Market Digests Hot Inflation While Elon Musk Disposes of $5bln of Shares

Okay, very good morning. It's Thursday, the 11th of November. Hope you're doing well. And the market continues to digest yesterday's red-hot inflation figure. Obviously, US CPI came in at 6.2% year-on-year, much higher than expected 5.8%, and in fact even 0.2% higher than even the most bullish estimate on the street. And so That's really the main feature of what markets are really tackling at the moment. And that's been echoed as well. The producer price inflation in Japan figures overnight came in at a figure basically reflecting its highest level in more than 40 years. So in the last week, we've actually seen the inflationary pressure mounting globally from the likes of the Chinese economy, the US, and Japan, the world's three largest economies. And so Yeah, for sure. This is the main factor at play at the moment. And given the fact the calendar is pretty quiet today, it's probably going to be still the main kind of sentiment driver for proceedings going forward. What I'm going to start with here is the dollar and then talk about a few different things. And so first off, to give you some perspective, this is looking at the dollar index. Obviously, yesterday the reaction function was that US stocks fell the most. In a month. The likes of the S&P was down about 0.8%, the S&P 0.7%. The NASDAQ, the biggest casualty, was down about 1.66%. Those tech, um, growth-sensitive names obviously reacting quite negatively to the increasing yield environment given the red-hot inflation figures. Subsequently, the dollar hit a 52-week high, as you can see here, a bit of a breakout above those October highs, putting us at the highest levels we've basically traded at since going back 52 weeks, and that impacting oil as well, which was down 3% yesterday. But looking at this from a technical perspective, the dollar index is basically closing in on 95, and around this kind of 94, 90, 95 area is really quite key for the Dixie. As you can see here, going all the way back to the peak that we had in November of 2017, to the lows that we had in early 2019, the initial kind of bottom of the route at the early part of the onset of the pandemic and volatility we saw there, and the price recoveries we've seen in September of 2020 and also just about a month ago as well. And so it's going to be interesting to see how the dollar behaves here, and certainly these major currency pairs at the moment, EURUSD cable reflecting this dollar-led movement at this present point. in time that would mirror this kind of Dixie price movement. Um, going to start though and have a look at, um, just some stocks news first, and then we'll talk about some global, um, macro kind of news themes from UK COVID to potential delays to Build Back Better spending plan in the US. Um, and also China Evergrande managed to avert a default once again for the third time this month with making a last-minute payment overnight, and we'll have a look at those stories. Stories. But going to kick things off with the aftermarket. Um, not talking about every single stock story that came out, but just wanted to talk about some of the more kind of trending names. And Disney certainly is one of them, particularly in the streaming space with the likes of Netflix gaining a lot of attention, of course, with Squid Game success. But Disney came out and actually fell quite sharply in aftermarket trading. You can see here the shares were down about 4.5%. after their numbers hit the tape. And the reason why is that their revenues were amiss. The adjusted EPS came in at 37 cents below the expected 49. Um, their Disney+ subscribers was also in line with the company's broad expectations, slightly soft against the street, 118.1 million. Uh, analysts were expecting 119.6 million. Uh, the CEO said the segment's growth had hit some headwinds and that Disney expected to add low single-digit millions of streaming subscribers. In Q4. Their average monthly revenue per subscriber for Disney+ also is down about 9% year over year, and part of the reason for that is as they try to expand geographically into different areas, they've had a reduction in lower price points for Disney+ and Hotstar, which is a bundle that they typically sell in the likes of Indonesia and India, which generates a smaller margin for the business. So Disney missed on their Disney+ subscriber estimates and, and numbers all round pretty weak, and consequently their shares were lower. The other kind of major stock story from yesterday, which of course I'm sure you saw, was the electric vehicle startup Rivian. They set a record basically at their first day of trade without any type of meaningful revenue that exists at this point, but as per the kind of Tesla, um, case study. I mean, since when did that matter, right? So they surged on their NASDAQ debut. They had an opening market value of more than $100 billion. So they're particularly large to just get things up and running. And to put that into some context, that would make them bigger than Ford and General Motors, um, who obviously are the mature players in the space. Um, to give you some idea as well who is backing this firm, Amazon's stake at the IPO price is worth about $12.5 billion. and even rival automaker Ford has a stake in this company, and they hold around 12.1% of the firm post-IPO, which is worth about $8 billion US as well on the IPO listing price. The other thing was Elon Musk. Obviously it's been a recurring theme, I'm sure you've been