Last week, three gears turned in the opposite direction so that the main U.S. stock indexes reversed the gains registered during the first quarter of the year and investors opted to take refuge in liquidity again as a result of: 

1. A rebound in the structure of short and medium-term interest rates under the understanding that high inflation persists restricting potential monetary policy rate cuts in the coming months.

2. The geopolitical risk premium not only increased due to the persistence of the Russian-Ukrainian and Israeli-Iranian wars, but also because the U.S. House of Representatives approved a massive budget in recent hours to keep them both funded and active for the remainder of the year without any diplomatic resolution being sought in either of them, both of which could eventually have an impact on oil prices.

3. On the corporate front, apart from the results that have been published for the first quarter of the year, there were three pieces of news that contributed to the deflation of the stock indexes, starting with the announcement of the automaker Tesla, which is reducing 10% of its workforce, followed by the announcement that Netflix will stop publishing, starting next year, the number of subscribers it has in order to end the failed negotiation between Salesforce and Informatics, a transaction of close to US$11 billion. Thus, so far in April, the Dow has lost -4.6%, the S&P 500 -5.5% and the Nasdaq has accumulated a fall of -6.7%. The 5-year sovereign rate closed at 4.68% (+45 basis points in April) while the 10-year rate closed at 4.63% (+42.2 basis points in April and +75 basis points in 2024).

This week the macroeconomic focus will be on last month's PCE inflation, which is expected to close at 2.6% (up from 2.5%) while core inflation, which excludes food and energy prices, is expected to close at 2.7% (up from 2.8%). Any figure above market expectations will change the Federal Reserve's (FED) discourse on May 1, when its chairman, Jerome Powell, will not only have to talk about the impact of energy prices on inflation (a taboo subject during the first quarter of the year), but also about the geopolitical risk that is on the rise. With regard to geopolitical risk, the price of oil mysteriously fell to US$83 per barrel (-2.6% for the week), probably after the Biden administration's sales to the world market from the country's strategic reserve, a figure that has not yet been published. This despite the fact that Israel chose to attack Iranian military positions in Isfahan last Friday, demonstrating to the Iranian government that they could approach the capital, Tehran, without any difficulty with aircraft (and not drones), as the Iranians did the previous week. 

Finally, on the corporate front, three of the most important technology companies will be reporting their results, including Alphabet, Microsoft and Meta, as well as American Airlines, Caterpillar, Chevron, Chipotle, Exxon, GM, Pepsico, Spotify, Tesla and T-Mobile, among many others. It is important to note that, according to Factset, the expected earnings growth for the main technology companies (Alphabet, Amazon, Microsoft, Meta and Nvidia) is of the order of almost +64%, having to come in line with market expectations to at least sustain the market.   

Regarding the FED, this week there will be no verbal interventions by the representatives of the issuing institute, awaiting the decision to be taken next April 30 and May 1. This after the Beige Book, published last April 17, brought with it mixed comments about the inflationary evolution of the country starting with the labor market where it mentioned that: 

Overall, participants [surveyed] expected labor demand and supply to remain relatively stable, with modest additional job gains and a continuation of moderating wage growth toward pre-pandemic levels.

To then point out the following in relation to the prices of goods and services: 

In general, [surveyed] representatives expected inflation to remain stable at a slow pace going forward. At the same time, contacts in some districts, mainly manufacturers, perceived upside risks to inflation in the near term in both input prices and output prices.

Therefore, these comments, together with the recently published upward general inflation data and the evolution of agricultural and energy prices in recent months, suggest that the FED will be extremely cautious with its appreciation of the evolution of rates entering the summer period in the northern hemisphere. In fact, market expectations of a potential rate cut are that there would only be a 40% probability at the July 31 meeting, with the expectation of a rate cut at the June meeting having almost completely dissipated.

On the corporate front, we start the week with Elon Musk's letter announcing the retirement of 10% of his workforce at Tesla in anticipation of the sales and earnings data to be released by the company tomorrow, Tuesday. This in an environment where the entrepreneur announced the reduction in the selling prices of its cars and lower sales than expected in the last quarter. Meanwhile, what caused a mystery was the announcement by Netflix that starting next year it will stop publishing the number of subscribers on the platform, this being the main number with which a reasonable valuation is assigned to the company. The announcement triggered a -9.1% drop in its share price last Friday. It may be that the strategy followed by Netflix emulates Apple's decision in 2018 when it stopped publishing the number of units sold, however, the business model between Netflix and Apple differs substantially, as the giant Apple has multiple lines of business compared to Netflix which only has that of subscriptions globally.

In conclusion, in recent days, the evolution of inflation, the geopolitical risk premium and corporate news have been moving in opposite directions, awaiting market players to find support and a possible stock market rebound in the corporate results of the main technology companies.

THIS WEEK 

Monday (April 22)

Quarterly Reports

• SAP SE

• Verizon Communications Inc.

• HDFC Bank Limited

• Cadence Design Systems, Inc.

• Truist Financial Corporation

Economic Reports

• National Activity Index Report, FED Chicago

Tuesday (April 23)

Quarterly Reports

• Visa Inc.

• Tesla, Inc.

• Pepsico, Inc.

• GE Aerospace

• Texas Instruments Incorporated

• Philip Morris International Inc

Economic Reports

• Preliminary Red Book Annual Change Report

• Manufacturing Index Report, FED Richmond

• New Home Sales Report

• New Home Sales Monthly Change Report

• Building Permits Report

Wednesday (April 24)

Quarterly Reports

• Meta Platforms, Inc.

• Thermo Fisher Scientific Inc

• Boeing Company (The)

• AT&T Inc

• ServiceNow, Inc.

• International Business Machines Corporation

Economic Reports

• Perishable Product Orders Monthly Change of Order Report

Thursday (April 25)

Quarterly Reports

• T-Mobile US, Inc.

• Microsoft Corporation

• Merck & Company, Inc.

• Alphabet Inc.

• Astrazeneca PLC

• Caterpillar, Inc.

Economic Reports

• Quarterly Change in GDP Growth Report

• Wholesale Sector Inventories Report

Friday (April 26)

Quarterly Reports

• Exxon Mobil Corporation

• ICICI Bank Limited

• Colgate-Palmolive Company

• Fomento Economico Mexicano S.A.B. de C.V.

• Phillips 66

• Chevron Corporation

• AbbVie Inc.

Economic Reports

• Monthly Underlying PCE Price Index Report

• Personal Income Monthly Change Report

• Report monthly change in Personal Expenses

Now you have more information about your investments. See you next week with more news.

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