Early Morning Call: prices at UK supermarkets, retail chains reach record high in April

US debt ceiling

Equity markets were mixed in APAC overnight, as the US debt ceiling deadline approaches. President Joe Biden and his Republican opponents have announced they have agreed in principle to raise the US debt ceiling and avert a default. The president described the agreement as a "compromise", while House Speaker Kevin McCarthy said it "was worthy of the American people". A vote is now expected in Wednesday, taking the whole issue down to the wire.

UK price inflation

According to the British Retail Consortium (BRC), prices in UK supermarkets and retail chains rose 9% in the year to May, the highest rate since industry records began in 2005. That said, the survey shows that food price inflation slowed to 15.4% from 15.7%, largely driven by lower energy and commodity costs.

While there is reason to believe that food inflation might be peaking, BRC chief executive Helen Dickinson warned that "it is vital that government does not hamper this early progress by piling more costs onto retailers and forcing up the cost of goods even further. The biggest risk comes from policies such as the incoming border checks and reforms to packaging recycling fees.

"Earlier this weekend, the Daily Telegraph reported the British government is looking at plans to have retailers cap the prices of basic food items. According to the newspaper, Downing Street is in talks with supermarkets on a deal similar to one in France where major retailers charge the 'lowest possible amount'".

This is not to the taste of the BRC which urged the government to simplify rules "rather than recreating 1970s-style price controls."

Eurozone economic sentiment

Later this morning the market awaits May economic sentiment in the eurozone. The index is forecast to fall to 98.9, from 99.3 in April. We'll also get the final reading on consumer confidence.

In the US, S&P/Case-Shiller home prices are expected to fall in March. And CB consumer confidence is forecast at 99 in May, down from the 101.3 recorded in March.

Earnings

Last week, NVIDIA reported a massive earnings and revenue beat and pleased traders with a stronger-than-anticipated forecast. This was driven mainly by optimism stemming from the company's leading position in the market for AI chips. Yesterday, NVIDIA announced it was building Israel's most powerful AI supercomputer and the numbers are astonishing. The system, called Israel-1, is expected to deliver the performance of up to eight exaflops of AI computing.

What is an exaflop you ask? Well, that's a good question. One exaflop has the ability to perform one billion billion calculations per second. The system will cost hundreds of millions of dollars and be partly operational by the end of 2023.

HP is expected to report its fiscal second quarter (Q2) earnings and revenue after tonight's US closing bell. The Street forecasts earnings of 76 cents per share, which would be a drop of about 29% from the same quarter a year ago. Revenue is expected to decline by 21% year-on-year (YoY) to just over $13 billion, a performance that reflects the continuing fall in PC demand.

The personal computer and printer maker's shares have lost about 13% of their value over the past 12 months. But so far this year they have gained about 15% thanks to two consecutive better-than-expected quarterly reports.

Its spin-off company Hewlett Packard Enterprise (HPE) has had a very different fate over the past 12 months. Broadly unchanged over the period, the stock has lost around 7% in the last five months, despite beating estimates and raising forecasts three months ago.

HPE is also releasing its quarterly earnings tonight. Analysts anticipate a 9% rise in its earnings per share to 49 cents. Revenue is also expected to rise by 7% to $7.31Bln.