Market 03/12: CPI higher than forecast - 10Y T-bond auction unfavorable

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39 billion USD 10Y Treasury auction unfavorable: pulls bond yields sharply higher

39 billion 10Y Treasury auction session completely failed with tails +0.9bps:

High Yield: 4.166% (higher than pre-market at auction time: 4.157%, and previous session's High Yield: 4.093%).
- 31.12% of successful bidders bid at High Yield.
- Right after the auction session: 10Y T-bond yield has risen sharply
Bid-Cover Ratio: 2.51 (lower than previous session 2.56)
- Nearly 98 billion USD bids only for the auction sized at 39 billion USD — but most of the excess bids (56 billion USD) came from Dealers.
  => The Treasury itself is also concerned about declining 10Y T-bond demand.
Foreign investors still lead in successful bids: accounting for 64.3% (but lower than previous session 71.0%)

February CPI report: higher than forecast, delaying Fed's rate cut decision

CPI report higher than expected shows persistent inflation pressure: sticky inflation

Headline CPI: +3.2% YoY (> forecast: +3.1%, previous month +3.1% YoY).
Core CPI: +3.8% YoY (< previous month 3.9%, > forecast: +3.7%).

Core monthly inflation (MoM) has cooled, but headline inflation has risen for 5 consecutive months:

Headline CPI: +0.44% MoM (> previous month: +0.3% MoM).
Core CPI: up +0.36% MoM (< previous month: +0.39% MoM).

Prices rose in most categories: energy inflation rebounds

Supercore CPI (Core services CPI excluding housing) continues to rise 0.5% MoM, 4.5% YoY - highest since May 2023

=> Costs are rising again across all categories: no longer just the housing issue

Core services CPI remains the main factor keeping inflation high: +3.057% YoY.
Core goods CPI continues to decline.

→ The overall trend is declining but the pace is still very slow.

Housing prices +5.8% YoY, accounting for 2/3 of the total 12-month increase in headline CPI

House price inflation: down to 5.74% from 6.04% last month.
Rent inflation: down to 5.77% from 6.09% last month.

Other indicators recorded significant increases including motor vehicle insurance (6.7%), health care (+6.1%), entertainment (+2.1%) and food away from home (+4.5%).

Gasoline prices (+3.8%) + airfare (+3.6% - highest since May/2022) contributed largely to the monthly increase.

Rent up 0.5% MoM, highest since October.

Market reaction:

Market-expected rate cuts drop sharply to just 2.6 (vs. 6 cuts just 2 months ago).
- This is also the first time this number is LOWER than the Fed's projection.

Probability forecast for June rate cut slightly down.

Small business optimism index slightly down

NFIB Small Business Optimism Index for February slightly down to 89.4 (< est. 90.5, prev. 89.9).

Inflation returns as the most important issue for small businesses.
Labor quality decreased significantly but remains in second place.
Concerns about Labor costs starting to rise higher.

Company earnings reports: Oracle, ADM, Asana, Kohl's

Oracle ER: Stock surges on better-than-expected report

Revenue: +7% YoY, reaching 13.3 billion USD (as expected).
- Cloud services revenue (Oracle's largest business segment): +25% YoY, reaching 5.1 billion USD.
  - Applications (SaaS): +14% YoY, reaching 3.3 billion USD.
  - Infrastructure (IaaS): +49% YoY, reaching 1.8 billion USD.
Non-GAAP EPS: 1.41 USD (> expected by 0.03 USD).
Dividend: 0.40 USD (unchanged).

ADM ER: Nutrition segment profit overstated by nearly 10%

Revenue: 22.98 billion USD (< estimate: 23.64 billion USD).
Nutrition segment profit fell 68 million USD to 668 million USD.
- ADM has also planned to address the accounting adjustment issue, after this figure was overstated by up to 9.2% from 2018 - 2023.

FY2024 guidance:

EPS 5.25 - 6.25 USD (estimate: 5.87 USD), down 18% YoY due to lower profit margins + higher costs.

→ ADM stock up 5% after earnings report, but still down ~17% from before the investigation was announced.

Asana ER: Stock falls despite better-than-expected report

Revenue: +14% YoY, reached 171.1 million USD (> estimate 168 million USD).
- Asana's revenue growth has increased relatively over 3 years, from 68.37 million USD Q4/2021 to 171.1 million USD this quarter.
Number of enterprise customers paying over 5,000 USD/year reached 21,646, up 300 from previous quarter.
EPS (non-GAAP): -0.04 USD (estimate -0.10 USD).

Q1/2025 revenue guidance: 168.5 million USD

Kohl's ER: Expectations for insignificant growth next year

EPS: 1.67 USD (> estimate: 1.28 USD).
Revenue: 5.71 billion USD (> estimate: 5.7 billion USD).
Gross margin: 32.4% (> expected 31.9%).

FY2024 EPS guidance: ~2.10 USD - 2.70 USD.

The company also said BabiesRUs will be available at 200 Kohl's stores in fall 2024.

Kohl’s is trying to add more items to attract younger shoppers.

Other news:

OPEC forecasts strong demand growth this year to 2.25 million barrels/day.

Chinese regulators ask major banks to increase support for China Vanke - China's second-largest property firm to avoid collapse like China Evergrande Group and Country Garden.