UK inflation slowed a lot but not as much as expected. Sterling had been advancing a bit in anticipation of this ‘beat’ to the consensus expectations, jumped higher then faltered a bit. There is another inflation reading due before the next Bank of England meeting. The chance of a cut in June nevertheless fell sharply on the inflation number, which at 2.3 per cent was down to its lowest level since July 2021. But the decline from March’s 3.2 per cent was not as large as the 2.1 per cent expected. And worryingly for the BoE, services inflation declined to 5.9 per cent versus 5.5 expected. This may stay the hand of the more cautious members of the Monetary Policy Committee for a while longer. And it may be a blessing for the BoE to prevent it from potentially cutting too soon in this cycle – we have seen how persistent inflation is and with UK wage growth still running at 5-6 per cent there is plenty of juice in that particular tank. Markets now price a roughly 15 per cent chance of a cut next month, down from around 50 per cent before the inflation data. More on all that here
Gilt yields moved up sharply led by the front end, pushing up global yields, which is weighing on risk this morning and pushing stocks down a tad. European stock markets declined in early trading with the FTSE 100 down 0.3 per cent to a two-week low while on the mainland, the Dax also fell 0.3 per cent and the Cac was down double that. Quiet day on Wall Street yesterday with the S&P and the Dow marginally in the green. Meanwhile, the European Central Bank sent a strong signal it will cut in June and oil has slipped to a week-low – inventories are due later.
Marks & Spencer bucked the trend with shares rising 9 per cent after profits rose 58 per cent. Lots to like about here with the turnaround and shares reflecting the improvement, up 82 per cent over the last 12 months. A year ago I said that like-for-like food sales of 5.4 per cent seems OK but not excessive…margins compressed, 3.4 per cent in food versus 4 per cent management target. Clothing and home margins are up 8.7 per cent, above 2019/20 levels, but below the 10 per cent target. More on that here
Nvidia – loads resting on these results, it is now 5 per cent of the S&P 500 and has accounted for a fair chunk of its gains this year with its 92 per cent rally in 2024. Wall Street has decided it’s going to be a monster; options imply an 8-9 per cent on the results. Any sniff of a downswing could hurt the overall market. For the near term, investors will want to know more about any potential delay in new chip orders as it transitions to new models.
Evercore ISI analysts say: "The combination of decelerating revenue growth and increased concerns about competition has driven Nvidia's relative P/E ratio to the lower end of the 10-year range, creating a scenario where a healthy beat-and-raise [on earnings Wednesday] will lead to near-term upside to the stock. We expect a healthy beat-and-raise.”
Deutsche Bank analysts say they are not sure there is much left in terms of surprises and are stuck with a hold rating. Wells Fargo was more upbeat, arguing data centre revenue could reach $23-$24bn versus estimates for approximately $21.1bn. The bank’s analysts raised its Nvidia forward estimates and upped the target price on the stock from $970 to $1,150.
The Trader is written by Neil Wilson, chief market analyst at Finalto
