Consumer Spending and the Inflation Fear

Personal income strutted in with a 0.8% rise, outpacing January’s 0.7% gain and leaving the modest 0.4% forecast in the dust, according to Bloomberg. Meanwhile, personal consumption expenditures (PCE) made a comeback, climbing 0.4% after a 0.3% dip in January. However, it didn’t quite meet the 0.5% increase that was anticipated. Adjusting for inflation, real PCE managed a slight 0.1% uptick, a recovery from January’s 0.6% decline, though it fell short of the expected 0.3% rise. The PCE price index held steady with a 0.3% increase for the third consecutive month, aligning with predictions, while the annual rate stayed put at 2.5%. The core PCE price index, which excludes food and energy, rose by 0.4%, surpassing the expected 0.3% increase and building on January’s 0.3% gain. On a year-over-year basis, it ticked up to 2.8% from 2.7% the previous month.

“Core numbers reveal a slight but notable increase, coming in a tenth higher than anticipated on both month-over-month and year-over-year metrics. This upward trend in surprises is underscored by the fact that this is the second-largest core PCE print in the last 24 months, highlighting persistent inflationary pressures”, Dan Siluk, portfolio manager at Janus Henderson, told Reuters.

Economists believe Trump’s new tariffs could be a drag on economic growth. Business and consumer confidence have taken a hit, raising the specter of a recession. Consumers have been spending ahead of price hikes, especially in December.

The financial markets displayed a relatively robust performance yesterday, despite the latest development in the trade conflict initiated by the United States. The White House has declared that, beginning April 3, it will impose a 25% tariff on imported vehicles, signaling its resolve to enforce its trade policies. To date, there has been a succession of proclamations and retaliations. The most recent declaration stands out for its clarity, although it may be preceded by additional announcements on April 2, which Donald Trump has earmarked for revealing further trade-related measures.

The S&P 500 and the Dow Jones edged down by 0.3% to 0.4% yesterday, while the Nasdaq 100 slipped by 0.6%. Meanwhile, the so-called “boring” companies are enjoying a renaissance. Defensive sectors like utilities and consumer staples in Europe, along with consumer staples and healthcare in the U.S., are back in vogue. Yesterday’s U.S. macroeconomic data painted a picture of an economy that is bending but not breaking, which helped stave off a steeper decline.

European stock markets managed to keep their composure yesterday, with the Stoxx Europe 600 index slipping a modest 0.44%. However, the German DAX, heavily laden with automobile stocks, wasn’t as fortunate, closing down 0.7%. Luxury carmakers BMW, Porsche AG, and Mercedes saw their shares skid over 2%, as the U.S. market is vital for their high-end vehicles. Yet, it was the sector’s subcontractors who bore the brunt of the market’s wrath. Investors are betting that these suppliers will face pressure from manufacturers to slash costs.American giants General Motors and Ford weren’t spared either, with their stocks declining 7% and 4%, respectively. Adding fuel to the fire, Donald Trump has warned U.S. manufacturers against hiking prices due to tariffs, threatening to intervene if they do.

Taking a step back, the story is unchanged: the business community is terrified of the monster that could be born out of all this turmoil. The record hit by gold and the peak of a month reached by the yield on 10-year US debt are there to remind us that caution dominates and limits the performance of the equity markets.

At the same time, Washington’s offensive to control strategic assets continues. Bloomberg has revealed that the United States is exerting pressure to ensure control of future investments in resources and infrastructure in Ukraine. “We paid to defend you, now we’re coming to get our money back”, in essence. This mercantilist approach continues to shock in Europe, where a somewhat romantic vision of things prevents people from understanding that this is one of the pillars of Donald Trump’s policy. Meanwhile, US Vice President JD Vance is traveling to Greenland today. The US delegation’s initial plan, which had been to wander around at will, was scaled back after local outcry. But the United States has a historical right to visit military installations in the country. So Vance planned to visit the US military base in Pituffik. Donald Trump has not changed his mind about the island, as he said on Wednesday, “I think we’ll go as far as necessary. We need Greenland and the world needs us to have Greenland, including Denmark.” On these points at least, things are clear.

Meanwhile, the latest round of tariffs caused Japan to tumble this morning. The Nikkei 225 lost nearly 2% at the end of the day, weighed down by its automobile stocks, which sell a lot of vehicles in the United States. South Korea is also suffering from the downturn in world trade (-2.2%) as a major exporting economy. Taiwan (-1.1%) is also losing ground, as is China (-0.6% approximately). India is managing to stay afloat, while Australia ends the last session of the week up 0.2%. European indices are bearish, and Wall Street opened in the red.

Today’s economic highlights:

See the full calendar here.

• Dollar index: 104,200
• Gold: $3,074
• Crude Oil (BRENT): $73.00 (WTI) $69.50
• US 10-year: 4.30%
• BITCOIN: $85,300

In corporate news:

• The EU is preparing to limit the fines against Apple and Meta to avoid the wrath of Donald Trump, according to the FT.
• Lululemon falls 10% in after-hours trading after its quarterly results.
• 
  Muddy Waters announces that it is short-selling AppLovin.
• 
  The Coca-Cola Company to invest $1.4 billion in Argentina.
• Walgreens Boots to pay more than $2.85 million to settle overbilling charges in the United States.
• Pfizer accused of tax fraud by Senator Ron Wyden.
• Sabre is reportedly considering the possibility of selling its hospitality software unit for more than $1 billion, according to Reuters.
• 
  NASA and Boeing begin testing the Starliner for an upcoming flight scheduled for early 2026.
• 
  Rocket Lab USA selected for the next phase of the US military space programme.
• CoreWeave launches an initial public offering at a reduced price of USD 40 per share.

Analyst Recommendations:

• Illumina inc.: Guggenheim Securities maintains buy rating; target cut to $122 from $150, a 48% potential increase.
• Exact sciences corp.: Guggenheim Securities maintains buy rating; target cut to $60 from $73, a 33% potential increase.
• Danaher corp.: Guggenheim Securities maintains buy rating; target cut to $250 from $275, a 19% potential increase.
• Elevance health inc.: Bernstein maintains outperform rating; target raised to $585 from $511, a 35% potential increase.
• General electric co.: Bernstein maintains outperform rating; target raised to $250 from $232, a 21% potential increase.
• Boeing co.: KGI Securities initiates coverage with a neutral rating; target set at $191, a 6.6% potential increase.
• Tanger inc.: Goldman Sachs upgrades to buy from neutral; target set at $40, a 22% potential increase.
• Next plc: Berenberg maintains buy rating; target raised to 13,400 pence, a 21% potential increase.
• Walmart inc.: KGI Securities initiates with outperform rating; target set at $102, a 19% potential increase.
• AppLovin: FBN Securities initiates with outperform rating; target set at $385, a 47% potential increase.
• Warner music group: FBN Securities initiates with sector perform rating; target set at $35, an 8.5% potential increase.