Market snapshot: inflation and M&A send differing signals

​​​​​​The spectre of inflation loomed once more on Friday, dragging the main US indices lower for the week as immediate interest rate cut hopes faded.

Having shaken off the declines seen earlier in the week following a hotter-than-expected consumer prices reading and a weak retail sales number which raised hopes for some monetary easing, the producer price index set the cat among the pigeons again.

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Wholesale inflation increased by 0.3% against estimates of 0.1%, while excluding food and energy, the spike of 0,5% was comfortably higher than the expected 0.1%. Not only did the reading imply that the Federal Reserve would likely look to push back the timing of any cut, but also the combined prints reignited fears that inflation could be making a comeback.

In the meantime, strong earnings and economic growth, coupled with a resilient labour market all add to the argument that the time has not yest come for easing. The latest consensus points to a cut in June, although this remains open to revision should the raft of data continue to defy expectations, which in turn is likely to cap further market gains in the short-term after a strong recent run.

Another test will come in the form of numbers from NVIDIA Corp (NASDAQ:NVDA) on Wednesday, which has been a core driver for the current euphoria surrounding expectations for the boundless possibilities of AI.

Nvidia shares have risen by 250% over the last year, with expectations continuing to ratchet higher. Indeed, such stratospheric share price rises can come with a drawback. The bar has now been raised, meaning that the shares could be vulnerable to disappointment and increasing pressure on the company to surprise to the upside.

Earnings from the likes of The Home Depot Inc (NYSE:HD) and Walmart Inc (NYSE:WMT) should also give some further clues on consumer sentiment following the disappointing retail sales release.

Despite the weekly losses, the main indices are still ahead in the year to date given the generally higher levels of sentiment, with the Dow Jones having added 2.5%, the S&P 500 4.9% and the Nasdaq 5.1%. Markets will be closed in the US today for the Washington birthday holiday.

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Asian markets were mixed overnight on weaker tech stock performances from Wall Street, although the reopening of China following the Lunar New Year holiday week saw some tentative gains.

Official figures revealed that holiday spending last week had risen to overtake pre-pandemic levels, driven largely by travel, entertainment and dining. The news provided a brief respite to what has been a torrid time both for the economy and the markets, with the possibility of an impending decision not to change interest rates and expectations for more stimulus from the authorities underpinning early year gains.

Early news in the UK centred around Currys (LSE:CURY), with the possibility of a bid from Chinese e-commerce company JD.comJD.com Inc Ordinary Shares - Class A (SEHK:9618) propelling the shares higher by 34%. This follows a report that Currys had rejected an approach from US private equity firm Elliott Investment Management at the weekend, prompting the possibility of a bidding war.

Most recently, Currys has been maintaining its strong focus on factors within its control as it continues to bear down on costs, where there have been additional savings in several of its expenditure lines, such as capex, depreciation, and debt and interest payments.

At the same time, the sale of its Greek business remains on track to complete before the end of its fiscal year and probably during this quarter. The disposal is expected to result in net proceeds of £156 million, which is largely likely to be used to reduce the group’s current net debt position of £129 million.

As such, Currys expects to have a net cash position by the end of its financial year, while also giving it some extra flexibility with regards to a further reduction of the pension deficit. Elsewhere, the Nordics region, a particular thorn in the side for Currys which accounts for around 40% of overall revenues, has shown some signs of marginal improvement in the period.

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Elsewhere, some promising phase III news on its lung cancer treatment pushed AstraZeneca (LSE:AZN) ahead by more than 3%, although general gains were tempered by broker downgrades to the likes of Centrica (LSE:CNA), Burberry Group (LSE:BRBY) and Rentokil Initial (LSE:RTO).

The main indices have been making some muted progress over recent market sessions and the Currys news could yet be a precursor to general Merger and Acquisition activity among undervalued UK companies. In the meantime, the FTSE 100 and FTSE 250 are still behind so far this year, nursing losses of 0.3% and 2.8% respectively.