The Consumer Price Index (CPI) for January came in hot. Economists expected consumer price inflation to fall below 3% in January for the first time in almost three years. But it increased 0.3% for the month, the Bureau of Labor Statistics reported, and on a 12-month basis, it rose to 3.1%. Excluding volatile items such as food and energy, the core CPI gained 0.4% in January and was up 3.9% from a year ago. The consensus was 2.9% for conventional inflation on a yearly basis, and 0.2% over one month. Core inflation was expected to come in at 3.7% year-on-year and 0.3% month-on-month. The BLS said that rents continued to rise in January, increasing 0.6 percent and contributing over two thirds of the monthly all items increase. The food index increased 0.4 percent in January. However, energy prices fell.

The higher-than-expected reading means that inflation might not be as tamed as previously thought and that the Fed has reasons to remain cautious and keep rates high for longer. A note by Citigroup has been circulating a lot since yesterday. It reminded us that in 1998, the Fed carried out a brief cycle of easing before relaunching rate hikes because inflation had picked up again. Citigroup warned: "The market should incorporate a certain risk of future rate hikes”. After the release of the January CPI, futures on all three Wall Street indexes tumbled, with the Nasdaq down 1.6% as I write these lines. Traders now give a 65% chance that rates will remain unchanged at the Fed meeting in May, compared to about 10% a few days ago. 

There was a slight dip in activity on the stock markets yesterday. US tech stocks suffered their first decline in four sessions, crushing the record highs set on Friday evening by the S&P500 and Nasdaq. But make no mistake: investors remain hooked on the promise of artificial intelligence. To diversify their bets on Nvidia, they first flocked to Super Micro Computer, which continues to climb. This company, initially a simple assembler of electronic gizmos with low margins, has grown in three years from $1.8 billion in capitalization to $41 billion. However, the market's new darling is now ARM Holdings. The British company was floated on the New York Stock Exchange last year to enable its owner, Softbank, to monetize its past acquisition. ARM's technologies can be found everywhere in smartphones, which didn't exactly thrill the market at the time of the IPO. But as soon as ARM stepped up its use of the term "artificial intelligence" in its communications, the reptilian brains of financiers took over. The stock has now tripled six months after going public. It has gone from a capitalization of about $50 billion to $153 billion in just a few months. ARM gained another 29% yesterday. Nonsense, but the FOMO (Fear Of Missing Out) of AI is currently overpowering.

The European indices are a little far from all this craziness, due to a lack of AI companies. But they all made progress yesterday. To the point of staying close to their record highs. The German DAX around 17,000 points and the French CAC40 within reach of 7,700 points, the highest closing level ever.

This morning, it's Tokyo that's creating the buzz after a long weekend. The Nikkei 225 is once again on a roll, surging 3% on the back of the yen's fall and soaring prices for Softbank Group and Tokyo Electron. Softbank owns 90% of ARM Holdings, making it an interesting proxy for the rise of artificial intelligence. Softbank Group now weighs half as much as its subsidiary. Tokyo Electron is Asia's largest manufacturer of semiconductor production machinery. The stock was up 14% this morning on the back of strong results and an excellent outlook. Elsewhere in Asia, many markets are still closed for the Lunar New Year (Shanghai, Hong Kong, Taipei in particular). South Korea, which was closed yesterday like Japan, resumed trading up 1%. India rebounded by 0.5%, while Australia still struggled, down 0.1%.

In addition to US inflation, the market has a few results to get its teeth into today, including Coca-Cola and Biogen. Also worth noting is the incursion of bitcoin at USD 50,000 each. The cryptocurrency fell after the announcement of the first dedicated ETFs. But this was only a temporary setback, as bitcoin posted a 17% rise over the past 5 days. In other news, Donald Trump is asking the Supreme Court to intervene in his request for immunity, to delay proceedings on charges of plotting to overturn the results of the 2020 election.

European leading indicators are bearish this morning, with the Euro Stoxx 50 down 1.2%.

Economic highlights of the day:

British employment figures, the ZEW survey of German financial sentiment, and US CPI are on the agenda. 

The dollar rose after the CPI to EUR 0.9317 and GBP 0.7939. The ounce of gold is worth USD 2014. Oil is stable, with North Sea Brent at USD 82.27 a barrel and US light crude WTI at USD 77.42. The yield on 10-year US debt jumped to 4.3%. Bitcoin is trading at USD 49,980.

