Stubborn Inflation: Consumer Prices Come in Higher Than Expected

A mostly graphical daily curated roundup of the markets and the economy from Nasdaq’s IR team.

#marketseverywhere 

Stubborn inflation | Consumer prices +0.3% in Dec, higher than expected, pushing the annual rate to 3.4% (shelter costs, food prices, energy prices rose) -CNBC

Still trending above 2%…some more work left

“Fed will have three more CPI prints, starting today, before the March meeting. So things can still change” -Deutsche Bank

* source: CNBC

| equity markets not liking the paring back of rate cut odds…markets like easy money!

* source: Barclays’ Emmanuel Cau

| Earnings + Buybacks key drivers for market performance in 2024 | Investors Are Looking to Share Buybacks to Keep US Stock Market Afloat -BBG

| Fastest easing of financial conditions in history – a strong tailwind for the Q4 rally…what’s next for the markets?

1) KEY TAKEAWAYS

1) Equities + TYields MIXED / Gold + Dollar + Oil HIGHER

SPX closed less than 1% from its all-time high yesterday

DJ +0.0% S&P500 -0.1% Nasdaq +0.0% R2K -0.6% Cdn TSX -0.2%

Stoxx Europe 600 +0.1% APAC stocks HIGHER, 10YR TYield = 4.032%

Dollar HIGHER, Gold $2,0258, WTI +2%, $73; Brent +2%, $78, Bitcoin $48,950

2) JP Morgan’s Investor Survey…investors are neither bearish or bullish on equities

nothing new here but rate cuts are expected…and if the Fed does not deliver the markets will throw a tantrum

* source: JP Morgan

3) recent rise in yields have hurt global equities

* source: Barclays’ Emmanuel Cau

4) Valuations by Nasdaq Economic Research, Michael Normyle

most sectors are relatively close to their average PE valuation over the last 10 years (chart below, dots near 45-degree line) – except IT (rich) and Energy (cheap)

So these sectors are relatively “fairly valued,” with investors willing to pay roughly the same amount for future earnings as they have over the last 10 years.

* source: Nasdaq Economic Research

“equities (ex-US/Tech) don’t look expensive”

* source: Barclays’ Emmanuel Cau

5) “we’ve seen another big spike as a result of attacks by the Houthi rebels in the Red Sea, which has led to big diversions as container ships go round the Cape of Good Hope instead. As a result, freight costs have doubled from their levels in November and with the latest weekly number out today, are up +85% since December 21st.

..these events serve as a reminder that it can only take one shock to throw the disinflation path off course. Clearly if the current situation is resolved then it could reverse quickly again, but we’ve already seen how geopolitical issues can have big effects on inflation, most notably after Russia’s invasion of Ukraine in 2022.

So the overall supply picture has been looking very good for inflation, and even this spike is relatively small in the big picture since the pandemic, but keep an eye on events in the Red Sea.” -Deutsche Bank, Jim Reid

* source: Deutsche Bank

6) all eyes on earnings…

“Given concerns in the market about a possible economic slowdown or recession, have analysts lowered EPS estimates more than normal for S&P 500 companies for the fourth quarter?

THE ANSWER IS YES. During the fourth quarter, analysts lowered EPS estimates for the quarter by a larger margin than average.” -John Butters, Factset Insight

* source: Factset Insight

7) 2023 = significant dispersion across markets over the last 2 years

* source: Barclays’ Emmanuel Cau

8) Global M&A deal count “has collapsed”

* source: Barclays’ Emmanuel Cau

9) Equities have been overbought? | “At the same time, a flurry of indicators point to overbought conditions in equities such as the low short interest on SPY and QQQ ETFs in Figure 15”

* source: JP Morgan

10) hitting the brakes on monetary tightening | “Recent comments suggest that the FOMC will want to move more carefully as it approaches the stopping point for balance sheet runoff. As a result, we now expect the FOMC to begin tapering the pace of runoff in May.”

* source: Goldman Sachs Global Investment Research

11) THIS WEEK: US CPI / PPI key highlight (Thursday) | Taiwan Prez election

* source: Barclays’ Emmanuel Cau

2) ESG, COMPILED BY NATHAN GREENE

Even BlackRock Funds Buying Oil Stocks Are Banned by Texas ESG Fight – BNN

-Texas bars its public pensions from investing in 350 funds run by asset-management giants such as BlackRock Inc. and Invesco Ltd. because a key Republican state official says they “boycott” the oil and gas industries.

-A Bloomberg News analysis found that the 72 BlackRock funds on the prohibited list have invested more than $2 billion in the oil industry, while an Invesco fund allocates about 20% to oil and natural gas companies, some of which are also Texas-based.

World’s renewable energy capacity grew at record pace in 2023 – Guardian

-The world’s renewable energy grew by 50% last year to 510 gigawatts (GW) in 2023, the 22nd year in a row that renewable capacity additions set a new record, according to figures from the IEA.

-The IEA’s latest report found that solar power accounted for three-quarters of the new renewable energy capacity installed worldwide last year. Most of the world’s new solar power was built in China.

3) MARKETS, MACRO, CORPORATE NEWS

• ALI aims to double business by 2028–MB
• Netflix’s ad tier now has more than 23 million monthly active users–VARIETY
• Shari Redstone launches auction of Paramount Global’s holding company-NYP
• Skydance Media CEO exploring all-cash bid to take control of Paramount-RTRS
• OpenAI in talks with CNN, Fox and Time to license content-BBG
• HPE CEO expects no China challenge $14 billion Juniper Networks deal-RTRS
• Volkswagen CFO touts EV flexibility as Tesla closes in on Audi-BBG
• Citadel Securities is only global bidder for Credit Suisse China–BBG

Oil/Energy Headlines: 1) Asia demand for Saudi oil holds steady despite price cuts-RTRS 2) OPEC+ crude production rises in December ahead of Q1 quota drops: Platts survey-Platts 3) Russia’s oil and gas budget revenue down 24% in 2023-RTRS 4) Norway’s oil and gas companies to step up exploration this year-BBG 5) Ecuador says oil, mining, energy sectors operating normally despite violence-RTRS6) Chesapeake to buy Southwestern Energy in $7.4 billion deal-RTRS