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Rate expectations rise as US CPI surges to a 40-year high

100 dollar bill on firer

It’s been quite a choppy session for markets in Europe today with the FTSE 100 making another two-year high, however the afternoon session did see a sharp pullback after US CPI surged to a new 40-year high of 7.5%, and US markets opened lower.


The UK benchmark continues to look resilient despite the early weakness in the US, with the DAX also managing to hold up reasonably well, against a backdrop of increasing inflation risk.

Vodafone shares continue to hold up despite reports it is considering rejecting Iliad’s €11bn bid for its Italian business. Initial indications suggest that the company thinks the bid is too low, and maybe holding out for a higher price.

AstraZeneca shares have popped higher after reporting a rise of 41% in total revenue to $37.4bn, above expectations of $36.2bn. This includes $4.11bn of Covid-19 vaccine revenue, with $1.9bn of that in Q4. The performance in Q4 helped in this regard pushing revenues up by 62% to just over $12bn. As far as guidance is concerned AstraZeneca says it expects total revenues to increase by a high teen’s percentage, although revenue from its Covid 19 vaccine is expected to decline, although some of this loss should be offset by sales of its antibody treatment Evusheld. This is disappointing; however, investors appear to be focussing more on the benefits of the Alexion acquisition with rare diseases contributing $3bn or 8% of total revenue for the year, despite only being added to the numbers in H2.

Today’s full-year numbers have done little to ease the pressure on Unilever CEO Alan Jope, despite Q4 sales seeing a marked improvement on Q3’s numbers, rising 4.9%, helping to push full year sales growth up by 4.5%. Underlying operating profits rose 2.9% to €9.6bn, while underlying operating margins declined by 10bps to 18.4%. The company also announced it would be buying back another €3bn of its own shares in 2022 and 2023. Having shown the ability to pass on price rises of 4.1% in Q3, this accelerated to 4.9% in Q4, with no sign of a slowdown in sales.

For 2022 Unilever says it expects to deliver underlying sales growth of 4.5% to 6.5%, despite input cost inflation of €2bn in H1, declining to €1.5bn in H2. While on the face of it this looks impressive, it becomes less so when margins are expected to shrink over the course of the next 12 months before rebounding in 2023 and 2024, and it is this that appears to be weighing on the share price. The company needs to have a root and branch overhaul of some of its brands, though on the plus side it appears to have ruled out the prospect of further acquisitions, after last month’s Glaxo fiasco. Rather than looking to acquire new businesses, perhaps Unilever should spend a bit more time running the rule over some of its own brands and extract more value there. 

Informa shares have enjoyed some decent gains today after announcing the sale of 85% of its stake in Pharma Intelligence for £1.7bn. The company went on to say that the it will continue the divestment of its financial intelligence business, while saying that it expects to report trading in line with previous guidance.


The initial optimism that we might see evidence that US inflation might be slowing, that had helped push US markets higher this week, and higher in the pre-market, sharply evaporated soon after today’s CPI numbers were released. The Nasdaq 100 was the biggest faller, reversing abruptly away from its 200-day MA, to open sharply lower, although it is starting to recover off its intraday lows.

US CPI jumped to a 40-year high of 7.5% in January, up from 7% in December with core prices tipping the scales at 6%, sending yields sharply higher, with the US 10-year briefly touching 2%, as markets started to assign a much higher probability that the Federal Reserve might raise rates by 50bps when they meet in March. Away from used car and petrol prices, which are up 40% year to date, double digit price rises are being seen in domestic gas, as well as meat, dairy, fish, and fruit. It rather begs the question as to why the Fed is still adding to its balance sheet even now.

Disney shares have enjoyed a decent boost today after reporting a big jump in subscriber numbers in Q1, for Disney+, while revenue in its theme parks business also surged. There had been a concern with Netflix numbers a couple of weeks ago that the streaming trend was running out of steam. In Q4 Disney+ only added 2.1m new subscribers, however last night’s Q1 numbers saw a big jump to 11.8m, well above expectations of 8.1m, pushing total subscribers up to 129.8m.

