Stocks edge higher, FOMC minutes ahead

Question is two-fold: has inflation started to peak, and has the market fully digested what central banks are about to shove down their throats? Inflation in Britain rose to 5.5% in January as price growth accelerated from December’s levels to hit its highest in 30 years. Core inflation, stripping out energy and food, was up 4.4% from 4.2% in the prior month. Hot but not burning – the Bank of England has already said it expects CPI inflation to hit 7% this cycle, with the peak expected in April. Today’s print maintains but does not increase pressure on the Bank to add to the last two hikes. Nevertheless, if you factor in the labour market figures we are seeing, the MPC will be minded to continue to tightening monetary policy. UK 2yr gilt yields have eased back off their highs above 1.56% to sit around 1.52% this morning.

Over in the US, a super-hot producer price inflation figure failed to lift the front end – a sign perhaps that the market has fully absorbed the hawkish pivot by the central banks? US PPI printed +1% month-on-month, core +0.8%; up 9.7% year-on-year, or +8.3% for the core reading, equalling last month’s series high. No let up for input costs…but the front end of the curve didn’t move much, 10s up to 2.05% this morning, the highest since July 2019. Meanwhile, a good leading indicator for global consumer inflation eased: China PPI was 9.1% yoy vs f/c 9.5%, CPI rose 0.9% yoy vs f/c 1.0%.

Lately we have seen the curve flattening fast, telling you policy is getting tight and CBs will need to unwind some hikes further down the line: is that a policy mistake? Depends a lot on your point of view – inflation needs to be tackled…the mistake was in acting so slowly and not pulling the trigger last year when signs of building inflation pressures that would be hard to shake became loud and clear. The fact the front end is not jumping further maybe indicates markets are fully priced for any hiking. That answers part two of the above…doubt is how long this cycle takes to top out. The third question – no time right now – relates to companies and who’s got pricing power.

Green across the board this morning for equities: European stock markets rallied again on Wednesday after a decent handover from Asia overnight followed the first positive day in four on Wall Street. Stocks are recovering as Russia’s public stance over Ukraine appeared to ease immediate invasion fears, whilst Nato’s secretary general said there were grounds for cautious optimism. Earlier on Tuesday headlines indicated some Russian troops near the border were returning to base, fuelling hopes of de-escalation. German Chancellor Olaf Scholz stating that diplomatic options are “far from exhausted”. Putin has offered to partially pull back troops…flashes this morning encouraging: additional military units in Crimea to withdraw after drills; units in Belarus to return home after drills. All looking a lot more promising than it did over the weekend.

The FTSE 100 was mildly higher at 7,630, while share in Frankfurt and Paris rose by around 0.7%. Overnight, Asian stock markets notched broad gains. Wall Street snapped a three-day losing streak with the Nasdaq rallying 2.5% and the S&P 500 up by almost 1.6% to recover the 200-dma. The rally stops it from sinking to the Jan lows but now see 50-dma around 4,600 as the major test – twice failed there already this month. Head and shoulders or sideways consolidation? The market has been sideways for six months, a theme in global equity markets. Only the FTSE has edged up this year thanks to underperformance last year.

With risk bid, the dollar eased back against peers a touch in early trade. EURUSD rose to 1.1380, the highest since last Friday. GBPUSD rose this morning but remains well anchored in the February range. Gold continues to bounce around the $1,850 level. Oil recaptured some of the losses that saw crude prices declined 3% on Tuesday.

FOMC minutes this evening (19:00 GMT) should give a steer on Fed thinking but the Bullard curveball and recent data has maybe turned this into outdated thinking. US retail sales due at 13:30 GMT, industrial production numbers at 14:15. US EIA crude oil inventories at 15:30 after API showed a draw of 1m barrels last week.

Some companies

Indivior reported a near doubling of SUBLOCADE net revenue to $244 million, putting the company on track to meet its $1 billion+ annual net revenue target. Full-year net revenues rose 22% to $791m, with growth of 20% in Q4. Rising revenues helped the firm swing from a reported operating loss of $156m in 2020 to a profit of $213m last year. Total FY 2022 expected net revenues are seen in a range of $840m to $900m (+10% vs. FY 2021 at the mid-point); management saying this reflects strong SUBLOCADE growth and relative market share stability for SUBOXONE Film. The company also announced plans for a secondary listing in the US, a move that should open up a broader base of shareholders. Investors liked what they saw and shares rose 12% in early trade.

Airbnb shares rose in the US post-market trade as it beat on the top and bottom line. Airbnb beat Wall Street estimates on earnings and revenue in its fourth quarter. However, the company reported 73.4 million nights and experiences booked in Q4, which was down nearly 8% from the previous quarter and missing estimates. However, Airbnb expects 1Q 2022 nights and experiences to significantly beat Q1 2019 levels. A lot of the question markets over Airbnb will be whether people want to stick to apartments/lets now that all-inclusive hotels are back in the game.

Roblox shares slumped 12% after-hours, having risen 7% before the closing bell, as earnings missed expectations.