US Open: Soft start for stocks, Empire State pricing pressures, Mega Media Deal, China cools

US stocks are edging lower following mixed Chinese economic data, concerns that Taiwan and Singapore success in fighting COVID is in jeopardy, and after the Empire State manufacturing survey solidified the inflationary theme that is running wild on Wall Street. Earlier, a key truce was reached between the US and EU on steel and aluminum tariffs.

Even after a trading week which saw some of the high-flying commodities (copper and corn) take a break, Wall Street still remains focused on inflation.

Empire

Business activity in Empire State was strong once again with a 24.3 print, better-than-expected, but down from the prior 26.3 reading. The survey noted further price increases and strong employment growth are expected. Prices paid rose to a record high, while the forward-looking indicator came down modestly from 71.2 to 67.1. The trend from all these Fed regional surveys continue to be strong improvements with rapidly growing pricing pressures.

Mega Media Deal

A mega-media deal may have created a giant that could go toe-to-toe with Disney+ and Netflix. AT&T will spin off its media business and merge with Discovery. Shares of both AT&T and Discovery were higher on the $43 billion deal. The new combined media giant will have $20 billion in free cash flow to spend on content, which is $3 billion more than what Netflix committed to spend this year.

Now we have three titans of media, which should mean spending wars for content will likely crush the smaller streaming services. Costs will eventually go up and the consumer might actually miss the days of cable TV and adding a couple premium channels.

China
China’s economic outlook remains very strong, but financial markets will probably have to trim some of their end of year forecasts given the sustained price increases across commodities and some of the weakness that is already emerging in the data. Economic activity in China is cooling as factory costs surge.

Industrial production peaked in the first quarter as the April readings showed industrial output rose 9.8% from a year earlier, down from the 14.1% prior reading and 10.0% consensus estimate.

Retail sales rose 17.7% in April from a year ago, a big miss from the 25% forecast. Consumer spending is not as robust as analysts expected and that should prevent investors from becoming too aggressive with their yuan bets.

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