reading about since his Twitter poll on Saturday, but it's come clear now that he has so far disposed of around 4.5 million shares this week, and that total equates to around $5 billion according to regulatory filings which were released yesterday. Those were the first sales he's made in 5 years and obviously come as he kind of front-run the market with that poll that was issued, as I said, at the weekend. So their shares, after having a really meteoric rise in recent weeks, have had a bit of a tough time of late, coming off those most elevated levels, but have found a bit of a floor at the $1,000 level. They were peaking, Tesla shares, up at around $1,240. They're now trading on the close last night at $1,068. But as I said, finding a bit of a floor technically around the $1,000 marker psychologically. Um, before I move on to the macro kind of coverage, a few things I wanted to cover there. Just wanted to remind you that the Market Maker podcast um, continues to put out episodes. We did one yesterday that went live, which was, uh, if you're a student, we've been doing a career hack series. We've covered HireVue interviews, group exercises, virtual assessment centers, and yesterday we put one out specifically about why networking is so crucial if you're applying for any job in finance and some tips and tricks and things from our industry experts and insights that we have. And we put this all together in the podcast episode yesterday. So all you need to do is jump on Spotify, type Amplify Me Market Maker, you'll see, you'll see my face, and then you'll be able to get those episodes. And not forgetting as well, at the end of every week on a Friday, myself and head of trading Piers will have that end of week informal discussion about the major theme. So really nice way as well to If you find it difficult to stay on top of all of the macro news through the week, this is your one kind of episode listen that makes sure that every week to week you're absolutely on your A-game of what's going on in markets. All right. So on the macro front, what have we got? First off, in the Asia-Pac session, China Evergrande averted destabilizing potential default once again for the third time in just a month. Sources have said several bondholders received coupon— overdue coupon payments worth just under $150 million. So my overall take with Evergrande at the moment is that it's kind of yesterday's news. I think particularly in the order of hierarchy at the moment, inflation is kind of taking the mantle now. And so Evergrande is one of those things that obviously you remain vigilant to monitor, But every single time that something comes due, they miss it. It goes into the 30-day grace period. They pay it at the last moment. That seems to be just the way that this is going at the moment. And, you know, we've talked about this over many weeks and months now about the potential systemic risk that any type of failure of Evergrande could have for the Chinese financial system and also reverberate potentially more globally. And so The, the fact of the matter is at the moment it's being kept on life support for the time being, and I'd expect that to be the case going forward. So it's interesting and it's noteworthy and it requires monitoring, but it's much lesser an impact as far as the story ongoing at this moment in time from a, from a global level. The other thing we had in the Asia-Pac region was the Australian unemployment rate did come in slightly higher, 5.2% above the expected 4.8%, and the acceleration from 4.6% seen just the months before, but Australia has been trying to tackle with quite onerous lockdowns that have been coming on and off over the recent weeks and months. And so even though it's quite high at the moment, expectations are once those start to be relaxed again, there's some pent-up demand will start to populate the, the jobs market again in time. The other thing that is talking about UK COVID and I did have a bit of a tweet about this when it came out last night about— it's funny how it seems to have gone quite silent talking about COVID either from the politicians in the UK or the mainstream media. And the reason for that is, is that COVID cases in the UK are declining and it's good news. England has recorded its longest unbroken run, in fact, of declining coronavirus daily caseload since February as COVID-19-related hospital admissions begin to fall in every region of the country, according to latest analysis of the FT. And you can see here the rates of cases, hospitalizations, and deaths are now falling in, in England. All metrics here displayed are as a percentage of the peak value last winter as to where we're at at the moment, the red against the blue. At this point in time. The other thing as well that's quite interesting is separate data from the Office of National Statistics published yesterday showed a rebound in antibody levels in the over 80s to 92% after falling by 6 percentage points to 88% between June and October. And so what you can see here is waning immunity as we go through the summer into really what was the early part of October, so this time last month. That was when the conversation very much was about the rolling out of boosters because of the fading efficacy rates of some of those early jabs that were issued to those who were most vulnerable and also the elder demographic. And so as those were waning, the boosters have come in, and this would mark then that there's been a relatively successful response to the campaign at the moment. And