Market 02/13: CPI higher than forecast disappoints the market

January CPI report not optimistic: delays Fed's rate cut plan

Headline CPI Y/Y (though still on a downward trend) disappointed due to being higher than expected. Meanwhile, Core CPI clearly shows sticky inflation:

Headline CPI: +3.1% YoY (>forecast: +2.9%, previous month +3.4% YoY)
Core CPI: +3.9% YoY (unchanged from previous month, > forecast: +3.7%)

Core inflation rises again month-over-month (M/M):

Headline CPI: +0.305% MoM (>expected: +0.2% MoM)
January Core CPI increases +0.4% MoM (>expected: +0.3% MoM) => highest level in the past 8 months
- Core CPI services sector still leading: +0.403% MoM (while goods prices still on a downward trend)

Of which, housing costs are the main factor driving the strong MoM increase in Core CPI:

Housing CPI increases +0.377% MoM, highest level in nearly 1 year - accounting for more than 2/3 of the monthly increase in Core CPI.

→ High housing costs weigh heavily on consumers. Housing CPI is the key factor determining the Fed's ability to win the inflation battle!

Average real hourly earnings rose slightly, but average weekly earnings fell (possibly due to a decrease in average weekly working hours).

Market reaction:

After the CPI report, market continues to push back expectations for the first Fed rate cut from May to June (while 1 month ago, the market still hoped for Fed cuts from March)

Expectations for March rate cut: only 8.5%,
Expectations for May rate cut possibility: only 34.1% (majority still think Fed will keep rates unchanged through May).

10Y benchmark Treasury yield surges immediately after disappointing CPI data:

Stock market reacts relatively strongly. Dow Jones also drops more than 440 points.

Some investors managed to take profits before the CPI data.

NFIB Survey: High costs and declining labor quality lower small businesses' business expectations

Small businesses' optimism level decreases 89.9 compared to 91.9 previous, marking the 25th consecutive month below the 50-year average of 98.

Nevertheless, small business owners still hope for a soft-landing.

Small businesses' top concerns in order are: Labor quality → Inflation → Taxes.
- Among them: inflation (~high costs) remains one of the main concerns.

OPEC Report: Maintains oil demand forecast

2024 global oil demand growth forecast unchanged: 2.25 million barrels/day.
2025 global oil demand growth forecast unchanged: 1.85 million barrels/day.
2024 growth forecast: 2.7% (> previous 2.6%).
2025 growth forecast: 2.9% (> previous: 2.8%).

OPEC also notes that oil prices rose in January due to reduced selling pressure from speculators.

Earnings Reports: Shopify, Coca Cola

Shopify ER: Earnings beat estimates but fail to satisfy investors

GMV: +23% to 75 billion USD.
MRR: +35% to 149 million USD.
Revenue: +24% YoY, reaching 2.14 billion USD (> estimate 70 million USD)
- … due to higher sales volume on the platform +23% YoY (to 75.1 billion USD, > forecast 72.1 billion USD)
Operating profit margin: 13% (+24% YoY).
Non-GAAP EPS: 0.34 USD (> estimate 0.04 USD).
Q1 FY24 revenue growth forecast: increase ~20% YoY.

Coca-Cola ER: Growth due to higher selling prices

EPS: 49 cents (in line with expectations).
Revenue: up +7% YoY, reaching 10.85 billion USD (> expected 1.68 billion USD).
- Coke organic revenue, excluding acquisition and divestiture activities, increased 12% in the quarter.
- Higher prices help Coke overcome declining volume in North America.

Coke forecasts organic revenue growth of 6-7% and EPS growth of 4-5%.

Some other news:

JetBlue stock rises 15% after Carl Icahn buys 10% stake.
Paramount Global lays off about 800 employees just one day after announcing record Super Bowl viewership.