This Week In Markets: 7th - 11th February 2022 (ECB's Knot, Peloton takeover target, US CPI preview)

Okay, hope you are doing well. It is Sunday, 6th of February, so the usual look ahead for the week. Let's wrap up some of the major weekend news from hawkish comments out of a governing council of the ECB. We've got talk of Amazon, Nike evaluating a bid for Peloton, which we can look at in a bit more detail, and then a look ahead for the week with most of the attention going to be on the US CPI numbers, which are going to come out on Thursday. Don't forget, as you can see here, this is our Daily Market Maker newsletter written by myself every weekday, plus a weekend edition on Saturday wrapping up all things that matter in markets. So feel free to subscribe to that. I'll drop a link in the comment section of this video. But let's just get straight into things and talk about ECB's knot. Now, one of the first things you might ask yourself, particularly if you're, you're a student or even a non-professional trader, you might think, who, who Who is Knot and who is Klaus Knot at best? And really, this is a crib sheet here. I've tweeted it out as well if you want to have a look at it. My handle is just there. But these are all the members of the Governing Council. And really, they're quite important that you get to know and get familiar with all of these names and more importantly, where they sit on that dove-hawk spectrum. Dovish being at the top, hawkish at the bottom. And as you can see here, Klaus Knot is the outright most hawkish member. He's the head of the Dutch central bank. So what did he say? Well, he said at the weekend he expects an interest rate increase as early as the fourth quarter of this year. And if that were to take place, then the second hike could happen in the spring of 2023. So pretty hawkish comments, but I would say context is, is super key. So point one is not making that type of rhetoric is not that unsurprising given his disposition on the more hawkish side of the spectrum. Two, if you actually look at what inflation is like, not overall in the eurozone, it's already a record, but if you look at it in Netherlands, it's even higher. It's at 7.6% in January. So they're definitely feeling the pressure to take some sort of action in the more near term. And then two, it comes in the context of the ECB meeting as well. Although Christine Lagarde didn't really push back too much on some of the market more aggressive pricing that's happened, given the more ahead moves that we're seeing from the Bank of England and the Fed at this point in time, we did also have those source comments as well shortly after the ECB meeting last week. Last week that were talking about potential of a rate hike in 2022. So none of it really in my mind is too surprising. And of all the members to come out and say this, this is probably the least surprising. So although this is a headline being run as a headline kind of scoop by some of the major financial newswires, I don't actually think it's a particularly big deal, to be quite honest. Other things are that are a big deal because Peloton shares did spike over 45% in extended market trade on Friday. And it came after reports that Amazon and Nike are said to be evaluating a bid for the firm. As we know, Peloton was one of those kind of pure-play pandemic winners at the initial time, but they've come crashing back to reality and they've had a number of issues, supply chain constraints on really impacting their distribution of their products, as well as just generally the lockdowns loosening, so restrictions going away, people getting back to the kind of business of just living, living their normal lives, and particularly that in the fitness space as well. Their shares have been down over 80% since their initial highs, but they did blip, as I said, over 40% on Friday. The question mark comes then is how likely is a deal, and these particular names that are being put forward is not just the Amazons and the Nikes. There's also been Disney mentioned. Apple's also been mentioned as well. Um, I wrote a piece about this on my LinkedIn account over the weekend because I thought it was quite interesting. And I'd say the— probably the most likely suitor for a Peloton— and Peloton do have their earnings out this week as well, which will be quite interesting— is Amazon. And if you think about really what Amazon is, although it's becoming this kind of juggernaut in AWS and the cloud space, It is a logistics giant and that in particular, those supply chain headaches have been massive factor that's weighed on, on Peloton. Amazon is also keen to develop its fitness and wellbeing capabilities to bulk up its Halo Band that it launched really at the beginning of the pandemic in 2020. And we saw last week as well Amazon in their earnings, they raised their US Prime membership by 17% and although they don't raise prices that often, obviously there's going to be certain customers, particularly when we're facing, you know, the cost of living is getting more expensive globally at the moment under the guise of rising inflation and energy prices and bills and so forth. Then what could they do to try and keep those customers satisfied to stay with their subscription? Well, you know, bundle the Peloton existing subscription package into Prime could be a pretty easy win in that respect. So Yeah, it's probably Amazon, I would say, is the favorite here. The reason why I say that as well is Nike has already come out with their kind of strategic goals of what their plans are, and it's much more in the software space rather than hardware in itself. And with Apple, I do see it hard to see them taking on these kind of physical units of not by their own design, which is not really akin to what their history has kind of shown in that respect. So yeah, out of all of them, I'd say Amazon is probably the best. Suited. And I do think for sure that Peloton is running on, on fumes at the moment, and it's only a matter of, of timing with this sort of thing. All right, so let's have a look at the week ahead and what have we got on the agenda. First things first, don't forget that China is back from its week-long holiday. Otherwise, on