Stocks across Europe edged higher though the FTSE 100 was left behind as it shed around 30pts in early trading. European PMIs this morning – France manufacturing back into expansion, services dips deeper into contraction territory. Germany’s manufacturing PMI slipped further into contraction at 47.0 vs 48.0 expected, while services improved to 50.4 from 49.2 previously. So, a mixed bag – some good news, some worse. German consumer confidence improved a bit as energy costs eased.
The euro pulled back further from a multi-month high at $1.09265 struck in yesterday’s session as the PMI data emerged, dipping to the 50-hour moving average at $1.0867. UK and US PMI figures later today.
ECB president Christine Lagarde is sticking to her guns. Speaking yesterday she reiterated that ECB interest rates will have to rise “significantly at a steady pace to reach levels that are sufficiently restrictive, and stay at those levels for as long as necessary… In other words, we will stay the course to ensure the timely return of inflation to our target”.
Across the pond, the gap between the market and Fed right now is huge. The market thinks there will be a soft landing, inflation cools rapidly and the Fed switches to cutting rates. Bulls think the Fed will pivot soon – but pricing 75bps of cuts this year implies an incredibly severe downturn in the US economy. Yes, inflation is coming down, but it’s still significantly elevated, and the hikes are now showing up in the real economy. The 2-year yield is down about 60bps in the last couple of months as markets trim expectations for how far the Fed might go and, more importantly, raise expectations for cuts later in the year. I’ve even read ‘one and done’, referring to a single, final 25bps hike in February.
Wall Street rallied with the S&P 500 up more than 1 per cent, and the Nasdaq composite climbing 2 per cent. Garbage is leading the rally – Wayfair (US: W) double upgrade from JPM sending the stock up 26 per cent, now +81 per cent YTD. Peloton (US: PTON) +43 per cent, Zoom (US: ZOOM) +7 per cent, Roku (US: ROKU) +37 per cent. Garbage collector ARKK is +25 per cent YTD – all on the market betting that the Fed will slow earlier and turn to cutting this year. Higher inflation and recession will not prevent market rallies on hopes the Fed is done hiking.
There is also good and bad news from Associated British Foods (ABF); a dramatic change in CEO and board members at Capricorn Energy (CNE) and a profit warning from Henry Boot (BOOT). Read more here
Updates from Marston’s (MARS), M&C Saatchi (SAA), Senior (SNR) and Mailbox. Click here to find out what’s going on.
Consumers in the US are maxing out debt and saving less than ever. I think we see that the consumer is going to be able to wear higher prices a lot less easily. Whilst inflation will prove to be sticky, we are starting to now pivot into a slightly different regime.
Neil Wilson is the Chief Market Analyst at Finalto
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