The American stock market is catching its breath this Thursday, after another pleasant surprise on the producer price inflation front, the day after already encouraging figures for the consumer price index. The Nasdaq, boosted by AI, gains another 0.35% to 17,669 pts after a new historic high, with Broadcom, Tesla and Nvidia. The S&P 500 fell slightly by 0.07% to 5,417 pts, while the unloved Dow Jones lost 0.67% to 38,455 pts. Yesterday evening, Wall Street already broke new records following reassuring figures concerning American inflation, while the Fed unsurprisingly maintained its rates between 5.25 and 5.5%, nevertheless banking on a single drop in rate this year compared to three previously.
On the Nymex, a barrel of WTI crude gained 0.2% to $78.6, while an ounce of fine gold lost 1.1% to $2,327. The dollar index gained 0.3% against a basket of reference currencies.
The Big Three of “tech”, Microsoft, Apple and Nvidia, remain under close surveillance, while the title of the Apple group has just skyrocketed following the AI announcements at the WWDC conference in Cupertino. Together, the three titans now capitalize nearly 10,000 billion dollars and remain in a tight spot for the symbolic race for the world’s largest capitalization. Finally, operators will follow this Thursday the vote of Tesla shareholders on Elon Musk’s very juicy $56 billion compensation package, but the latter has already removed all suspense by indicating that the proposal would be largely validated.
The American consumer price index for May 2024 was stable compared to the previous month, against a consensus of +0.1% and after an increase of 0.3% in April. Over one year, the consumer price index shows an increase of 3.3%, compared to a consensus of 3.4%. Excluding food and energy, the CPI increased by 0.2% month-on-month and 3.4% year-on-year, compared to +0.3% and +3.5% consensus respectively. The average hourly wage increased as expected by 0.4% in May, compared to the previous month.
This Thursday, the producer price index for the month of May 2024 was down 0.2% compared to the previous month and up only 2.2% over one year, while the consensus was +0.1% month-on-month and +2.5% year-on-year. Excluding food and energy, the index was stable compared to the previous month and up 2.3% year-on-year, while the consensus was +0.3% compared to April and +2.5% in year-on-year.
Unemployment claims jumped last week in the United States. The US Department of Labor announced unemployment claims for the week ended June 8 at 242,000, up 13,000 from the revised level of the previous week. The consensus was positioned at 225,000. The four-week average stands at 227,000, an increase of 4,750. Finally, the number of unemployed people receiving compensation for the week ending June 1 stands at 1.82 million (1.80 million expected), an increase of 30,000 over seven days.
The Fed left its rates unchanged last night, at a 23-year high of between 5.25 and 5.5%. Jerome Powell, head of the institution, estimated that the inflation outlook proposed by the Fed constituted a fairly conservative forecast subject to revision. Powell said the data released on consumer price inflation was moving in the right direction. He noted, however, that the central bank’s new forecasts, which show an increase in long-term federal funds rates, reflect a “change of opinion” among those responsible for the establishment. “We make policy with the economy we have,” he said… The increase in the long-term federal funds rate from 2.6% to 2.8% shows that those responsible are coming “gradually” to the idea that the previous very low interest rate environment might no longer happen…
Powell also noted that a single quarter-point rate cut alone would not have a major impact on the U.S. economy, with the overall rate trajectory being the most important element. He said the central bank’s initiation of rate cuts, when that happens, would remain important. The start of the easing of monetary policy would be “a significant decision for the economy that must be taken correctly”.
The CME Group’s FedWatch tool now shows a probability of around 90% of a new monetary status quo on July 31, after the next meeting. The probability of a rate cut by September 18 reaches almost 70% (compared to 60% before the announcement of producer prices). The barometer shows a dominant probability (around 45%) in the 4.75-5% range for the end of the year, which shows that despite the latest information provided by the Fed and its ‘dot plot’, the markets are instead banking on two quarter-point rate cuts this year.
Finally, on Friday, the markets will follow import and export prices, the American consumer sentiment index from the University of Michigan, as well as a speech from Austan Goolsbee, who heads the Chicago Fed .
