April CPI eases but inflation pressure remains

US April CPI rose 0.3%, mainly due to higher oil prices and housing costs, below the expected 0.4%. The upward trend showed a slight slowdown after advancing 0.4% in the previous two months. Stripping out food and energy, the core inflation was also up by 0.3%, meeting expectations. On a YoY basis, the CPI increased by 3.4% in April compared to 3.5% in March. Core CPI climbed by 3.6% in the latest month, marking the lowest reading since April 2021. However, these numbers remain well above the Fed’s target of 2% annual inflation, which may likely delay any reduction in US interest rates.

Meanwhile, US retail sales in April came in unexpectedly flat, missing the 0.4% increment as previously forecasted. High gasoline prices was the reason to blame which drew away consumers’ spending appetite. Moreover, last month’s retail growth also got revised down to 0.6% increase against the original 0.7%.

For the US stock market, we expect the S&P500 to maintain its strength and range trade between 5,200-5,400 points.

Citing the stubborn inflation number, the demand for staple food and less expensive dining option are likely to gain share of the wallet.

McDonald’s Corp (MCD.US) is reportedly going to offer a promotional value meal at US$5 a piece in the US starting 25 June. The special menu is expected to last for one month which will likely include a choice between McChicken or a McDouble in addition to a four-piece chicken nugget, small fries and a small drink. Besides drawing back more customers, the offer may also be an opportunity for trying out some new menu ideas. For instance, it is noted that more fast-food chains are recently pushing chicken in their menu. As it is a cheaper alternative to other proteins which also aligns with the healthy eating trends. Chicken meals can also help lower product price point for fighting inflation.

The company reported a 1Q24 revenue of $6.2bn, up 4% which was in-line with expectations. However, its SSSG of 1.9% increase was below what the market had expected. Underlying operating profit edged up 8% to $2.7b and was mainly driven by higher sales and improved margins.

It is recommended to buy at US$265, target at US$309, and stop loss at US$254.

Tyson Foods (TSN) is also a beneficiary of higher demand for chicken. For the six months ended March 2024, sales of chicken products accounted for about 31% of total sales but contributed to almost 62% of the period’s operating profit due to operational improvements and market tailwinds. The US poultry industry had been facing challenges in the supply side due to poor egg fertilities and high mortality rates.

In addition, Tyson Foods has a solid portfolio of prepared foods include brands such as Jimmy Dean, Hillshire Farm, Ball Park, etc… This segment is another major profit contributor with lower raw material costs and better operating efficiencies.

It is recommended to buy at US$59, target at US$69, and stop loss at US$56.