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Oil Mania! | Short $GTLB

Well folks, December is off to quite the start following the OPEC meeting yesterday which saw the cartel leave production numbers unchanged following October’s cut - this was largely speculated to be the result of the impending price cap on Russian oil, which will see their barrels trade on the market at a price of $60 USD. Read more on that here and stay tuned for economic updates through the week as the US is releasing some potentially market-moving figures through to Friday!


Markets in Review

Well folks, last week’s market bread about a 2% advance for the S&P 500 - this brought the index to a healthy 4071 point value, just under 15% off of its all-time high! Regardless of solid equity performance, funds also flowed into fixed income with treasury yields receding a couple of points across both the short and long ends. Also consolidating the bullish case for equities has been yesterday’s OPEC+ announcement detailing the cartel’s plans to keep production unchanged, despite assumptions of a slashing in barrel-per-day quotas. This won’t help to lessen oil’s drop (pictured in orange below) and instead possibly provide the cost-benefit needed for the consumer staples and discretionary sectors needed to pad earnings reports come the Q1 2022 reporting season.

The following will serve as a final review of how 2022’s Q3 reporting period has rounded up thus far as well as a preview of the most anticipated issuers to report this week!

Earnings Scorecard: For Q3 2022 (with 99% of S&P 500 companies reporting actual results), 70% of S&P 500 companies have reported a positive EPS surprise and 71% of S&P 500 companies have reported a positive revenue surprise. Earnings Growth: For Q3 2022, the blended earnings growth rate for the S&P 500 is 2.5%. If 2.5% is the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q3 2020 (-5.7%). Earnings Revisions: On September 30, the estimated earnings growth rate for Q3 2022 was 2.6%. Five sectors are reporting lower earnings today (compared to September 30) due to downward revisions to EPS estimates and negative EPS surprises. Earnings Guidance: For Q4 2022, 63 S&P 500 companies have issued negative EPS guidance and 34 S&P 500 companies have issued positive EPS guidance. Valuation: The forward 12-month P/E ratio for the S&P 500 is 17.6. This P/E ratio is below the 5-year average (18.5) but above the 10-year average (17.1).


Short: GitLab Inc. (GTLB-NASDAQ) | Timeline: 2 days

GitLab Inc. (GTLB), which develops software for the software development lifecycle in the United States, Europe, and the Asia Pacific, is set to report earnings today after the market closes. Through the last month, short interest in the stock has grown more than 11%, totalling 9,670,000 shares short as of Nov 15, as the company has suffered amid macroeconomic challenges through 2022. (Source) Referring to the chart, GTLB has lost roughly 50% of its value per share from the start of 2022 and has remained quite volatile around earnings season. That said, as the stock approaches the end of this descending triangle, the Stochastic RSI has entered extremely overbought levels and traders should expect a bounce off of its upper level - likely followed by a break of support.


Zooming out...

China Caves, America Flexes Following last week’s wave of protests across the nation, some Chinese regional governments have begun to relax their zero Covid policy restrictions. Some municipalities have done away with the daily testing requirement, whereas others have begun allowing positive covid cases to quarantine at home rather than central government facilities. Although not a complete end to the measures, this is one of the most ideal ways the white paper movement could have evolved, as many dreaded a harsh crackdown from party authorities.

Concurrently, and potentially in response to joint exercises between Chinese and Russian air forces, Northrop Grumman and the USAF have unveiled the new B-21 Raider. Designed to replace Northrop’s B2 and become the United States’ primary stealth bomber, each unit has an average procurement cost of $692M in 2022 US dollars, with a minimum inventory of 100 aircraft. Northrup’s shares jumped 2.89% on Friday on the news, and is down 11bps in premarket trading at the time of writing.

Price Cap Promises Kept

The G7, EU, and Australian $60 per barrel price cap on seaborne Russian oil has come into effect today, and to put it bluntly the Russians are not taking it well. They’ve vowed to follow through on their promise to ban deals with any nations or corporations who apply the cap, even if it means cutting production.

The fears of inventory loss from the price cap, and OPEC’s stay in production have given oil futures a boost in premarket trading, and some hope to energy bulls dreaming of returning to summer highs.


Making headlines...

Credit Suisse Rises as Saudi Crown Prince Weighs Investment

  • Credit Suisse Group AG shares rose on the prospect that Saudi Arabian Crown Prince Mohammed bin Salman will take a stake in the Swiss firm’s planned investment bank spin out. (Full Story)

Blackstone to Buy TD Warehouse Portfolio in Tight Toronto Market

  • Blackstone Real Estate is paying more than C$400 million ($297 million) in cash for the six properties, which total 1.5 million square feet (140,000 square meters) and are all fully leased. The transaction is one of the largest trades of a private industrial portfolio in Canada in recent years. (Full Story)

Germany's Scholz: We must avoid dividing world into Cold War-style blocs

  • German Chancellor Olaf Scholz warned against creating a new Cold War by dividing the world into blocs and called for every effort to be made to build new partnerships, writing in an opinion piece for Foreign Affairs magazine published online on Monday. (Full Story)

Mobilisation increases Russian military threat - Ukrainian general

  • Russia's recent mobilisation has increased its military threat in Ukraine, with better trained soldiers now arriving at the front line, the commander of Ukrainian ground forces said on Monday. (Full Story)


Chart of the Day: Baltic Dry Index Returns to Normal


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