In corporate news:

  • Coca-Cola gains 0.1% ahead of the publication of its quarterly results, scheduled before the opening of the New York Stock Exchange.
  • Biogen, which is due to publish its results before the opening, said on Monday that the European Commission had approved its drug for the treatment of a rare genetic disease.
  • Tripadvisor jumped 13.5% before the opening after the online travel agency set up a committee to consider a potential sale of the group.
  • JetBlue Airways advanced 14.5% in pre-market trading after activist investor Carl Icahn said he had taken a 9.91% stake in the airline.
  • ARM Holdings is down 3.1% in pre-market trading on Tuesday after having gained 93% since February 7, when the semiconductor group presented its outlook against a backdrop of frenzy around artificial intelligence (AI).
  • New York Community Bancorp gained 2% in pre-market trading as investors assessed measures taken by the regional bank's management to stabilize the share price.
  • Principal Financial reported a rise in fourth-quarter earnings on Monday, thanks to higher insurance premiums and investment income.
  • Paramount Global gained 1% in pre-market trading after CBS announced that some 123.4 million people had watched the final of the Super Bowl, the American soccer championship, which resulted in the victory of the Kansas City Chiefs over the San Francisco 49ers, making it the most-watched edition of all time.
  • Cadence Design Systems expects a decline in first-quarter sales due to unfavorable base effects.

Analyst recommendations:

  • Cloudflare, Inc.: DZ Bank AG Research downgrades to hold from buy with a price target raised from USD 90 to USD 110.
  • Coinbase Global, Inc.: Cowen drops coverage on the stock.
  • Extra Space Storage Inc.: Morningstar upgrades to buy from hold with a target price of USD 165.
  • Fortinet, Inc.: Daiwa Securities upgrades to outperform from neutral with a target price of USD 75.
  • Genuine Parts Company: Morningstar downgrades to hold from buy with a price target reduced from USD 161 to USD 146.
  • Las Vegas Sands Corp.: Morningstar downgrades to hold from buy with a price target raised from USD 60 to USD 61.
  • Paypal Holdings, Inc.: Daiwa Securities downgrades to neutral from outperform with a target price of USD 62.
  • Philip Morris International, Inc.: Societe Generale downgrades to hold from sell with a price target raised from USD 85.50 to USD 87.50.
  • Trimble, Inc.: Piper Sandler & Co upgrades to overweight from neutral with a price target raised from USD 51 to USD 68.
  • United Airlines Holdings, Inc.: Redburn Atlantic downgrades to neutral from buy with a target price reduced from USD 55 to USD 50.
  • Arista Networks, Inc.: Rosenblatt Securities Inc. maintains its buy recommendation and raises the target price from USD 230 to USD 330. Morningstar maintains its sell recommendation and raises the target price from USD 160 to USD 195. Evercore ISI maintains its outperform rating and raises the target price from USD 240 to USD 300.
  • Cadence Design Systems, Inc.: Wolfe Research maintains its outperform rating and raises the target price from USD 248 to USD 320.
  • Crowdstrike Holdings, Inc.: HSBC maintains its buy recommendation and raises the target price from USD 241 to USD 411.
  • Nvidia Corporation: Mizuho Securities maintains its buy recommendation and raises the target price from USD 625 to USD 825.
  • Palo Alto Networks, Inc.: Jefferies maintains its buy recommendation and raises the target price from USD 350 to USD 450. Stifel maintains its buy recommendation and raises the target price from USD 280 to USD 410.
  • Salesforce.com, Inc.: HSBC maintains its buy recommendation and raises the target price from USD 268 to USD 357.
  • The Home Depot, Inc.: JP Morgan maintains its overweight recommendation and raises the target price from USD 318 to USD 397.
  • Gsk Plc: Citi upgrades to buy from neutral with a price target raised from GBP 17 to GBP 21.
  • International Consolidated Airlines Group, S.a.: Redburn Atlantic downgrades to neutral from buy with a price target reduced from GBX 250 to GBX 175.
  • Londonmetric Property Plc: Numis upgrades to add from hold with a price target raised from GBX 200 to GBX 220.
  • Wizz Air Holdings Plc: Redburn Atlantic downgrades to neutral from buy with a price target reduced from GBX 2900 to GBX 2400.
  • Intercontinental Hotels Group Plc: Stifel maintains its hold recommendation with a price target raised from 5800 to GBX 7300.