Topic #1: US Inflation slips to the lowest level since 2021
US monthly inflation levels
Inflation in the United States has slowed to its lowest rate in two years, according to the Consumer Price Index (CPI). The CPI index, which measures the cost of a basket of goods rose 0.4% in April and 4.9% over the last 12 months but this was a deceleration from 5% in the previous month. Analysts had expected the figure to remain at 5%.
The largest contributor to the headline figure was the cost of housing which increased 0.4% in April. The energy index rose 0.6% mostly due to an increase in the cost of petrol. Falling airline fares and lower prices for new cars helped to pull down the headline number.
Last week, the Fed raised its key rate by 0.25% taking it to a range of 5% to 5.25%, its highest level since 2007. This marked the tenth consecutive increase in over a year but Federal Reserve chair Jerome Powell indicated the bank might be getting “closer” to stopping the rate hikes. Analysts believe that the Fed’s latest rate hike was likely its last for this cycle, and that the bank may cut rates by 75 basis points before the year ends.
What does it mean for the investors?
Investors can look at the data as a positive signal. After continuously hiking rates since the past one year, the Fed is now being able to see signs of inflation going down. Investors are pricing in rate halts and cuts by the end of the year more confidently than before. This can be better in terms of valuing companies. Companies will be able to borrow at a cheaper rate and therefore, growth should be positively impacted.
Topic #2: Airbnb results beat estimates but share price tumbles
Airbnb Price chart (Source: Google Finance)
Airbnb beat analyst estimates on the top and bottom lines in Q1, with total revenue rising 20% YoY and swinging to a net profit of $117 million. However, shares of Airbnb dropped by 10% on Wednesday following the release of the company’s Q1 report which provided slightly weaker guidance and a cautious outlook for Q2.
Why did it happen?
Brian Chesky, CEO of Airbnb, cited affordability pressure due to inflation in North America as the reason for the company’s cautious outlook. Chesky emphasized the importance of moderating prices in the region to address price sensitivity and increase occupancy across more listings as rates normalize.
Additionally, Airbnb cautioned that Q2 would face challenging year-over-year comparisons in “Nights and Experiences Booked” due to pent-up demand from 2022 and the COVID Omicron variant. The company forecasted Q2 revenue between $2.35 billion and $2.45 billion, falling short of analysts’ expectations of $2.42 billion.
Analysts noted that Airbnb’s Q1 results were solid, but there are concerns about the upcoming Q2. They expressed some caution due to macroeconomic and discretionary spending risks in the short term, but still view the company’s longer-term outlook positively thanks to its strong brand, platform, and management team. Generally, a boom in the travel market leads to a boom in the hospitality industry and the retail sector as well.