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Msg  70507 of 70717  at  10/20/2021 10:46:33 AM  by

carswell


The Launch Pad

Richardson Wealth - Connected Wealth
Daily market commentary
The Launch Pad
October 20, 2021
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Today

Futures are little changed this morning as investors weigh the impact of supply chain constraints and inflation or corporate earnings. Strong earnings numbers have lifted investor sentiment since the banks kicked things off last week, with 82% of companies who have reported so far beating expectations. With yesterday’s advance, the major averages are approaching their all-time highs, but it is clear that investors are remaining cautious as the supply chain crisis grows.

As demand continues to rise as economies reopen after the pandemic, retailers and manufacturers are overordering or placing orders too early as panic over the massive supply chain crisis grows. This has been making things much worse for the supply shortage we have been seeing. From container shortages to floods and Covid infections setting off port closures, supply chains everywhere have been hit by massive disruptions this year. The energy crises in mainland China and Europe are the latest to roil the shipping industry (Europe is also grappling with a massive gas shortage). As the holiday season approaches, those in the supply chain industry have warned that there’s likely to be a shortage of goods, or prices will rocket due to high demand and low supply, so you may need to get your partner an IOU for Christmas.

Speaking of supply chain issues. In a bid to contend with rising commodity and freight costs, Proctor & Gamble (P&G) will be raising prices on certain products. While the company didn’t disclose exactly which products were impacted, a distributer confirmed they received a letter from P&G that outlined price increases to popular brands such as Olay, Crest, and Oral B. This marks the second price increase the company announced this year following its first announcement in the Spring of price increases to popular brands Pampers and Always. P&G shares were down -1.7% yesterday.

The price of bitcoin hovered just below its all-time high yesterday, continuing an almost one-month rally. The recent rise has been partly driven by enthusiasm around ProShares’ bitcoin-linked exchange-traded fund which was launched yesterday (it was the second-busiest exchange-traded debut on record). The fund provides investors a fresh way to potentially profit from one of Bitcoin’s most defining characteristics -- its volatility. While the coin has surged about 120% in 2021, that advance came with a more than 55% drawdown along the way. Bitcoin’s last three full-year returns were a 74% loss followed by gains of 95% and 305%.

The NBA returned last night with its opening night light up featuring the reigning champs the Milwaukie Bucks vs. the Brooklyn Nets (minus Kyrie of course). In a bid to promote the game outside of the U.S., the NBA reported that the opening night lineup consisted of 109 international players from 39 different countries. Mind you, Canadians are considered international players. Canada led the league again in being the most represented country outside of the U.S. with 18 players. Speaking of Canada, the Raps start their season tonight vs the Wizards, and they will do so without the GROAT (Greatest Raptor of All Time) Kyle Lowry, which should make for an interesting season to say the least.


Diversion: Have you ever been on a lazy river and said “I wish I could live here”? Well, now is your chance.


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Company news

No plot twists or positive surprises. Netflix is looking to open lower this morning after reporting disappointing subscriber growth and forecasting lower-than-expected earnings in the fourth quarter. The company said it continues to expect full year 2021 free cash flow to be approximately breakeven plus or minus several hundred million dollars depending on the timing of production starts and related cash spending on content.

It’s that time of year when consumers get ready to upgrade to the latest and greatest phone. To lure buyers away from Apple’s iPhone, Google launched the latest Pixel smartphones, betting on its first custom-designed system processor and a new version of the Android OS. Even though Android is the top smartphone OS globally, the actual google Pixel phone has a very small market share in mobile handsets. Taking a page from Apple, the company is now trying to stand apart from the competition with its own processor called Tensor system-on-chip, which is optimized for Google’s strengths in image processing and AI, helping deliver faster and more accurate speech recognition and better battery life.

Facebook is making a leap into the metaverse with a fresh look. The Verge reports that the social network giant will rebrand themselves with a new name as they focus increasingly on the virtual world.


Commodities

Oil prices are lower by nearly 1% after China’s National Development and Reform Commission said that it would bring coal prices back to a reasonable range and crack down on any irregularities that disturb market order or malicious speculation on thermal coal futures. The Chinese government has been trying to to tame record high coal prices and ensure coal mines operate at full capacity as Beijing moved to ease a power shortage. Oil markets in general remain supported by a global coal and gas crunch, which has driven a switch to diesel and fuel oil for power generation. At the time of writing, NYM WTI Crude futures are down –1.02% to US$82.11/bbl and ICE Brent Crude futures are down –0.92% to US$84.32/bbl.

Gold is up after two days of losses. A recent Reuters polls showed that the Federal Reserve will wait until 2023 before raising interest rates. However, persistent inflation would likely be the greater risk for the U.S. economy over the coming year. Gold Spot is up +1.00% to US$1,786.85/oz this morning.



Fixed income and economics

Bear flattening in the Treasury curve continues unabated this morning with the five-year yield marking a new post-pandemic high of 1.16% and 10’s selling off to 1.65% and the cheapest since May. That has the 10/30 Treasury spread narrowing to just +43.5 basis points and the flattest in nearly two years. Fresh comments from Federal Reserve Governor Christopher Waller (voter this year, alternate in 2022) that the central bank should begin tapering its monthly purchases of $120 billion in government and mortgage-related assets are spurring the move and affirming market expectations for a reduction next month. Waller added that he thought that the criteria of "substantial further progress" in economic conditions had been met to scale back asset purchases but did caution that rate hikes were "some time off" (effectively towing the party line). Furthermore, he conceded that inflation remaining persistently above target would force the Fed to take more aggressive action. All of this rings consistent with massive uptick in twelve-month breakeven rates --- the inflation metric has quietly spiked by nearly +165.0 basis points since the start of October to 3.67%. Note that the breakeven curve is very much inverted with five (2.75%), ten (2.56%) and thirty (2.38%) year gauges suggesting the short end’s aggressive move will not persist.

Contagion risk continues amidst the Evergrande fallout as Sinic Holdings Group Co. has become the latest Chinese real estate firm to default. The developer had warned earlier this month of the risk facing their inability to pay the USD $250 million maturing on their 9.50% 10/18/2021 notes and yesterday they made that forewarning a reality. They will now enter the 30-day grace period for which to fulfil nonpayment, but that hasn’t stopped the credit rating agencies from already publishing new updates. S&P downgraded the issuer from CC to SD (“selective default”) and added that they view the action likely to trigger cross-default provisions. Note that this comes despite Sinic sitting on a cash hoard worth in excess of ¥14 billion as of June, lending further credence to many that the CCP will ensure the repayment of all onshore debt obligations at the expense of offshore investors. Sinic has two other USD bonds worth over $500 billion notional that are maturing over the next eight months, and both are unlikely to be made whole given the current circumstances. As a reminder, Evergrande’s 30-day grace period to make last month’s offshore interest payment will officially end this week and there are currently no indications the delayed payment will be forthcoming.


Chart of the day

Markets

Quote of the day

Yesterday is not ours to recover, but tomorrow is ours to win or lose.
Lyndon B. Johnson

Contributors: A. Innis, A. Nguyen, P. Kwon, D. Mak, J. Price


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