CPI readings for March are in, and it barely squeaked past expectations.
You wouldn’t know it by seeing the red tape this morning. Futures plunge, yields jump.
That’s the headline.
you’d think inflation was red hot and blew past what investors were expecting.
That wasn’t the case.
This was more or less in line, you could argue. Just slightly hotter than what they were looking for.
CPI YoY is 3.5% vs 3.4%, core CPI at 3.8% vs 3.7%. Nothing crazy here. But it shows the persistence of inflation and that the work the Federal Reserve has done so far, may not be enough.
That’s the concern now.
The Fed has its back against the wall and the only way out is to keep rates elevated, which, as we here at S.E.A.L. Alpha Team have championed for a while now, will end bad.
It’s not a matter of if, it’s a matter of when.
Treasury Yields rising today is just a knock off effect on higher rates for longer than anticipated due to persistant inflation.
To be clear, I don’t think this report is what pushes anything over the edge. It’s not a doomsday report that would signal a massive sell off, so no need to react.
Whatever you were doing before, you can continue to do through this report.
When that changes, we’ll let you know.
For now, let’s turn to some Alpha Energy insights to see how analyst are tackling this news in the sector this morning.
Energy Insights: Ratings Rundown in Energy Today
Barclays analyst Betty Jiang initiates coverage on Coterra Energy (NYSE:CTRA) with Overweight and price target of $36.
Jeffries cuts price target on Chesapeake Energy to $115 from $118, maintains buy rating. UBS raises Chesapeake Energy’s price toarget to $94 from $92, maintains neutral rating.
Chesapeake Energy (CHK) has an average rating of Outperform and price targets ranging from $86 to $115, according to analysts polled by Capital IQ.
Goldman Sachs analyst John Mackay maintains Kodiak Gas Services (NYSE:KGS) a Buy and raises the price target from $27 to $31.
What to Watch
The ripple effects from increased inflation are far reaching. With our Alpha Energy theme today, we’ll break down a few key areas to watch for this sector as inflation remains strong and rates remain elevated.
Don’t be fooled by the strenght in the sector today relative to broad markets.
It’s being propped up by other news, such as Israel making a threat to attack Iran if the Islamic Republic strikes Israel directly. Violence in the Middle East leads to higher oil prices as it disrupts production and trading in the world’s top region for oil.
This is holding prices higher, which will only add to the inflation readings we saw today if oil prices continue to climb.
With that said, energy stocks in general still have to watch for the effects of rising rates, higher inflation and a potential crash.
Here’s what to watch:
Diesel and Goods Transportation: The cost of diesel, crucial for the transportation of goods, hit record highs. This has a cascading effect on the prices of numerous goods and services, directly tying energy inflation to broader economic inflation. This phenomenon underscores the intricate interdependencies within the economy, where energy prices directly impact food inflation and beyond.
Electricity Prices and Regional Variances: Electricity prices are anticipated to climb, with significant variances across regions. This is attributed to factors such as regional opposition to pipeline infrastructure, which has led to constrained access to affordable natural gas supplies, thereby driving up electricity costs.
Natural Gas and Manufacturing: High natural gas prices are particularly affecting the manufacturing sector, especially in energy-intensive goods production. This has raised concerns over potential global food security crises due to decreased crop yields, as farmers scale back on fertilizer usage amid soaring costs.
Global Energy Crisis and Europe: Europe faces a pronounced energy crisis, with energy costs consuming over 9% of its GDP. The stark difference in natural gas prices between the EU and the U.S. highlights the global nature of the energy challenge, with industrial demand possibly shifting away from Europe towards the U.S., despite domestic price increases.
Prospects of Relief: While high prices are currently a concern, they also serve as a signal driving responses in production and demand. There’s cautious optimism that adjustments in the energy sector, alongside increased domestic production, may eventually stabilize prices.
Stay current, stay informed, and most importantly, stay resilient.
S.E.A.L. Alpha Team: Charting the course through economic waves with a keen eye on the energy sector’s horizon.