The January CPI, Diamondback’s Permian M&A, and the Temu Takeover

Editor’s Note: Happy Valentine’s Day! If you have a honey, I hope you have a great day! And if you don’t… well, maybe Mrs. or Mr. Right is just around the corner.

January CPI Dashes Hopes of March Rate Cuts

Yesterday, the U.S. Labor Department had a little anti-Valentine’s Day present for the market. The department’s Bureau of Labor Statistics (BLS) reported that inflation ran hotter than expected in January.

The Consumer Price Index (CPI), which measures the prices consumers pay for goods and services, rose 0.3% last month and 3.1% on a year-over-year basis.

Granted, that’s better than the 3.4% year-over-year CPI growth that the BLS reported for December.

But it’s higher than the monthly gain of 0.2% and the annual gain of 2.9% that economists had been expecting, according to Dow Jones.

Minus volatile food and energy costs, the so-called “core” CPI rose 0.4% in January and 3.9% year over year. That’s higher than analyst estimates. But it remained flat from December.

The big culprit for January was shelter prices. Shelter accounts for about one-third of the CPI’s weighting. They include rental prices as well as homeowner’s equivalent rent — what it would cost to lease an equivalent property.

Last month, shelter costs rose 0.6% from December and 6% year over year.

According to the BLS, food prices rose 0.4% from December.

However, energy costs dropped by 0.9% from December, thanks to a 3.3% decrease in the price of gasoline.

The news shocked the markets, sending the Dow on a nosedive.

That’s because investors had been looking forward to an interest rate cut by the central bank’s Federal Open Market Committee (FOMC). It’s looking unlikely that that will happen anytime soon.

According to the CME Group’s FedWatch Tool, the markets are currently pricing in a more than 94% chance that the Fed will keep rates steady at its March meeting.

Coke’s Secret Ingredient for the Fourth Quarter: Higher Prices

Yesterday, Coca-Cola (NYSE: KO) reported fourth-quarter earnings and sales that somewhat beat Wall Street’s expectations.

The secret ingredient? Higher prices.

For the quarter, the beverage company reported adjusted earnings per share (EPS) of 49 cents. That’s in line with what analysts had been expecting.

Coca-Cola also reported net income for the quarter of $1.97 billion, or 46 cents per share. That’s a slight decline from the year-ago quarter, when net income totaled $2.03 billion, or 47 cents per share.

However, net sales came in at $10.85 billion. That’s higher than the $10.68 billion Wall Street analysts had been expecting and a 7% year-over-year increase.

Still, Coke reported that North American volume shrank by 1% — indicating that demand is on the wane.

For the current year, Coke expects organic revenue to grow by 6% to 7% and EPS to increase by 4% to 5%.

Diamondback Endeavors to Buy… Endeavor

On Monday, Diamondback Energy (NSDQ: FANG) announced that it plans to purchase privately held Endeavor Energy Resources in a deal worth $26 billion.

If the deal goes down, the takeover bid will create an oil major worth roughly $50 billion.

Diamondback is just the latest energy company scooping up rivals through M&A activity.

Back in October, Chevron (NYSE: CVX) announced that it would buy Hess (NYSE: HES) for $53 billion. And in December, Occidental Petroleum (NYSE: OXY) scooped up CrownRock for $12 billion.

Meanwhile, last month, Exxon Mobil (NYSE: XOM) agreed to buy Pioneer Natural Resources (NYSE: PXD) for $59.5 billion — the company’s largest acquisition in more than two decades.

Nor is Diamondback the only company with its sights set on Endeavor. According to the Wall Street Journal, ConocoPhillips (NYSE: COP) was considering acquiring the company.

These oil companies have plenty of cash on hand thanks to record profits on the back of high energy prices triggered by Russia’s invasion of Ukraine.

This has led oil giants to seek out M&A deals to become even bigger — especially within the oil-rich Permian Basin.

Diamondback’s acquisition of Endeavor would make it the third-largest oil producer in the Permian Basin, an oil and gas field located in Texas and New Mexico.

Combined, the company would have roughly 838,000 acres in the oil field at its command, with the potential for producing 816,000 oil-equivalent barrels per day.

“This is a combination of two strong, established companies merging to create a ‘must own’ North American independent oil company,” Diamondback CEO and Chairman Travis Stice said.

According to Stice, the deal would give Diamondback “industry-leading depth and quality that will be converted into cash flow with the industry’s lowest cost structure.”

“Our companies share a similar culture and operating philosophy and are headquartered across the street from one another, which should allow for a seamless integration of our two teams.”

Temu Is Taking Over

If you watched the Super Bowl over the weekend, you may be wondering, “What the heck is Temu?”

The Chinese e-commerce platform bought several high-priced ad spots during this year’s big game.

Temu primarily sells low-priced, trendy clothes and accessories straight from China. The platform is owned by Pinduoduo, which trades here in the U.S. as PDD Holdings (NSDQ: PDD). The company is the chief rival of Chinese e-commerce giant Alibaba (NYSE: BABA).

Temu’s success is due largely to the fact that it leans heavily into social media. If consumers share Temu products online and convince people in their social networks to buy, the platform will discount their purchases.

The company has seen huge success here in the U.S., mostly from Millennial and Generation Z shoppers. At the end of 2022, Temu was the most downloaded free app in the U.S.

And its users keep multiplying.

Take a look:

Infographic: 2023 Was Temu's Year | Statista You will find more infographics at Statista

Of course, the old adage “You get what you pay for” applies. Temu faces its fair share of criticism over the quality of its merchandise, as well as data security, sustainability, and human rights-related complaints.

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