-saving measures and shareholder returns are also emphasised in the company’s strategy. 
• In March, Taiwan Semiconductor Manufacturing Corp‘s sales surged 34% YoY to an equivalent $6.1 billion, attributing the rise to increased demand from the artificial intelligence sector. This bolstered their first-quarter sales to $18.8 billion, up 16.5% YoY, with Nvidia’s AI-driven demand being a significant contributor. TSMC is expanding its chipmaking facility in Phoenix, Arizona. 
• In the first quarter, Mercedes-Benz reported a 6% decline in sales due to supply bottlenecks in Asia and model changes, with deliveries dropping to 568,400 vehicles. Meanwhile, BMW saw a 1% increase in sales, driven by a notable surge in fully electric vehicle sales. In contrast, Volkswagen recorded a slight rise in deliveries, totalling 2.10 million vehicles, buoyed by growth in China, North, and South America, representing a 3.1% increase year-on-year. 
• Nike is gearing up to unveil new Olympic kits for teams like the US and Kenya, aiming to reassert itself as a top performance gear brand. Amid sluggish sales and competition from brands like Adidas and Lululemon, Nike plans to focus on innovative products and prioritise running shoes. 
• Morgan Stanley upgraded Nvidia‘s price target to $1,000, citing its strengthening business. Despite its robust performance, maintaining significant exposure to AI is advised, with Nvidia as a prime option. Factors include strong demand outpacing supply chain constraints and Nvidia’s product execution and market share gains. 
• Piper Sandler and Jefferies analysts anticipate Tesla‘s 2024 sales to decline following disappointing Q1 delivery numbers. Piper Sandler maintains an Overweight rating but lowers the price target to $205, expecting 1.799 million deliveries. Jefferies cuts full-year delivery forecast to 1.77 million units, with a Hold rating and price target of $165. 
• TD Cowen initiated coverage on MasterCard with a Buy rating and a $545.00 price target. They emphasised MasterCard’s leading position in the $45 trillion global consumer payments market, highlighting its high-growth, high-margin business poised for expansion via Value-Added Services and New Flows, foreseeing sustainable low-teens revenue growth and potential EBIT margin expansion.