Monday we get straight into it in Europe where we have German industrial production for December to kick off the week. Economists anticipate a rebound from the previous month that probably won't be enough though to have prevented a contraction in the fourth quarter. Germany being one of those European nations that's really going to have the impact of restrictions given some of the outbreaks that we've had of Omicron. ECB President Christine Lagarde is also speaking on Monday. She's talking to the European Parliament committee. Normally, that's normally just an update, particularly because it comes just a couple of days on Thursday last week when we had the ECB meeting of just relaying really that communication to, to parliamentarians, essentially. So very rarely do we see anything new there. But again, she's the president, so she is speaking Monday. Worth being aware of that. Really, the highlight of the week, just jumping to Thursday, no doubt will be US CPI. And the reason for that is it's expected to have jumped to here, the red bar, which would be 7.3% in the month of January. That would be another increase from 7%. And as you can see here, this steady uptick that we've had over the last 4 really consecutive readings going from where we were in the mid-5s, quite constant during really the summer of last year and this pickup that we've had. So if that was to materialize and we get a 7.3% year-on-year CPI headline reading, then from the US that would be the largest annual advance since early 1980. 82. Um, the ex-food and energy categories, that's expected to have risen by 5.9%. But analysts at Barclays— I was reading one of their notes— they did say that cost of clothes, new and used cars, and alcoholic beverages, all part of the core CPI goods categories, should have climbed less quickly than in December. So is there some idea here that we're coming towards a slight deceleration of the acceleration, if that makes sense? Towards peaking in that respect. Nonetheless, the inflation data of course follows the, the government's latest employment report we had in payrolls on Friday. If you missed that and you wanted to see the live reaction and analysis, it's on the YouTube channel. Just go back and search for it and our uploaded videos. But that obviously came in much higher than expected, uptick in average hourly earnings as well. And so this is just putting more and more emphasis on the idea that the Fed are going to accelerate and really commit towards the higher end of the rate hikes for the rest of this year, having not discounted, of course, 7 remaining meetings that there is to run for 2022. And other than that, on the calendar, it's pretty quiet in terms of Fed speak. The only 2 at the moment are Cleveland Fed's Loretta Mester and Michelle Bowman, both scheduled to speak on Wednesday. So the other things that I will be keeping an eye on, if we go back to the calendar here, is Andrew Bailey, the Bank of England governor, he's going to be speaking on Thursday. And of course, this comes after last week we had confirmation of the Bank of England executing their second back-to-back interest rate rise since 2004. More interestingly, I thought, was the fact that there was a 5-4 split, all to take action to hike, but 4 of them— so only just by 1 vote outvoted— wanted to hike instead of 25, 50 basis points. So So I think the market's going to be looking for Bailey to steer a little bit of clarity behind perhaps that, that discussion point. Bailey himself actually voted for 25, so was not in that more hawkish group. So definitely want to get some color on that and also perhaps clarification on comments urging pay restraint that the governor has made that drew a rebuke from the Prime Minister Boris Johnson's office. And obviously What central bankers are mindful of is you start to get into this two-horse race between higher inflation short term. So people have to put up wages, but wages, people getting paid more increases inflation. And so the central banks are of the mindset of, look, inflation is going to be temporary, kind of. And so there's no point hiking wages because it's very hard to go backward in that regard. And you don't want to fuel inflation further. But for politicians, of course, they want to pay— they want to say at least that they want wages to go up because that's playing into the, the hands of the consumer. So there's the economic argument and the political side of things. So I don't think, um, Bailey's going to really flip on his comments, but nonetheless, something that we could, um, we could be watching for and could be quite interesting. And then on Friday, from the UK, sticking there, and we get GDP data. It's going to show how the UK weathered the first full month of the coronavirus Omicron variant. The new growth figures for December, I expected to see a contraction of 0.5%. That sounds quite, quite bad, but I think you've got to put it in context of the fact that this is going through the Omicron situation. The Bank of England has already said they see the level of GDP in the first quarter as similar to the fourth quarter because of the likely contractions that we're probably going to see and a technical recession in the UK for December and January, but growth then expected to return fairly decent rate in February and March. And then final things I'm looking out for are there is earnings season still going on. It starts to soften a little bit in the pace. And also most of the major kind of bellwethers or index-weighted companies are kind of done now. A couple of names I am looking at though. Of interest. Pfizer pre-market Tuesday, Peloton aftermarket Tuesday, and we got Disney aftermarket Wednesday, Twitter, Coke, Pepsi pre-market Thursday. A couple of names that stand out for me. Um, and that's it. So yeah, any questions at all, feel free to drop me a comment on the video below. Absolutely happy to help as always. As I said, feel free to subscribe to our relatively new newsletter, but Happy to say we've got a good 60,000 people now on the list. So absolutely happy to be putting out some content every day. And yeah, have a great week and I'll speak to you on the next video. All right, take care.