Its biggest market has been in India, with its Disney+ Hotstar offering which has 45.9m subscribers and which operates at a loss. Disney is still maintaining its guidance that it can reach its 230m subscriber target by 2024. This certainly seems plausible especially given the growth in its Indian market, and the fact that it is available free of charge on the no subscription basic package model. The theme parks business also saw a decent rebound, as revenues there surged to $7.2bn, helping to push total revenues for Q1 up to $21.8bn and profits to come in at $1.07c well above expectations of $0.59c a share.

Uber’s more diversified business model helped it beat on its Q4 numbers as revenues rose to $5.8bn, above consensus expectations of $5.4bn. Its Uber Eats business managed to turn over more revenue than the rides business with a 78% increase to $2.42bn, helping it to generate a positive return on an adjusted EBITDA basis of $86m. Ride hailing still generated $2.28bn however it is becoming clear that the pandemic is a double-edged sword for Uber. While Omicron is hampering the rebound in its mobility business, the deals to include groceries, alcohol on top of restaurant orders is boosting the delivery business no end. For Q1 the company expects gross bookings to remain steady at $26bn, slightly below consensus, and adjusted EBITDA of $100m to $130m.

Twitter’s latest Q4 numbers saw revenues come in at $1.57bn, slightly below expectations, a rise of 23%, however its guidance for Q1 was disappointing with revenues expected to fall to between $1.17bn and $1.27bn. Despite this weak outlook and the predictions of a Q1 operating loss of between $175m and $225m, the shares have seen a decent rebound with the company also announcing a $4bn buyback of its shares.


Having spent most of this week worried that the markets might be overpricing the prospect of a hot US CPI print today, it turns out that they weren’t hawkish enough after US inflation surged to 7.5%, with core prices coming in at 6%, and the highest levels since 1982.

The strength of the reading has now got markets looking to price in the prospect that the Federal Reserve might hike by 50bps in March, helping to push the US dollar sharply higher, as US yields took off further, with the US 10 year closing in on 2%, and the 2-year yield pushing up to 1.45%.

We already know for certain now that the Fed will go with a 25bps hike in March but given the direction of the data, markets are now pricing in the increased likelihood we could see 50bps. This would be a significant reversal of policy given the Fed is even now, still doing QE. It is now a 50/50 bet as to whether the Fed will go with a 25bps or 50bps rate hike in March.    

The pound has held up reasonably well despite today’s US dollar surge, perhaps because with UK CPI due next week, we could well find the Bank of England may have to move again in March, if we get a similarly strong reading.    


Gold prices initially moved higher in the aftermath of today’s unexpectedly high US CPI print, however it then rolled over, off its highs, as the strength of the US dollar up move overwhelmed the inflationary impulse to move higher.

The continued strength in energy prices helped to drive a good proportion of today’s US CPI numbers, and with oil prices still looking firm after yesterday’s fall in US inventories the likelihood of any relief doesn’t look any nearer for prices.


Activity in the Peloton share price remained elevated on Wednesday. The stock is struggling to extend the recent run of gains, although did trade in a 10% range in the latter part of yesterday’s session. Questions over fair value here appear to remain unanswered but one day vol was a little under 300% against a one month print of 225%.

As for cryptos, the big run higher seen from Ripple earlier in the week may have run out of steam, but again intraday price action remains elevated with a swing of around 7% being recorded. There is some concern that a near term pull back from those gains may be seen and this has the potential to ensure the price remains active, One day vol sat at 134%, against 79% on the month.

Weekly oil inventory figures caught the market offside yesterday after a bigger than forecast draw served to spike prices. Momentum had been downward since the start of the week with the improving geopolitical situation lending support here and although upside pressures were short lived, it still lifted one day vol to 36.66% against a one month reading of 33.11%.

Activity in both fiat currencies and global equity indices was somewhat subdued.

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