Morning Wrap: US inflation cools, Disney’s brewing activist battle, ASX to bounce

The good news is that inflation is cooling - with both key measures continuing to head in the right direction. The even better news is that some central bankers believe it's time to make a further step down to small rate hikes. But will it come true on February 1st? Meanwhile, investor attention turns to corporate earnings as US quarterly reporting season begins in earnest.

Let's go.

MARKETS

• 69% of US stocks advanced, 58% above 200-day moving average

• European equities all rose overnight, with the FTSE 100 up 0.9%

• Treasury yields slump, 2-year yield falls nine basis points to 4.14%

• US Dollar Index drops 0.9% to 102.26

• Gold and silver prices rose by more than one percent overnight

STOCKS

American Airlines (AA) shares gained 5% after lifting its earnings guidance, citing strong demand and high fares. American’s revenue forecast rose as much as 17% over 2019, up from a previous 11% to 13% increase.

Disney (DIS) shares finished up more than 3% after the company’s board opposed activist investor Nelson Peltz’s attempt to join the board as the two sides prepare for a proxy battle.

Bed Bath & Beyond (BBBY) shares surged another 54%, in addition to the near-69% surge in the previous session.

Logitech (LOGN) shares plummeted 16% after it missed earnings expectations for the recent quarter and slashed its sales outlook.

WORLD NEWS

Fed President Backs Slowdown as Support Mounts for Smaller Rate Move (NY Times)

Special counsel to probe Biden's handling of government documents (Reuters)

China’s iron ore plan to shape up market and lower volatility (The Australian)

Bankman-Fried Says He ‘Didn’t Stash Billions,’ Denies Theft (Bloomberg)

ECONOMY

Stocks climbed while yields and the US dollar fell after the latest CPI print added to expectations the Federal Reserve may have leeway to scale back the size of its interest rate hikes.

Inflation slowed for the sixth straight month on the headline figure, exactly in line with economists’ expectations. The year-on-year figure came in at 6.5%. Stripping out the volatile food and energy parts of the basket, inflation came in at 5.7%.

Source: WSJ, US Bureau of Labor Statistics

The one potential chink in this report may be the increasing divergence between goods and services inflation. While goods inflation continues to come down significantly, services inflation continues to climb. The latter’s rise can be attributed to continued wage gains in the labour market, hence why the Federal Reserve remains so worried about worker earnings.

Source: WSJ, US Bureau of Labor Statistics

Off the back of this report, two Fed speakers have already hinted their interest at stepping down to 25 basis points hikes. First, Pat Harker of Philadelphia:

We will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed…hikes of 25 bps will be appropriate going forward.

Then, Boston’s Susan Collins:

I think 25 or 50 would be reasonable; I’d lean at this stage to 25, but it’s very data-dependent.

QUICK BITES

Speaking of Federal Reserve speak, JPMorgan has released its hawk-to-dove spectrum for the next calendar year. It’s the decisions of this group that will inform a large part of where the global economy (and asset prices) go. It’s also the decisions of this group that professional investors spend part of their careers trying to decode.

Source: JPMorgan, Chris Weston (Pepperstone)

Reported by Chris Conway at Livewire Markets.

The Aussie market continued its hot streak yesterday, rising 85 points (+1.2%) to a 5-week high. All 11 sectors rose, with BHP Group (BHP) hitting another record high. From a technical perspective, today’s session will make for very interesting reading. We have bullish leads from Wall Street overnight after inflation Stateside pulled back, in line with market expectations.

Theoretically, our market should trade higher today. But the bulls are facing resistance (minor swing high from May last year). It’s also Friday (often profit-taking day) and the market has been on a tear.

Do the bulls maintain the rage and power this market into 7400, or do they take some money off the table causing an early rally to fade? Although only one session, today’s action will provide an interesting insight into just how bullish (or otherwise) the bulls really are at the moment.

ASX 200: Can the bulls power the index to 7400?

US stocks finished higher overnight, overcoming some early wobbles following the pre-market release of the latest CPI data. The index closed not far off the session highs seen around lunchtime.

S&P 500: Wobbly session but ultimately another winning one

Sectors to watch

• In the US overnight airlines, oil services, entertainment, multis, media, REITs, semis, and banks outperformed. Beverages, biotech, MedTech, food, utilities, HPCs, and restaurants were among the laggards.

• Gold stocks could be in for a good day after the gold price rallied in the US overnight. The precious metal ended at its highest level since April, adding US$19.90 (+1.1%) to settle at $1898.80 an ounce. Gold was buoyed by the CPI data and expectations of a slowdown in rate hikes from the Fed.

• The US dollar index was down 0.9% overnight, again on the CPI data. Could provide a tailwind for Australian companies with higher USD earnings today.

• Oil stocks could continue to bounce back. WTI crude ended up 1.3% overnight after rallying 3% in the prior session. WTI crude is up nearly 6.5% for the week.

ASX corporate actions occurring today:

• Trading ex-div: None

• Dividends paid: None

• Listings: Gold Hydrogen Limited, @ 11am, Patagonia Lithium @ 12pm

Economic calendar:

• UK – GDP m/m

• US – University of Michigan Consumer Sentiment and Inflation Expectations

We hope you have a great weekend. Chris and I will be back next week to do it all again.