Weaker Inflation Reports and Earnings Optimism Power Market Rally

Barry Adams
13 Apr, 2023
New York City

Rate optimism ruled on Wall Street after the second inflation report confirmed waning inflation pressures. 

The wholesale inflation index cooled more than expected in March, a second inflation report confirming the slowing inflation trend. 

The measure of wholesale prices eased in March largely because of a significant decline in volatile energy prices and higher base effect. 

The second inflation report in as many days confirmed that the inflation path is downward but price increase is slowing but still faster than preferred by the Federal Reserve. 

Moreover, real interest rates are still negative and not restrictive and labor market conditions are still tight, supporting the case for higher interest rates. 

Despite the cooling of inflation, policymakers are likely to lift rates higher by 25 basis points in early May, because stubborn inflation pressures are well anchored in the economy. 

Stocks also advanced on the hopes that JP Morgan Chase, Wells Fargo, Citigroup and Bank of America may report stronger-than-expected quarterly results. 

Airlines scaled higher after Delta Air reported record advanced booking for summer travel. 

Fastenal Co, the distributor of industrial fasteners to leading construction and manufacturing sites, reported stable costs and sustained demand from customers led to higher-than-expected first quarter earnings. 

Fastenal's earnings may signal industrial and construction activities may be in better conditions than previously anticipated. 

 

March Wholesale Price Index Eased 

The producer price index in March fell 0.5% from the previous month, the U.S. Bureau of Labor Statistics reported Thursday. Core wholesale prices paid by companies decreased 0.1% on a monthly basis after rising 0.2% in February. 

Wholesale prices rose 2.7% on an annual basis in March and core prices, excluding food and energy, increased 3.4%. 

Lower cost of energy and higher base also impacted the overall inflation reading. Two-thirds of the decline can be attributable to 1.0% decrease in final demand for goods, namely gasoline or energy materials. 

 

U.S. Indexes & Yields 

The S&P 500 index increased 1.3% to 4,147.87 and the Nasdaq Composite index added 2.063% to 12,171.31. 

The yield on 2-year Treasury notes decreased to 3.93%, 10-year Treasury notes declined to 3.39% and 30-year Treasury bonds to 3.63%. 

Crude oil fell 89 cents to $82.36 a barrel and natural gas futures for immediate month delivery fell 6 cents to $2.01 a thermal unit. 

 

U.S. Stock Movers 

Delta Air Lines, Inc increased 0..2% to $33.87 after the company forecasted June quarter earnings per share between $2.0 and $2.25 and full-year earnings per share between $5.0 and $6.0 and free cash flow of $2.0 billion.  

"With record advance bookings for the summer, we expect June quarter revenue to be 15% to 17% higher on capacity growth of 17% year over year," said Glen Hauenstein, Delta's president.

Delta said March quarter operating revenue rose 36% to $12.8 billion and net loss shrank 61% to $363 million from $940 million and diluted loss per share fell to 57 cents from $1.48 a year ago. 

Delta's strong summer booking lifted United Airlines Holdings by 1.4% and American Airlines Group by 0.6%.   

Infosys Ltd declined 8.2% to %15.69 after the India-based global tech services provider reported weaker-than-expected quarterly results. 

Revenue in the March quarter increased 6.4% to $4.6 billion and net income declined to $744 million from $752 million and diluted earnings per share held at 18 cents. 

For the fiscal year 2023, revenue increased 11.7% to $18.2 billion and net income was stable at $2.9 billion and diluted earnings per share was 71 cents compared to 70 cents a year ago. 

The company guided fiscal year 2024 revenue to rise between 4% and 7% in constant currency and operating margin between 20% and 22%. 

 

Record High French Index, German Index Extended 2023 Gain 

European market indexes traded at one-month high as investors looked beyond the recent banking crisis and scaled new peaks in Germany and France. 

The German benchmark index traded above 15,700 and extended this year's gain to 11.7% and the French index traded at a new high and extended 2023's gain to 13.3%. 

Investors have been bidding up stocks after months of inflation and economic slowdown worries. The elevated inflation and economic slowdown are not preventing large corporations from reporting rising sales and profits. 

LVMH, the largest luxury products maker in the world reported a surge in first quarter sales and the British grocery store Tesco forecasted flat profit in the new fiscal year. 

 

German Inflation In March Weakened but Stayed Elevated 

German inflation rate weakened in March but stayed elevated, the latest data from Destatis showed Thursday. 

Consumer price index in March rose at a slower annual pace of 7.4%, after rising at 8.4% in February and January. 

On a monthly basis, the inflation index rose 0.8%. 

On a harmonized basis, the inflation index increased 7.8% from a year ago and 1.1% from the previous month. 

"The inflation rate has weakened, but remains at a high level," says Ruth Brand, President of the Federal Statistical Office. 

Food price increase accelerated to 22.3% in March, following 21.8% in February and 20.2% in January. 

Inflation in March excluding energy prices was 7.8% and excluding food and energy prices was 5.8%. 

 

UK Economy Stagnates After Strikes Dip Service Output 

The UK economy stagnated in February and January's growth was upwardly revised to 0.4%, the Office for National Statistics reported Thursday. 

Growth in January was revised up from the previous estimate of 0.3% increase. 

GDP increased 0.1%% in the three months to February and ahead by 0.3% to the pre-coronavirus levels. 

Industrial production declined 0.2% in February after falling 0.5% in January but services output fell 0.1% following strikes in education and public sector following the rise of 0.7% in January respectively.  

On a yearly basis, GDP accelerated 0.5% in February after rising at 0.4% in January. 

 

Europe Indexes & Yields 

The DAX index increased 25.86 points to 15,729.46, the CAC-40 index added 1.1% to 7,480.83 and the FTSE 100 index gained 18.54 points to 7,843.38. 

The yield on 10-year German Bunds held at 2.36%, French bonds at 2.88%, the UK gilts at 3.57% and Italian bonds at 4.22%. 

The euro inched higher to $1.10, the British pound edged higher to $1.25 and the Swiss franc edged up to 89.08 cents. 

Brent crude oil fell $1.06 to $86.28 a barrel and the Dutch TTF natural gas fell 38 cents to Є42.49 per MWh. 

 

Europe Movers 

Oxford Instruments Plc increased 3.9% to 2,540.0 pence after the maker of advanced technology products for industrial companies said sales are ahead of expectations in the current fiscal year.  

LVMH Moet Hennessy Louis Vuitton SE increased 4.4% to €873.30 after the luxury products maker said first quarter sales increased 17% from a year ago partly driven by the surge in China demand and the rebound in international travel. 

Imperial Brands Plc decreased 1.4% to 1,851.50 pence after the cigarette maker forecasted a decline in first-half revenue following its exit from Russia.  

Tesco Plc increased 1.7% to 272.0 pence after the UK-based grocer reported a rise in annual sales. The company also forecasted flat profit in the new fiscal year. 

Revenue in the fiscal year 2023 ending in February rose to £65.8 billion from £61.3 billion and after-tax net income declined to £744 million from £1.48 billion and diluted earnings per share fell to 10.08 pence from 19.64 pence a year ago. 

"We expect to be able to deliver a broadly flat level of retail adjusted operating profit in 2023-24 and retail free cash flow  within our target range of £1.4 billion to £1.8 billion," said the company in the earnings statement released Thursday.