Analysis: ABNB

While the market continues to struggle with the latest Ukraine-Russia developments, the February Flash Composite Purchasing Managers' Index for both the U.S. and the Eurozone are now out and both reports show an upturn in the respective territories for both the manufacturing and services economy. They also show that inflation remains hot, and companies continue to boost selling prices to offset rising costs. On the one hand, the report confirms a pickup in economic activity as Omicron fades, but the inflation data means a more aggressive move by the Fed is looking more likely exiting its March meeting -- subject to what's happening on the geopolitical front.

The U.S. PMI Rises

The Market Flash U.S. Composite PMI Output Index rose to 56.0 in February from the 18-month low of 51.1 in January with a "sharp and accelerated increase in new business among private sector companies that was the fastest in seven months." There appears to some pull-forward given the comment that "customers reportedly made additional purchases to avoid future price hikes" given inflationary pressures intensified in February from January's 10-month low.

The positive from the flash February data is the manufacturing and services economy is rebounding as hoped for as Omicron moved into the rear view and future output expectations rose to the highest level in 15 months. Supply chains continue to hamper activity, but that impact appears to have fallen to its lowest level since last May. Unfortunately, that rebound in activity brought more companies looking to pass higher costs onto customers "resulting in the largest increase in average prices charged yet recorded by the survey."

Those comments, while good for a pickup in GDP, also set the stage for what we're likely to see in the February Producer Price Index and Consumer Price Index reports in the coming weeks. By that we mean February inflation data that barring the current geopolitical tension would likely add fuel to the fire for the Fed to make a stronger move exiting its March FOMC meeting. And by a "stronger move" we mean a 50-basis point increase. Given the weekend's developments, expectations for such a rate hike have now fallen vs. last week. Not surprising given the pieces moving around the chess board and the Fed's desire not to put the economy into a tailspin.

The Eurozone

Similar to the February flash data for the U.S., the Eurozone data showed an uptick in business during the month as Covid-19 restrictions eased to their lowest level since November. Those looser restrictions led to a strong rise in consumer facing activity, travel, tourism. A positive indicator for our shares of Airbnb (ABNB) , which derives close to half of its revenue outside of the U.S. We'd note in 2018 and 2019 that revenue mix skewed more toward non-U.S. but shifted during the pandemic. As Omicron fades, restrictions ease and travel resumes, we see the company's international business becoming a larger piece of its revenue mix in the coming quarters.

Getting back to the February flash PMI data, average prices paid for materials rose sharply again even though the rate of increase was the slowest since March of last year. The report also showed the largest rise in selling prices recorded over the last 25 years, which similar to the comments made above for the U.S., more than likely mean February inflation data for the Eurozone will continue to be hot on a year over year basis.

At the time of publication, AAP was long ABNB.