In business news, after Oracle yesterday, it is Broadcom which stands out this Thursday, while the group displays very exciting prospects with the rise of AI. Apple, for its part, recorded a new historic high yesterday, also boosted by the integration of AI tools into its devices. Today, Nvidia (+3%) is attempting to escape to yet another peak near $130. Microsoft and Apple are also at their highest.
Adobe will reveal its latest quarterly financial results this evening, after the close of the American market.
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Apple (stable) will “pay” OpenAI for ChatGPT via distribution, and not in cash, Bloomberg indicates, citing sources. When Apple CEO Tim Cook and his top deputies unveiled a historic deal with OpenAI this week to integrate ChatGPT into the iPhone, iPad and Mac, they remained silent on the financial terms, notes Bloomberg. According to people briefed on the matter, the partnership is not expected to generate significant revenue for the two companies, while Apple considers that “pushing” the OpenAI brand and technology on its devices would be equivalent or of a greater value than cash payments. Thus, the iPhone manufacturer does not pay OpenAI to use the chatbot, but the Apple group then intends to generate AI revenues by agreeing to revenue sharing agreements according to which the group would obtain a share from the AI partners who would monetize chatbot results on Apple platforms, which could eat up some of the billions of dollars made from its Google search deal, as users prefer chatbots to search engines…
Tesla climbs 4%. Elon Musk’s colossal compensation package, as well as the resolution to incorporate the group in Texas rather than Delaware, would largely pass today in the shareholder vote. At least that’s what the first person says. The billionaire thus commented on the preliminary results of the shareholder vote, while the general meeting was being held today in Austin. Proposition 3 submitted to the vote of shareholders therefore concerned incorporation in Texas, while a judge in Delaware had blocked Musk’s package. Proposition 4 asked shareholders to re-ratify the businessman’s record financial compensation plan. The contested package had already been voted on in 2018, but a Delaware judge then ruled that investors had not been fully informed of the details.
Broadcom soars by 13% on Wall Street, to a historic high for a capitalization of nearly $800 billion. The group has in fact raised its annual financial forecasts with the demand for artificial intelligence chips. The Californian Palo Alto group now expects AI-related chip revenues of $11 billion this year, compared to $10 billion previously. Broadcom is also raising its annual revenue guidance to $51 billion, $1 billion more than previously. Annual adjusted EPS forecasts are also revised upwards. The group designs advanced network chips that move large amounts of data used by AI applications.
For the just ended fiscal second quarter, adjusted earnings per share came in at $10.96, versus a consensus of $10.8. Revenues totaled $12.5 billion versus the market consensus of $12.1 billion. The results were driven by AI and VMware. Revenues from artificial intelligence products alone reached a record $3.1 billion. The semiconductor division generated revenues of $7.2 billion in the quarter ended at the beginning of May, compared to a consensus of $7.1 billion. Finally, the Californian group announced a split of its shares 10 to 1, a “split” which will be effective from July 15 and will therefore offer better accessibility to investors and small holders.
Virgin Galactic, the space tourism group founded by Richard Branson, is down 15% on Wall Street. The group has announced a 1:20 reverse stock split which will take effect tomorrow after market close. The consolidation decision was taken in order to bring the stock back above the minimum required to maintain a listing on the New York Stock Exchange.
Walt Disney (-1%) has promised to invest up to $17 billion in its Florida resort over the next 10 to 20 years. The 15-year deal was negotiated as part of a settlement following a years-long dispute between the US entertainment giant and Governor Ron DeSantis. The newly renamed entity, Central Florida Tourism Oversight District, oversees all public services in the Walt Disney World resort area and now has a board of directors selected by the governor, CNN reports. The New York Times also indicated that the dispute was therefore coming to an end, the CFTOD controlled by the governor since 2022, having unanimously approved this plan authorizing Disney to expand Disney World. The deal would allow Disney to build a fifth theme park and 15,000 hotel rooms. Disney has set aside up to $17 billion for the project and is expected to spend at least $8 billion.