thus then immunity boosts kicking in at what some might argue is just the right period of time, because obviously the weather's starting to change and there's going to be more people constrained to their homes and, and perhaps intermixing with people in a more closed, confined space. And typically what we have seen is that case rates do have a, a pattern of rising over those periods, particularly with people congregating over Christmas and New Year's and things. But this should come in as these immunity levels have rebounded, and obviously a timeliness of having the shot issued at, at this point in time. So it's one of the things here, I think, with COVID there's a lot to digest at the moment if you're trading the sterling, particularly more, I'd say, inflation policy dominated. So whether that's the dollar dictating proceedings at the moment, or whether that's the UK misfiring on their comms on the rate rise timing. You've got Brexit simmering in the background still as well. COVID's in there, uh, still to be monitored. I wouldn't say right, right now today it's a, it's a focal point, but certainly it's— this is a little bit more, um, of a positive development that we're seeing at this present point in time. But as is ever with COVID we're definitely not out of the woods yet. And so important that everyone remains vigilant on that, on that front. And then, yeah, US politics. Um, don't actually have something queued up to show you on the screen for politics, but just an update where President Biden is reportedly going to sign the infrastructure bill on Monday. That's really not important information, just a time, a timeline to bear in mind. In relevant news though, and what is more important separately, is it's been reported that Senator Joe Manchin, the person who's been the kind of thorn in Biden's side, could punt President Biden's Build Back Better agenda to next year amid inflation concerns. And the Build Back Better is that kind of subsequent policy package that Biden wants to push through of $1.75 trillion, which has been hotly contested both by the Dems and the Republicans about its size It's basically got incrementally smaller as time has gone on, having been initially in excess of $3 trillion. And the idea, I guess, for Manchin, having just to get the surface-level comments that he made, is that he doesn't want to just implement more stimulus at a point where inflation is super hot at the moment, and the likelihood is that more stimulus is only going to fuel that further. So he wants to wait, but the Downside for Biden is, again, he looks like a president who can't really enact anything at this point in time. So stuck in a bit of a rock and a hard place is Biden at the moment. More stimulus potential then to price in even more inflation going forward, which is negative. But then if he doesn't act, it shows the lack of authority that he holds then to push through any proposals that he's putting forward. Which again is a negative. So which one do you pick? And just goes to show the increasing burdens and struggles of the president at this point in time. And then that is pretty much it, because from a calendar perspective today, as I said, it's going to be really— I think today is digestion of this overall global inflation picture at the moment, because this isn't just unique to the case of what we saw yesterday in the US. It's very much so echoed on a global level. One thing actually that I did see that I thought was particularly good yesterday, and you're going to have to forgive me for how messy this is, bringing up very briefly my emails, but I do put out a regular daily email. It's called the Market Maker. If you just go to AmplifyMe.com, there's a section on the bottom of the website where you can just input your email to join that. Mailing list. But there were some really good comments, I thought, from a Fed watcher called Tim Dewey. I'm not sure how you say his surname, but Tim Dewey. And he said a couple of good points. And to summarize this briefing, and I think the general takeaway from yesterday's inflation figures, he said that there is plenty of room for pulling rates forward from 2023 into 2022 adding that, in other words, there is room to turn more hawkish without accelerating the pace of tapering. That's what he said in reference to the Fed. He argued that the Fed will become increasingly nervous about inflation, but it will not become so nervous that a policy pivot is imminent. And that's something that I think is very important to understand here of what we've had. He suggests that at a minimum, the Fed believes it has until March meeting before it needs to do some hard signaling about the second half of 2022. And moreover, you've also got, of course, the leadership turnover at the Fed argues for maintaining the status quo until the staffing settles out a little more as well. Because markets, the one thing that they don't like is a lack of continuity on leadership, because that then creates uncertainty about policy direction. So for these reasons, again, it's definitely meaningful. Markets have definitely reacted. Are the Fed going to just flip on what they said last week in their meeting about what they're going to do with policy? I think not at this time. They're just going to have to sweat it out a little bit because the inflation gorilla is lurking, as you can see here. All right. That is it. Going to leave it there. Hopefully that was interesting and get you up to speed. And I will catch you same time tomorrow. Take care.