Elena Perova
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The March Consumer Price Index will be released soon, and the Fed’s June odds are 50/50. (0:19) JPMorgan Chase, Citibank and Wells Fargo kick off earnings season. (1:29) Paramount Universal closing deal with Skydance? (3:05)
The following is an abridged version of the transcript
Hot news worthy of attention
Macro focus will be on the March Consumer Price Index due out on Wednesday.
Economists expect overall data to grow 0.3% this month, with the annual rate rising to 3.4% from 3.2%. Core CPI, which excludes food and energy, is also expected to rise 0.3%, declining to an annual rate of 3.7%.
The last time we had CPI data, fed funds futures were pricing in a 70% chance of a rate cut in June. The ratio has now fallen to 50/50 due to stronger-than-expected nonfarm payrolls growth in March.
Economists at Wells Fargo said that while their base case was for 100 basis points of rate cuts this year, risks “leaned toward less easing rather than more easing,” while end-of-month CPI and employment cost indexes would provide “evidence that labor market supply and demand A healthier balance is translating into lower inflationary pressures.”
“Over the longer term, getting inflation back to 2% remains the Fed’s primary focus, and at least more progress on inflation will be needed before a first rate cut,” they added, but “based on what we know The strength of the labor market now suggests the FOMC can continue to wait for further improvement in inflation before easing policy.”
Meanwhile, the big banks will kick off earnings season this weekend. On Friday, JPMorgan Chase (JPM), Wells Fargo (WFC), BlackRock (BLK) and Citigroup (C) are all set to release results before the market opens.
Analysts noted that investment banking business returned to strength in the first quarter, with high-yield issuance, leveraged loan syndication and equity underwriting all hitting their highest levels since the fourth quarter of 2021. But demand for corporate loans has been weak.
Seeking Alpha analyst Cavenagh Research has a Strong Buy rating on Citi, saying the shares are significantly undervalued.
Kavina added that growing “rate cut expectations are fostering optimism about improving credit conditions, supporting potential loan growth and a sharp increase in (investment bank) activity.”
Among other significant benefits
Neogen (NEOG), PriceSmart (PSMT) and Tilray Brands (TLRY) commented on Tuesday.
Data for Delta Air Lines (DAL), Applied Digital (APLD) and Runway Rental (RENT) were released on Wednesday. Constellation Brands (STZ), CarMax (KMX) and Fastenal (FAST) report on Friday.
Check out the weekend news
Elon Musk’s xAI is in talks with investors to raise $3 billion in a funding round that would value the artificial intelligence startup at $18 billion. According to the Wall Street Journal.
Venture capital firm Gigafund and investor Steve Jurvetson are among the backers considering investing in xAI’s funding round. Gigafund was co-founded in July 2017 by Stephen Oskoui and Luke Nosek, who were previously co-founders of PayPal. Jurvetson is a co-founder of his own venture capital firm, Future Ventures.
Gigafund and Jurvetson are both long-time backers of Musk’s companies, holding shares in SpaceX, Tesla (TSLA), The Boring Company and Neuralink.
National Amusements, which controls Paramount Universal (PARA) through voting stock and owns a movie theater chain, is in exclusive talks to sell itself to Skydance Media.
According to the Wall Street Journal, under the terms of the deal being discussed by Shari Redstone’s National Amusements and Skydance, Redstone’s company will receive more than $2 billion in cash as part of the first step of the deal.
Paramount has since acquired Skydance in an all-stock deal valued at approximately $5 billion. Skydance could provide Paramount with a “significant” cash infusion to help its balance sheet and pay down debt.
Under the terms being discussed, Redstone would receive cash, while investors with nonvoting shares would receive shares in the combined company and ultimately diluted equity. CNBC reported Thursday that Paramount would need to raise up to $3 billion in new equity under the plan being considered. Skydance’s David Ellison and his partners will step in to acquire a “substantial” stake, but this will be “dilutive”.
For income investors
Companies going ex-dividend this week include Mastercard ( MA ), which went ex-dividend on Monday, with a payout date of May 9th. AT&T (T) and Gap (GPS) went ex-dividend on Tuesday, with the payout date being May 1. AbbVie (ABBV) went ex-dividend. The ex-dividend date is Friday, May 15, the dividend payment date.
Study Corner on Wall Street
Citi analysts downgraded the information technology (XLK) sector’s market weight to “underweight” from “overweight,” after downgrading the hardware and equipment subsector to “underweight.” Software and services remain overweight, with higher sales and profit trends.
Strategist Scott Chronert said artificial intelligence remains a major source of demand for chip and chip equipment companies, but fundamental pressure is increasing.
The team also presents large Buy rated stocks and Sell rated stocks within Info Tech.
Stocks to buy include Dynatrace (DT) with a projected total return of 48%, followed by Apple (AAPL) at 27% and Micron (MU) at 26%. Sales included NXP Semi (NXPI), which had an ETR of -37%, and Skyworks Solutions (SWKS), which had an ETR of -19%.
