Stocks Advanced On Moderating Inflation Hopes

Barry Adams
13 Feb, 2023
New York City

Stocks closed higher after two days of lackluster performance and investors took opposite bets on the key inflation report scheduled tomorrow. 

The Consumer Price Index is expected to ease to 0.45% in January from the previous month, translating to an increase of 6.3% from a year ago. 

But investors are worried that the stubborn food prices and rebound in gasoline prices may stoke inflation. 

Retail inflation has been cooling after peaking at 9% i.1n June 2022 and has steadily dropped to 6.4% in December. 

Despite the eight rate increases, inflation is still hovering above 6% and showing no sign of cooling. 

The goods price increases have cooled in the last five months but service sector inflation has held steady. 

The S&P 500 index increased 1.1% to 4,137.29 and the Nasdaq Composite index advanced 1.5% to 11,891.79. 

Crude oil decreased 60 cents to $79.11 a barrel and natural gas futures fell 8 cents to $2.42 a thermal unit. 

The yield on 2-year Treasury notes edged higher to 4.52%, 10-year Treasury notes to 3.70% and 30-year Treasury bonds to 3.78%. 

 

U.S. Movers 

Avis Budget Group Inc increased 1.8% to $218.82 ahead of the company's quarterly results after the close of regular trading hours.  

Revenue in the fourth quarter increased 8% to $2.77 billion and net income rose 11% to $424 million from $383 million or diluted earnings per share rose to $10.10 from $6.63 a year ago. 

"Our fourth quarter demand was strong with our commercial business performing well above 2019 levels, and the leisure segment continuing its strong  performance, especially over the holiday period. 

These trends have continued into the first quarter,” said Joe Ferraro, Avis Budget Group Chief  Executive Officer.

Cadence Design Systems Inc increased 0.7% ahead of its quarterly earnings release after the close of regular trading hours.

Fourth quarter revenue increased 16.4% to $899.8 million from $773 million. 

Net income in the quarter increased to $240.4 million from $176.5 million and diluted earnings per share rose to 88 cents from 66 cents a year ago. 

In the third quarter, the chip design software maker reported revenue of $902 million and net income of $186 million or diluted earnings per share of 69 cents. 

For the first quarter of 2023, the company expects total revenue in the range of $1.00 billion to $1.02 billion. 

First quarter operating margin is expected to be in the range of 31% percent to 32% and net income per diluted share is expected to be in the range of $0.84 to $0.88.

 

European Commission Lifts 2023 Euro Area Growth Estimate 

European markets closed higher as investors weighed risks of economic slowdown and interest rate hike amounts. 

The U.S. consumer price index is scheduled to be released on Tuesday and economists are estimating the measure of inflation for January to to hold steady from the previous month. 

The European Commission also revised higher its assessment of economic growth in 2023 by 0.6 percentage point to 0.9%. 

The commission revised its growth estimate following the weakening of natural prices below the pre-war level and the labor market has held up despite the adverse conditions.  

The commission also revised lower its inflation projections for 2023 to 5.6% and 2024 to 2.5%, decelerating from 8.4% in 2022. 

The commission also revised higher its economic growth estimate to 0.8% for the European Union. 

 

European Markets Closed Higher 

The DAX index increased 0.6% to 15,397.34, the CAC-40 index rose 1.1% to 7,208.59 and the FTSE 100 index closed up 0.8% to 7,947.60.

The euro inched up to $1.07, the British pound closed up 1.21% and the Swiss franc closed unchanged at 91.97 U.S cents. 

Brent crude fell 68 cents to $85.70 a barrel and the Dutch TTF natural gas fell 4% to Є51.71 per MWh. 

The yield on 10-year German Bunds increased to 2.36%, French bonds increased to 2.81%, the UK Gilts to 3.4% and Italian bonds to 4.14%. 

 

Europe Movers 

French automaker Renault SA increased 1.4% to €41.54 after the company and its Japanese partner Nissan Motor plan to invest $600 million in India and to manufacture six models including two electric vehicles. 

Lok'nStore Group decreased 3.5% to 929.0 pence despite the UK-based self-storage company saying revenue in the first-half increased 10.3%. 

The company said operating costs and construction costs are also increasing at a faster pace and added these increases are expected to "return to a more normalized level in due course."

Brickability Group jumped 8.9% to 74.80 pence after the UK construction company confirmed that current year profits are likely to surpass market expectations. 

The company revised higher its estimate of adjusted EBITDA profit to at least £47 million, ahead of market expectation of £44.7 million. 

Homebuilders fell in London trading after Deutsche Bank lowered its rating on leading companies in the sector. 

Barratt Developments PLC declined 1.3% to 463.09 pence and Taylor Wimpey plc decreased 2.8% to 118.25 pence. 

Castellum AB declined 5.7% to SEK 138.35 after the company confirmed its plan to complete its rights offering plan to raise SEK 10 billion.  

 

Japan Awaits BoJ Governor Nomination and GDP Data

Asian markets closed lower on the worries of inflation and ahead of the U.S. inflation report on Tuesday. 

The U.S. dollar traded at one-month high and the Japanese yen sank nearly 1% ahead of the formal announcement of the next Bank of Japan Governor nominee on Tuesday. 

Kazuo Ueda, former BoJ policy board member and academic, is set to be nominated for the role by Prime Minister Fumio Kishida.  

The Nikkei 225 index decreased 0.9% to 27,427.32 and the yen weakened to 132.40 against the U.S. dollar.

 

China Bank Loans Rebound Lifts Hopes of Faster Recovery  

Markets in China advanced bucking the trend in regional trading after new bank loans jumped more than expected in January, according to the latest data from Bank of China. 

New loans issued by banks increased to 4.9 trillion yuan in January from 1.4 trillion yuan in December. 

M2 broad money supply expanded 12.6% from a year ago in January, faster than the 11.8% increase in December.

The Shanghai Composite Index  increased 0.7% to 3,284.16 and the Hang Seng index fell 0.1%. 

 

India's Inflation Accelerated In January 

Markets in India continued to drift lower after crude oil prices rebounded and inflation worry resurfaced. After, the close,  

The Sensex index declined 0.4% or 250.86 points to 60,431.84 and the Nifty index declined 0.5% to 17,770.90. 

The Indian rupee edged lower to 82.59 against the dollar after the consumer price index accelerated in January from December. 

The Consumer Price Index increased to 6.5% in January from 5.7% in December, the statistical office said Monday. 

The latest inflation data crossed the upper limit set by the Reserve Bank of India and last week the Reserve Bank of India increased its key lending rates by a smaller 25 basis points after inflation drifted below the upper limit in December. 

Food prices increased at a faster pace of 5.9% from 4.2% in December.

Retail inflation in January rose 0.46% from the previous month. 

India's Wholesale price inflation data is scheduled to be released on Tuesday.