By Swissquote Analysts
Inflation Eased Slightly in April, According to Fed’s Preferred Measure
Topic of the day
Inflation decelerated slightly in April, measured by the Federal Reserve’s preferred gauge, though it remained near its fastest pace since 1982. Consumer prices rose 6.3% in April from a year earlier, down from 6.6% in March, as measured by the Commerce Department’s personal-consumption expenditures price index, which it reported Friday. The March rise was the fastest since January 1982. April’s reading was the first time the measure eased since late 2020. The so-called core PCE index—which excludes volatile food and energy prices—increased 4.9% in April from a year ago, down from 5.2% in the year through March. On a monthly basis, core prices rose a seasonally adjusted 0.3%, the same as in February and March. That pace marked a moderate slowdown from the average monthly pace for the previous four months. While the Fed is more focused on the PCE price index, the public and many investors are more aware of the consumer-price index published by the Labor Department, which rose at an 8.3% annual pace in April—2 percentage points higher than the PCE price index. The CPI usually runs hotter than the PCE index due to differences in how the measures are constructed. However, that gap is its largest since 1981, when inflation was retreating from double-digit highs as tight monetary policy plunged the U.S. economy into a deep recession. Nevertheless, the Federal Reserve is likely to continue lifting interest rates. Meanwhile, Covid-19 lockdowns in China and the war in Ukraine have exacerbated supply-chain snarls.
On Friday, the SMI gained 1.4 per cent to 11,647 points. Among the 20 SMI stocks, there were 17 gainers and 2 losers, with Zurich Insurance closing unchanged. 38.59 (previous day: 30.41) million shares were traded. By far the biggest daily gainers in the SMI were Richemont (+9.5%), which thus significantly accelerated its recovery after the price slide in the previous week in reaction to disappointing business figures and almost reached the starting level again. In addition, cyclical stocks found themselves in the top group as stagflation fears eased with interest rate expectations. Lonza gained 4.6 per cent and Sika 4.7 per cent. Pharmaceutical heavyweights Novartis (-0.8%) and Roche (-1.0%), considered less cyclical and defensive, ranked at the bottom. In the second tier, Rieter shares closed minimally higher, although the industrial holding company issued a profit warning. The company is talking about a challenging first half of 2022 despite an exceptionally high order book. Rieter expects higher sales in the first half, but anticipates a loss in earnings due to bottlenecks in the supply chains, the consequences of the lockdown in China and significantly higher costs.
Most European benchmarks pushed higher Friday on improved risk sentiment after Wall Street's rally and following some encouraging U.S. earnings. London's FTSE 100 lagged, however, as utility and oil companies were under pressure after U.K. Treasury Chief Rishi Sunak Thursday outlined a windfall tax on oil-and-gas producers to ease a cost-of-living crisis.The Stoxx Europe 600 index ended up 1.4% at 443.9 points. In Paris, the CAC 40 and the SBF 120 gained 1.6% each. In Frankfurt, the DAX 40 rose by 1.6%, while in London the FTSE 100 gained 0.3%. For the week as a whole, the Stoxx Europe 600 rose by 3%. Maisons du Monde lost 26.9% after lowering its 2022 targets due to inflationary disruptions and developments in the Covid-19 pandemic in China. Luxury stocks were in demand: LVMH gained 3.9%, Kering 4.6%, Hermes International 4.5% and L'Oréal 4.2%. Unibail-Rodamco-Westfield fell 2.9%. Goldman Sachs lowered its recommendation on the shopping centre operator from "buy" to "neutral", with a target price of €66 instead of €87. In its wake, Klépierre fell 2.9%. JCDecaux (-0.7%) suffered a recommendation downgrade from JPMorgan, reducing its target price to €16.60 from €22.70. Spirits groups Pernod Ricard and Rémy Cointreau gained 2.9% and 3%, respectively. Bernstein upgraded its recommendation on Pernod Ricard from "neutral" to "outperform". For Rémy Cointreau, the financial intermediary upgraded its recommendation from "underperform" to "neutral".
The S&P 500 raced higher Friday, notching its best week of the year and snapping a punishing losing streak that had almost ended its bull market. A slew of earnings results and economic data has boosted optimism among investors in recent sessions, helping pull major indexes away from their lows of the year. A broad-based rally, with all 11 of the S&P 500’s groups rising, helped the index break a seven-week losing streak. All three major indexes jumped at least 6% this week, which hasn’t happened since November 2020. The S&P 500 gained 100.40 points, or 2.5%, to close Friday at 4158.24. The Dow Jones Industrial Average added 575.77 points, or 1.8%, to 33212.96. The tech-heavy Nasdaq added 390.48 points, or 3.3%, to 12131.13. Meme stocks such as GameStop and AMC Entertainment Holdings have rocketed higher, adding 43% and 20%, respectively, this week. Shares of Dell Technologies jumped Friday 13% after reporting a rise in profit and a decline in some operating expenses. Though shares of retailers have impressed investors this week, other companies have conveyed a gloomier outlook. Snap executives issued a profit warning on Monday, saying that it planned to slow hiring and spending. The company’s shares have plunged 33% this week. Shares of human resources cloud-software company Workday dropped 5.6% Friday after it reported first-quarter adjusted earnings that came up short of expectations. Clothing retailer Gap (+4.2%) reported a higher-than-expected loss and a sharp decline in sales for its fiscal first quarter.
In Asia, major indexes broadly closed with gains on Monday. The Shanghai stock market rose by 0.3 per cent and Hong Kong by 1.9 per cent. In Tokyo, the Nikkei index climbed 2.0 per cent to 27,326 points, and in Seoul the Kospi increased by 1.3 per cent. Among the individual stocks, JGC Holdings in Tokyo advanced 3.2 per cent after the mechanical engineering company secured a major order from oil giant Saudi Aramco.
U.S. treasury yields were little changed in an abbreviated trading day on Friday as traders headed into the Memorial Day weekend and after the latest U.S. inflation report failed to settle the debate over whether price pressures are near their peak. The 10-year Treasury note was yielding at 2.745%, down 1 basis point while the two-year yield also declined by one basis point.
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