CNBC Daily Open: Return to reality

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

All eyes on inflation.

• We look ahead to the U.S. consumer price index report later this week, which will help determine the Federal Reserve’s path ahead. We’ll also hear more about the Fed’s thinking when minutes from the February Federal Open Market Committee meeting are released this week. China’s inflation number for March is scheduled for Tuesday, which is also when the Bank of Korea will meet. Asia markets traded higher as most of the region returned from a long weekend.

• On Friday, the U.S. Labor Department said the country added 236,000 jobs in March, which was broadly in line with expectations but down from the month before, showing that the job market is indeed slowing. That number compares with a revised print of 326,000 jobs in February. The unemployment rate ticked lower from 3.6% to 3.5%. Average hourly earnings rose by 0.3% to push the 12-month increase to 4.2%, the lowest level since June 2021.
• Microsoft is betting big on the company behind ChatGPT. It has reportedly invested a total of $13 billion to partner with OpenAI, which would value the San Francisco-based startup at roughly $29 billion. Microsoft is integrating the startup’s technology into its Bing search engine, sales and marketing software, GitHub coding tools, Microsoft 365 productivity bundle and Azure cloud. Wells Fargo analyst Michael Turrin says it could all add up to over $30 billion in new annual revenue for Microsoft.
• Tesla will open a new Megafactory in China, according to an announcement from the company over the weekend. The site would be capable of annually producing 10,000 Megapacks —very large batteries that improve the function of power grids. CEO Elon Musk tweeted on Sunday that the factory in China will “supplement” output from Tesla’s California Megafactory.
•  PRO The S&P 500 kicked off the second quarter worse than its start to the first quarter — the index fell 0.1% in a shortened trading week, while it gained 7% in January’s first week. Here are stocks with the most upside as the second quarter kicks in.

That’s because several questions remain front and center. Most importantly: When will the Fed’s hiking cycle draw to a close? Last week’s U.S. jobs number could pave the way for another rate hike in May but contains clear signs of a slowing economy. Indeed, last week’s dismal ISM manufacturing reading and weak ADP jobless claims data paint a bleaker economic picture that many investors think will prompt rate cuts this year — even as policymakers adamantly push back against that notion.

Against that backdrop, the main event this week will be the U.S. consumer price index release on Wednesday. Economists polled by Reuters expect an acceleration to 5.6% on a yearly basis and a 0.4% monthly gain for core inflation, which excludes the volatile food and energy components. At those levels, inflation remains the Fed’s biggest problem.

Or does it? The dust has seemingly settled on recent weeks’ banking turmoil, but the potential for more drama looms. That means financial stability will need to factor into the Fed’s policy calculus as well. We’ll likely get more clues on the health of the financial sector when the mega banks kick off what’s expected to be a grim U.S. earnings season on Friday.

For now, a positive start for Asian futures is helping ease investors back from the holidays. Asian stocks are mostly higher, while U.S. futures are also ticking upward after markets were closed on Good Friday. Most of Europe will enjoy a four-day weekend and remain closed for Easter Monday.

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