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From lumber and steel to paint and burrito bowls at Chipotle, prices are rising almost everywhere you look. That’s putting investors on high alert.
What’s happening: Wall Street is training its attention on the Consumer Price Index for May, which arrives on Thursday. The report is expected to show that prices excluding food and energy continued to notch strong gains last month, rising 3.4% over the previous year.
Including food and energy, economists believe consumer prices leaped 4.7% in the past 12 months. That would be the biggest jump since summer 2008.
Traders are worried that inflation could force central banks to pull back support for the economy sooner than they’d otherwise like, hampering the fragile global recovery.
For now, reassurances from policymakers, who have maintained that price increases are temporary, appear to be working.
“I doubt the [Federal Reserve] will be spooked and I doubt markets will be unless we get the core well above [3.5%],” Societe Generale strategist Kit Juckes said in a research note Thursday, referring to the inflation reading without gas and food.
On Thursday, China’s central bank governor Yi Gang said in Shanghai that “price levels are generally under control and that the People’s Bank of China should “implement normal monetary policy.”
The European Central Bank, which met Thursday in Frankfurt, did not change its policy, issuing a statement that was essentially unchanged from its decision in April. Investors will pay close attention to any comments on inflation from ECB President Christine Lagarde during a press conference.
“We expect the ECB to avoid any tapering talk,” Dutch bank ING told clients, referencing discussions about when the central bank will slow down asset purchases, a major part of its stimulus program.
But a growing chorus of voices is insisting that decision makers — which do face a tough set of choices — need to acknowledge the risks of waiting too long to act, which could make their medicine more difficult to swallow.
“Policy is about balancing risks and these have shifted swiftly, significantly and decisively in an upward direction since the start of the year,” Andy Haldane, chief economist at the Bank of England, wrote in a column published by the New Statesman this week. “This makes it a dangerous moment, not just for central bankers but for the wider economy.”
The only market action is coming from meme stocks
US stocks remain stuck in limbo, with the S&P 500 up just 0.4% this month.
That makes the huge swings of stocks popular with investors on social media feel even more dramatic.
The latest stock to soar is Clean Energy Fuels (CLNE), which skyrocketed 32% on Wednesday. Shares are up another 6% in premarket trading Thursday.
But momentum may be fading for other names.
Earlier this week, traders coordinating on Reddit honed in on health care company Clover Health and fast food chain Wendy’s (WEN). Clover Health gained 118% on Monday and Tuesday before falling back 24% on Wednesday. Wendy’s (WEN), which jumped 26% on Tuesday, shed 13% in yesterday’s session.
Shares of e-commerce platform Wish fell 9% on Wednesday after spiking 50% on Tuesday.
On the radar: So far, Wall Street isn’t worried about a “spillover into broader markets,” according to Maneesh Deshpande, an equity derivatives strategist at Barclays.
Since the meme stock phenomenon emerged earlier this year, professional investors have gotten wise to the Reddit playbook, which often involves targeting heavily shorted stocks, Deshpande said.
Short sellers borrow shares of a stock and sell it, with the hope of buying it back at a lower price and making money off the difference. But if the price jumps dramatically, investors are forced to buy back in to limit their losses — further fueling a rally. This is what’s known as a “short squeeze.”
“Many investors have likely been tracking these names and incorporated the risk of another short squeeze in their investment process,” Deshpande wrote in a note to clients on Wednesday.
There’s also evidence that regulators are watching closely. GameStop (GME) — the original meme stock — said Wednesday that it received a request from the Securities and Exchange Commission last month to provide documents and information for an investigation into the trading of its stock.
The high cost of battling cyberattacks
Tackling a hack that cripples business operations is not a cheap affair.
JBS USA, the meat supplier whose entire US beef processing operation was shut down last week by a cyberattack, has disclosed that it paid an $11 million ransom in response to the breach.
The ransom was paid after most of the company’s facilities had come back online.
“This was a very difficult decision to make for our company and for me personally,” CEO Andre Nogueira said in a statement. “However, we felt this decision had to be made to prevent any potential risk for our customers.”
The revelation is a reminder of the exorbitant cost of dealing with cyberthreats following a string of high-profile attacks. Colonial Pipeline, which suffered a hack last month, also paid a ransom to hackers. (The US Justice Department said it had recovered $2.3 million of the payment earlier this week.)
Watch this space: The average cost of a ransomware attack has doubled this year, according to British security firm Sophos, leaping from $761,106 in 2020 to $1.85 million in 2021. That includes insurance, business lost, cleanup and any ransomware payouts.
The situation only appears to be getting worse, as corporations and governments scramble to respond. “It’s happening all the time,” Energy Secretary Jennifer Granholm told CNN’s Jake Tapper on Sunday.
Up next
Chewy (CHWY) and Dave & Buster’s (PLAY) report results after US markets close.
Also today: The closely-watched US Consumer Price Index, a gauge of inflation, posts at 8:30 a.m. ET, along with initial jobless claims from last week.
Coming tomorrow: The Group of Seven meeting of world leaders kicks off in Cornwall, England.
