Pre-Market Pulse 14th February – Hot inflation numbers wipe out rate cut hopes

Overnight – Hot inflation numbers wipe out rate cut hopes

The Dow had its worst day in 11 months as US inflation numbers all but wiped out hopes of aggressive rate cuts in the first half of this year.

Headline annual U.S. inflation slowed to 3.1% pace in January, from 3.4% a month earlier, but that was still above economists estimates of 2.9%. Core inflation, which the Fed watches more closely as it strips out volatile items like food and fuel, remained at the same annual pace of 3.9% posted in December, but was expected to slow to a 3.7% pace. Treasury yields jumped, with the 2-year Treasury yield rising 17 basis points to 4.637%, while the yield on the 10-year Treasury surging 14 basis points to 4.316%. The hotter inflation report was driven by the “lumpy shelter/rent component,” RBC said, adding that broader signs of reacceleration in inflation pressures” as well as a strong labor market “are reinforcing the risk that the Fed won’t need (or be able to) pivot to interest rate cuts as quickly or aggressively as previously expected.”

With a March rate cut all but priced out, investors cut their bets on a May rate cut to 31.6% from nearly 50% the prior day, Fed Rate Monitor. 

NVIDIA sidestepped the heavy selling to trade just below the flatline after Mizuho upgraded its price target on the stock to $825 from $625, as the chipmaker will continue its market dominance amid rising AI demand. The bullish backing comes come just ahead of the fourth-quarter results due Feb. 21. Nvidia is up 231% over the past year, with market cap of about $1.79 trillion. NVIDIA is one of the finest comparable examples from the tech bubble and the rally in our eyes is more of a concern than a positive

Earnings

• Coca-Cola fell nearly 1% after better-than-expected fourth-quarter results and guidance was cast aside by worries about waning pricing power as top-line sales growth from a year earlier.
• Biogen fell more than 7%  after the company reported lower-than-anticipated profit and revenue in its latest quarter, driven by weaker sales across multiple products including Vumerity, Spinraza amid competition and pricing pressures. 
• Hasbro also stumbled on the earnings stage, after its fourth-quarter results and guidance missed Wall Street estimates, sending its shares more than 3% lower. The toy maker’s performance was dragged by it entertainment segment, which came under pressure from industry strikes, and a losses owing to goodwill and intangible asset impairment charges.