Disinflation is the new buzz word

Year-on-year, consumer prices in the USA are now up by just 3%, which is beginning to look like normalization. Even core inflation is more moderate than expected. As the market is not totally delusional, at least not all the time, it has maintained a broadly favorable prognosis for a further rate hike in July – the Fed needs to maintain its credibility – but has reinforced its bet that it could well be the last. There are still a number of caveats to this scenario, but it’s fair to say that the bulls’ plan seems to be going off without a hitch.

With inflation moderating as a result of the Fed’s austere monetary policy (rates have risen from 0 to 5% in just over a year), investors are already betting on the economic recovery that will follow the normalization and subsequent easing of monetary policy.

And today’s producer prices data only added to the sentiment that inflation is behind us. In June producer prices rose 0.1%, well below expectations of 0.4%.

Let’s keep in mind that the equity cycle and the economic cycle are out of sync: investors anticipate better days by positioning themselves in advance, and so the stock market takes off before the economy does. In fact, it has already taken off, in anticipation and thanks to additional internal drivers. A little too much, in fact, in the eyes of some professionals. But let’s just say that the market could find new grounds for progress in a broadening of the sectors likely to recover.

In concrete terms, a series of fairly predictable events took place yesterday in the wake of the release of the US inflation statistics, which I’m going to break down by asset class in simple terms:

Equity indices naturally posted more or less pronounced gains. Europe saw gains often in excess of 1%. In the US, the Nasdaq naturally took the lead, closing up 1.24%. It is now flirting with a 40% gain over the year. Overnight, Hong Kong’s technology index is the hottest performer, which makes sense: it offers the highest beta on the Nasdaq.

Bonds fell and yields underwent their usual tectonic shift: the US 10-year lost almost 20 points to fall back to 3.86%. Again, this is logical, given the possibility that yields will peak.

The dollar came under attack from all sides. The bet against the greenback is very consensual. The Fed’s lead over other Western central banks in the current cycle reinforces this situation. The euro has risen to USD 1.1142. The Dollar Index, which measures the strength of the US currency against a basket of world currencies, has lost 2.5% since the start of the week. The move benefited gold, which recovered more than 1% yesterday to USD 1,960 per ounce.

Oil was also on the rise. Brent crude oil broke back above USD 80 a barrel for the first time since April: the prospect of an economic recovery, albeit a little distant, is supporting prices.

Elsewhere in the news, talks between the USA and China continue, despite the tension between the two countries. This time, Antony Blinken is scheduled to meet Wang Yi at the Asean summit. Still in China, June’s import-export figures are once again depressing. Exports fell by 12.4% (consensus -9.5% at Reuters and -15.3% at Bloomberg, but I don’t know why the gap is so wide), their biggest decline in over three years. On the artificial intelligence front, Elon Musk announced the launch of a new company, xAI.

Wall Street opened in the green as traders welcomed signs of disinflation. The Dow was up 0.3%, the S&P 500 gained 0.5% and the Nasdaq 100 progressed 0.9%.

Economic highlights of the day:

French inflation, European industrial production, US producer prices and weekly jobless claims are on the agenda. The full agenda is here . Earlier today, China announced a sharper-than-expected drop in imports and exports in June.

The dollar is down 0.3% against the euro to EUR 0.8942 and down 0.7% against the pound to GBP 0.7636. The ounce of gold climbed back to 1960 USD. Oil accelerated, with North Sea Brent at USD 80.42 a barrel and US light crude WTI at USD 75.86. The yield on 10-year US debt falls to 3.85%. Bitcoin trades at around 30,200 USD.

In corporate news:

• Pepsico again raised its sales and annual profit forecasts, betting on solid demand for its products as well as price increases.
• Delta Air Lines raised its earnings guidance for 2023 on Thursday, after posting adjusted earnings of $2.68 per share in the second quarter, above the $2.40 average expected by analysts surveyed by Refinitiv. The airline gained 4% in pre-market trading.
• Meta Platforms is about to launch a commercial version of its artificial intelligence model, enabling start-ups and companies to create customized software, reports the Financial Times. The social networking group gained over 1% in pre-market trading.
• Walt Disney’s board of directors extended CEO Robert Iger’s contract for two years, a decision that sent the entertainment group’s stock up 1% in pre-market trading.
• The Federal Trade Commission (FTC), the US competition authority, said on Wednesday it was appealing a federal judge’s decision to allow Microsoft to buy video game publisher Activision Blizzard for $69 billion.
• Tesla has begun talks with the Indian government on an investment project to set up a car plant in India with an annual capacity of up to 500,000 vehicles, according to Times of India.
• Carlyle and Trustar Capital are seeking to partially divest McDonald’s operations in Hong Kong and mainland China, in a deal that would raise $4 billion, Bloomberg reported, citing people familiar with the matter.

Analyst recommendations:

• Activision Blizzard: BNP Paribas Exane downgrades to neutral from outperform. PT up 5.6% to $95.
• American Tower: BMO Capital Markets initiated coverage with a recommendation of outperform. PT up 18% from last price to $230.
• BP Plc: Citigroup remains Buy with price target reduced from 610 to 575 GBp.
• Coinbase: Barclays downgrades to underweight from equal-weight. PT down 19% to $70.
• Computacenter: Citigroup downgrades from Buy to Neutral with a target price of GBp 2350.
• Crown Castle: BMO Capital Markets initiated coverage with a recommendation of underperform. PT set to $113.
• Meta Platforms: Morgan Stanley upgrades to $350 from $300. Maintains overweight rating.
• SBA Communications: BMO Capital Markets initiated coverage with a recommendation of market perform. PT set to $260.
• Schroders: Barclays moves from In-line to Overweight, targeting GBp 530.
• Scotts Miracle-Gro: Stifel downgrades to hold from buy. PT up 0.6% to $72.
• Thermo Fisher: Credit Suisse upgrades to outperform from neutral. PT up 18% to $620.
• Watches of Switzerland: HSBC upgrades to buy from hold. PT up 13% to 770 pence.