US March consumer prices gained 0.4% instead of 0.3% expected on a monthly basis, and advanced by 3.5% instead of 3.4% expected an an annual basis. The core annual CPI rate was expected to have lost a tenth of a percentage point to 3.7% last month on an annual basis, but it stood at 3.8%. On a monthly basis, the Cope CPI rose 0.4% instead of 0.3% expected.

Wall Street indices tumbled after the announcement, with Future Nasdaq dropping from just under zero to -1.5% in the space of a few minutes. Futures on the S&P 500 and the Dow Jones are down 1.2% and 1.1% as I write these lines.

Fed swaps are now only pricing 50 basis points of easing in 2024, which means only two rate cuts this year instead of three. A rate cut in June now seems unlikely. Treasury yields jumped after the reading.

The configuration that everyone hopes to avoid would be for the Fed to explicitly announce that rates cannot come down this year, or worse, that they could go back up. For now, the doomsayers' scenario is unlikely to happen. But if it were to gain weight, it would undoubtedly be because of inflation. And why would inflation rise? Because the US economy is managing to function despite high interest rates, there isn't that much debt-related breakage, and the job market isn't really weakening.

What has changed over the last few weeks, and has prompted investors to give up on seeing rates fall at high speed this year, is that the reduction in inflation has stalled compared with 2023. In the US, year-on-year price inflation fell from 9% in July 2022 to 3.2% in February. This is (much) better, but still insufficient to meet the Fed's objective of bringing this variation down to around 2%. Keeping rates high is supposed to be the best monetary tool for bending inflation, but the central bank is having trouble getting it below 3%.

Meanwhile, investors are awaiting the arrival of the first quarterly results with a certain degree of calm. They kept a wait-and-see attitude since the start of the week, with corporate news becoming increasingly muted. This can also be explained by the quiet period preceding quarterly earnings, during which listed companies generally refrain from publishing important information, reserving it for their earnings releases. The S&P500 and Nasdaq 100 regained a little ground yesterday, while the Dow Jones lost 0.02% after surrendering 0.03% the previous day.

In China, authorities aren’t happy because Fitch has downgraded the country’s sovereign rating outlook from stable to negative. The country remains rated "A+". However, the Chinese stock markets don't seem to be alarmed this morning. In Europe, investors are preparing for tomorrow's ECB rate decision. Rates are likely to remain unchanged, but the central bank could pave the way for a rate cut in June. Unlike the Fed, the ECB can rely on the continued decline in inflation in the eurozone. If the gap between the two central banks is confirmed, there will be arbitrages in financial flows between the two sides of the Atlantic. Indeed, large US bond funds have already begun to take this into account by returning to Europe in anticipation of a monetary policy differential. We'll probably be talking more about this in the weeks to come.

In Asia-Pacific, things were going in all directions. The Nikkei 225 lost 0.5% in Japan at the close, while Hong Kong soared by 1.8%. Korea's Kospi is down 0.4%, while India's Sensex is up 0.4%, and Sydney's ASX200 gained 0.3%. European leading indicators are down after the release of US inflation data.

Economic highlights:

The Consumer Price Index, Wholesale Inventories and DOE Crude Inventories are on the agenda today. 

The dollar is worth EUR 0.9207 and GBP 0.7876. The ounce of gold is firm at USD 2,347. Oil remains high, with North Sea Brent at USD 89.50 a barrel and US light crude WTI at USD 85.24. The yield on 10-year US debt fell to 4.35%. Bitcoin is trading at USD 69,000.

In corporate news:

  • TSMC reported a 16.5% rise in first-quarter sales on Wednesday, ahead of consensus, thanks to demand for artificial intelligence. The stock gained 1.4% in pre-market trading.
  • Apple has had its subcontractors assemble $14 billion worth of iPhones in India in fiscal 2024, or around one in seven units, Bloomberg reported on Wednesday, citing sources close to the matter. The American group is increasingly seeking to diversify its supply chain beyond China amid geopolitical tensions.
  • Alphabet, Microsoft, Apple - Alternative web browsers such as DuckDuckGo, Opera, Vivaldi and Ecosia, used in the European Union, recorded an increase in the number of users in the first month after the Digital Markets Act (DMA) came into force, according to data provided to Reuters by six companies. The DMA forces the Internet giants to facilitate the adoption of products from their smaller competitors.
  • NetEase and Microsoft announced on Wednesday their intention to relaunch in China this summer some of Activision Blizzard's popular video game titles, such as "World of Warcraft", whose nearly 15-year licensing contract with the Chinese group was not renewed two years ago, before the publisher was acquired by Microsoft.
  • Ford will recall 42,652 Bronco Sport and Escape vehicles in the U.S. due to cracked fuel injectors that can cause leaks and even fire, the National Highway Traffic Safety Administration (NHTSA) announced Wednesday.

Analyst recommendations:

  • Eqt Corporation: Bernstein upgrades to market perform from underperform with a price target raised from USD 27 to USD 34.
  • International Flavors & Fragrances Inc.: Citi upgrades to buy from neutral with a price target raised from USD 81 to USD 100.
  • Udr Inc.: Piper Sandler & Co upgrades to neutral from underweight with a price target raised from USD 34 to USD 40.
  • Boeing: Morgan Stanley maintains its market weight recommendation and reduces the target price from USD 235 to USD 180.
  • Discover Financial Services: Wells Fargo maintains its equalweight recommendation and raises the target price from USD 105 to USD 135.
  • Linde Plc: Citi downgrades to neutral from buy with a price target raised from USD 475 to USD 500.
  • Eqt Corporation: Bernstein upgrades to market perform from underperform with a price target raised from USD 27 to USD 34.
  • International Flavors & Fragrances Inc.: Citi upgrades to buy from neutral with a price target raised from USD 81 to USD 100.
  • Martin Marietta Materials, Inc.: Loop Capital Markets maintains its buy recommendation and raises the target price from USD 585 to USD 710.
  • Nvidia Corporation: Morgan Stanley maintains its overweight rating and raises the target price from USD 795 to USD 1000.
  • Spotify Technology S.a.: Barclays maintains its overweight recommendation and raises the target price from USD 270 to USD 335.
  • Western Digital Corporation: Wells Fargo maintains its overweight recommendation and raises the target price from USD 72 to USD 95.
  • Cbre Group, Inc.: Jefferies initiates a Hold recommendation with a target price of USD 107.
  • Solventum Corporation: Morgan Stanley initiates an Equal Weight recommendation with a target price of USD 70.
  • AO World Plc: Shore Capital upgrades to buy from hold with a target price of GBX 120.
  • Aviva Plc: AlphaValue/Baader Europe downgrades to reduce from add with a price target reduced from GBX 528 to GBX 519.
  • Impax Asset Management Group Plc: Investec upgrades to buy from hold with a price target reduced from GBX 500 to GBX 491.
  • Shell Plc: BNP Paribas Exane upgrades to outperform from neutral with a price target raised from GBX 2900 to GBX 3250.
  • Wizz Air Holdings Plc: AlphaValue/Baader Europe downgrades to reduce from add with a price target raised from GBX 2425 to GBX 2431.
  • Barclays Plc: Redburn Atlantic maintains its neutral recommendation with a price target raised from GBX 165 to GBX 200.