Read the main market news this Thursday

Higher-than-expected inflation in March in the United States led to a reversal of interest rate cut expectations. fees by the Fed (Federal Reserveo BUS Central anco), and investors will analyze the earnings report producer prices in the country in search of more clarity.

On today’s agenda, the ECB (European Central Bank) announces its interest rate decision in the morning, as the American earnings season begins.

In Brazil, media reports indicate that the current CEO of Petrobras may have come to an end – at least for now.

1. Expectations of a Fed rate cut fall

The March inflation report came in higher than expected, which caused expectations of a Fed rate cut to diminish. It now looks less and less likely that there will be a reduction in June.

About IPC (IncConsumer Price Index), which is closely monitored, rose 3.5% last month. This is faster than the 3.2% pace recorded in February and above the 3.4% expected. The annual value of núcleo do IPCwhich excludes volatile items such as food and fuel, remained at 3.8%, contrary to expectations of a fall.

This strong data has led futures markets to price in just 40 basis points of cuts this year, compared to the 150 basis points priced in early 2024.

This also caused Goldman Sachs to postpone its forecast for the first interest rate cut from June to July. “We continue to expect cuts on a quarterly basis after that, which now implies two cuts in 2024, in July and November”said analysts at the influential investment bank, in a note dated Wednesday (April 10, 2024).

UBS is even more pessimistic, with the Swiss banking giant now predicting the first cut will come in September, as it has removed a June rate cut as its base case.

The data must be “particularly worrying for the Fed”UBS analysts said. “They have said it would not be appropriate to cut rates until they gained more confidence that inflation was moving sustainably toward their 2% target.”

“It is no longer clear that inflation is even on a slowing trend, much less that it is moving towards 2%,” they claim.

US producer prices are due later in the session, and investors are hoping for a clearer picture of March inflation.

The main number, annual value, has increased by 2.2%, from 1.6% in February, while month-on-month is expected to show an increase of 0.3%, a drop from the previous month’s 0.6% increase.

US stock futures were little changed on Thursday (Apr 11), with investors nervously awaiting another inflation report following the previous session’s consumer price reading.

At 7:49 am (Brasília time), the contract Dow futures was down 0.22%, the S&P 500 futures lost 0.24%, and the Nasdaq 100 futures fell 0.12%.

Wall Street’s main indices closed sharply lower on Wednesday (10), in the wake of the CPI report, as investors began to consider that the Federal Reserve will implement fewer rate cuts this year than previously expected.

March producer prices will be released later in the session, and economists expect monthly wholesale prices to have grown 0.3% in March, and 0.2% excluding food and energy.

There will also be earnings from companies such as used vehicle retailer CarMax, supply chain solutions company Fastenal and beverage giant Constellation Brands to digest before the opening bell.

2. Will the ECB signal an interest rate cut in June?

O European central bank will set interest rates this Thursday (11), and investors are quite sure that the authorities will decide to keep borrowing costs at the same record level.

However, with inflation falling rapidly and the eurozone suffering from economic weakness, everyone is paying attention to the president’s press conference Christine Lagarde to see if it will indicate that a rate cut could happen as early as June.

The ECB has kept interest rates stable since September, but policymakers have signaled a more dovish recently, with the Eurozone now in its 6th consecutive quarter of economic stagnation and inflation only slightly above the central bank’s 2% medium-term target.

“We expect the ECB to signal growing but still insufficient confidence in rate cuts,” said analysts at BofA Securities, in a note dated April 5. “We are still waiting for the first cut in June”.

3. Can corporate balance sheets save the day?

The new corporate results season begins on Friday (April 12), with a series of large banks expected to release their 1st quarter numbers. With major U.S. stock indexes at very high levels and growing doubts that the Federal Reserve will begin cutting interest rates soon, this earnings season will likely have to be impressive to avoid a sharp pullback.

However, analysts expect to see earnings growth of 5% in Q1, according to LSEG data. This would be the lowest value since the second quarter of 2023. That said, the early evidence is encouraging.

On Wednesday (10), Delta Air Lines predicted a strong profit in the current quarter, after recording better-than-expected earnings in the 1st quarter.

Wells Fargo also expressed confidence as its team of strategists raised the price target for the S&P 500 to 5535, compared to the previous 4625, implying an upside potential of more than 6%.

“To some extent, we believe the Fed’s moderation of expectations is helping rather than hurting SPX performance as it maintains the status quo, which is constructive for large companies, the secular AI/growth trade, and Momentum.”said the bank, in a note.

4. Oil retreats amid Middle East tensions

Oil prices fell this Thursday (11), with the situation in the Middle East still tense, threatening the security of supply in this region, rich in oil.

At 7:49 am, futures US oil were trading 0.70% lower at US$85.61 per barrel, while the Brent fell 0.56%, to US$ 89.97 per barrel.

Israel and Hamas have begun a new round of negotiations in an attempt to end the more than 6-month war in Gaza, but there is not much confidence that these discussions will result in an agreement.

At the same time, there is still a risk that Iran, a supporter of the group and the 3rd largest producer in OPEC (Organization of Petroleum Exporting Countries), will be drawn into the conflict, mainly as a result of an alleged Israeli air strike against the OPEC embassy. Iran in Syria at the beginning of the month.

Official data on the 4th (10) showed that stocks US oil rose by 5.8 million barrels in the week to April 5, more than expected, and the 3rd consecutive week of disproportionate growth in US inventories.

A OPEC releases its monthly oil market report at the end of the session, before the equivalent oil market report International Energy Agency and 6ª (12).

5. Prates must be kept in office

With weeks of waiting for the current president of Petrobras, Jean Paul Prates, the expectation is that he will continue in the position. Pressure for his dismissal – motivated by public clashes with the Minister of Mines and Energy – would have diminished.

In March, the CEO of the state-owned company suggested to the Board of Directors the payment of half of the amount of R$43.9 billion in the form of extraordinary dividends to shareholders, with the decision being won by the board, with a government majority. According to the Reutersa source indicated that the signs are that the Board may still approve Prates’ initial proposal at a shareholders’ meeting scheduled for April 25th.

Asked about the topic in recent days, the Minister of Mines and Energy, Alexandre Silveira, asked for a “a little peace” for the state-owned company and said that any decision is up to President Luiz Inácio Lula da Silva (PT). The repercussions that the president of BNDES (National Bank for Economic and Social Development), Aloizio Mercadante, a name close to Lula, had been considered for the position, had a negative impact on the market.

“A possible change for a person who is not from the sector and who is 100% aligned with Palácio do Planalto is worrying”points out Levante analyst Flávio Conde.

At 7:49 am (Brasília time), Petrobras’ ADRs rose 0.31% in the pre-market.

With information from Investing Brasil.