Wall Street Brunch: CPI Hits And Earnings Season Kicks Off

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The Consumer Price Index for March is due with Fed June odds 50/50. (0:19) J.P. Morgan, Citi and Wells Fargo kick off earnings season. (1:29) Paramount Global nearing deal with Skydance? (3:05)

The following is an abridged transcript

The top stories to look out for

Macro focus will be on the March consumer price index, which hits on Wednesday.

Economists expect that the headline number rose 0.3% on the month, pushing the annual rate up to 3.4% from 3.2%. The core CPI, which excludes food and energy, is forecast to have risen 0.3% as well, with the annual rate ticking down to 3.7%.

The last time we got CPI figures, fed funds futures were pricing in a 70% chance of a rate cut in June. That’s now down to 50/50 following the stronger-than-expected rise in March nonfarm payrolls.

Wells Fargo economists say that while their based case if for 100 basis points to cuts this year, risks are “skewed towards less easing rather than more” and the CPI and the Employment Cost Index at the end of the month will provide “evidence that a healthier balance between supply and demand in the labor market is translating to lower inflationary pressures.”

“Returning inflation back to 2% for the long-haul remains the Fed’s primary concern, and it will take at least a little more progress on the inflation front before the first rate cut occurs,” they add, but “based on what we know now, the strength of the labor market suggests the FOMC can continue to await further improvement on the inflation front before easing policy.”

Meanwhile, the big banks kick things off for earnings season at the tail end of the week. Friday will see JPMorgan Chase (JPM), Wells Fargo (WFC), BlackRock (BLK), and Citigroup (C) all issue results premarket.

Analysts have noted that investment banking came back strong in Q1, with high yield issuance, leveraged loan syndications and equity underwriting volumes all at their highest levels since Q4 of 2021. But corporate loan demand has been weak.

Seeking Alpha analyst Cavenagh Research has a Strong Buy rating on Citi, saying shares are deeply undervalued.

Growing “expectations of rate cuts are fostering optimism for a better credit landscape, supporting potential loan growth as well as a sharp uptick in (investment banking) activity,” Cavenagh adds.

Among other notable earnings

Neogen (NEOG), PriceSmart (PSMT) and Tilray Brands (TLRY) weigh in on Tuesday.

Wednesday brings numbers from Delta Air Lines (DAL), Applied Digital (APLD) and Rent the Runway (RENT). And Constellation Brands (STZ), CarMax (KMX) and Fastenal (FAST) report Friday.

Looking to the news of the weekend

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. That’s 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 previously co-founded PayPal. Jurvetson is the co-founder of his own venture capital firm Future Ventures.

Both Gigafund and Jurvetson are longtime backers of Musk’s companies, with stakes across SpaceX, Tesla (TSLA), the Boring Company and Neuralink.

National Amusements, which controls Paramount Global (PARA) through a voting stake and owns a movie theater chain, is in exclusive talks to sell itself to Skydance Media.

Under the terms of a deal being discussed between Shari Redstone’s National Amusements and Skydance, Redstone’s firm would receive more than $2 billion in cash as part of the first step of the transaction, according to a WSJ report.

After that, Paramount would acquire Skydance in an all-stock deal valued at about $5 billion. Skydance could provide a “substantial” cash infusion to Paramount to help its balance sheet and pay down debt.

Under the terms being discussed, Redstone would receive cash, while investors with nonvoting shares would get shares in the combined company and wind up with a diluted shareholding. CNBC reported Thursday that under the plan being contemplated, there would be a need to raise as much as $3 billion in new equity by Paramount. Skydance’s David Ellison and his partners would step up for a “good amount” of that equity, but it would be “dilutive.”

For income investors

Companies going ex-dividend this week include Mastercard (MA) on Monday with a payout date of May 9. AT&T (T) and Gap (GPS) go ex-dividend Tuesday with a payout date of May 1. And AbbVie (ABBV) goes ex-dividend on Friday May 15 payout date.

And in the Wall Street Research Corner

Citi analysts downgraded the Info Tech (XLK) sector to Market Weight from Overweight after cutting the hardware and equipment subsector to Underweight. Software and services remain Overweight with high sales and earnings trends.

Strategist Scott Chronert says AI remains a big source of demand for chip and chip equipment companies, but pressures on fundamentals are growing.

The team also surfaced their big Buy-rated and Sell-rated stocks within Info Tech.

Among the Buys are Dynatrace (DT), with an estimated total return of 48%, followed by Apple (AAPL) at 27% and Micron (MU) at 26%. Sells include NXP Semi (NXPI) with an ETR of -37% and Skyworks Solutions (SWKS) at -19%.