Nasdaq enters bull market after US CPI drop

All US indices surged after better-than-expected CPI inflation data, with both headline and core inflation below estimates. This helped spur bets the Fed would take a less aggressive stance as inflation might be peaking.

S&P and DJIA surged 2.10% and 1.60% to a May 5th high, while Nasdaq soared 2.90%, taking it up 20% from its lows and into a technical bull market. The move is set to continue on the back of easing recession concerns that started to soothe after last week’s NFP.

Key factors for today

● CPI inflation calms markets as recession and Fed aggression fears ease
● Major inflation components still at elevated levels, next report is key to markets
● Fed speakers quick to reiterate policy path remain aggressive
● ECB very likely to hike 50bps, Reuters poll shows
● China’s renewed lockdowns add to global supply chain worries

Inflation at bottom of expected range

The US stock market rose on Wednesday on upbeat (for the market) inflation data. Crucially, core inflation grew at a slower pace of 5.9% compared to 6.1% month-on-month, but it remained unchanged at 8.5% year on year.

The drop in core is a result of the recent energy prices slowdown, which have broadly been down 4.6%. Food prices accelerated to a yearly 10.9% level, a 1979 record high, and electricity prices jumped to 32.9% year-on-year, though.

Overall, the report was market-positive, but inflation remains glued to multidecade levels as several components keep rising. Wages, at least, grew 0.5% but far from offsetting 3% year-on-year.

Fed speakers commit to policy path

Evans and Kashkari, two of the Fed’s hawks immediately commented after the CPI. They insisted that rate hikes were still coming, and that pricing in a cut early next year was premature. But both are non-voters in 2022, but will be voting again in 2023.

The 2 and 5-year yields ended 0.023 and 0.017 higher, with the 10-year up only 0.01 and the 20-year unchanged. There still is another inflation report coming up before the next Fed meeting, and it is more crucial than yesterday’s, given its print can make or break the new narrative.

ECB 50bps hike at 95% chance, poll shows

A poll by Refinitiv showed a 95% chance of another "double" rate hike by the ECB when it meets early next month. European macro data through the week has been better than expected, with Services PMI among other measures beating forecasts.

Additional positivity came from an agreement to restore oil shipments through the southern link of the Druzhba pipeline from Russia.

China locks key export and manufacturing hub down

Authorities in China locked down Yiwu, an important manufacturing and export city, for three days – for now. Case rates have been rising across the country, potentially triggering more lockdowns in an effort to reduce transmissibility rates between towns.

Although not so alarming at this stage, additional lockdowns could stall the improvement in the global supply chain and give central banks more headaches in the fight against inflation.

Markets movers

● TradeDesk +36% on better earnings and strength in CTV, also provided better guidance
than expected.
● Axon +13% on earnings, raised guidance, and less spending
● OptimizeRx -30% on big earnings miss, guidance cut, due to fewer drug approvals
● Repay -20.9% on earnings miss, cut guidance, recovery to pre-pandemic levels
expected to take longer
● Celcius +9.9% earnings and sales beat, North America volumes above expectations

What’s on for the day

● US PPI and Jobless report in focus after upbeat CPI, NFP
● Banxico expected to hike away inflation
● OPEC monthly report could move the oil market