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PPI Spikes... Long Pepsi

Well folks, the market went on quite the ride yesterday having gained 125bps by midday before wiping them from the board in the second half of the session. This led the S&P 500 to establish a new 52-week low of 355.71 points…a level unseen since two years ago. Regardless, both our shorts on Paypal and Richardson Electronics continued to print yesterday, as such remember that if you’re in any of our trades, use a stop loss and mind the trading timeline!


Markets in Review

We’re almost a third of the way through this earnings season and the market is likely to report a 6 to 7 percent earnings growth over the quarter. Pictured below are the differentials between estimates and actual earnings for the S&P since Q4 of 2018 - while analysts are forecasting 2.4% growth for the period, the S&P usually comes in far above expectations. That said, this 2.4% figure would actually represent the lowest growth reported for this period since Q3 of 2020, which coincidentally was also the last time the index was trading at these levels. The market is slipping dangerously close to a negative earnings cycle and a continued environment of rampant inflation and iterate raises could be what’s needed to push it over the edge into this territory. Today seems to be a bounce back for the market though with premarket futures on the Dow, S&P and Nasdaq all trading 50-100bps in the green at the time of writing.


Long: PepsiCo, Inc. (PEP-NASDAQ) | Timeline: 2 days

PepsiCo, Inc. (PEP), the company we all know and love, manufactures, markets, and distributes various snacks and beverages worldwide. The food giant reported stellar earnings earlier this morning, and it’s safe to say Pepsi’s strong market position resulted in very little pushback from consumers when lifting prices due to inflation, supply chain issues, and other macroeconomic headwinds overseas. (Full Story) Referring to the chart, Pepsi’s stock has been trending upwards through a wide price channel - ultimately beneficial for traders as one is able to trade the oscillations between support and resistance. That said, the stock has reached a low signalled by an exhausted RSI, and with this positive news, buyers are likely to enter back into the stock resulting in a push toward that previous resistance level.


Zooming out...

Housing Unaffordability Across the Globe

As we begin to see the end of the easy money era, which was the status quo in the years following the 2008 financial crisis, we’re beginning to see the “everything bubble” of inflated assets begin to leak slowly. While at first glance this may seem like great news for the average consumer who's struggled to afford big-ticket purchases such as houses and cars, in reality, the situation has become far worse for them as well.

As we’ve shown above, soaring interest rates have sent the average UK mortgage payment skyrocketing, to the point where it matches the country's already unaffordable monthly rent. Additionally, the data clearly shows that the rapid increase in average payments came as the BOE raised their bank rate starting December 16th of last year.

Speaking of unaffordable housing, the average consumer within the Canadian market is being priced out of their desired location. Outside of a condo, every piece of real estate on average is costing Canadians over 60% of their median household income. This becomes an even larger unaffordability problem when you realize the government also takes 40-50% of that income as tax. Meaning that the average Canadian has no shot of owning a detached house, with no clear solution in sight.

While it may not be the first question central bankers ask themselves when drafting and implementing policy, housing affordability should be taken into consideration as the global fight against inflation continues.


Making headlines...

BlackRock, Citi CEOs Won’t Be Returning to Key Climate Talks

  • The biggest climate event of the calendar looks set to draw far fewer chief executives than it did just a year ago. (Full Story)

U.S. mortgage interest rates rise to the highest level since 2006

  • The average interest rate on the most popular U.S. home loan rose to its highest level since 2006 as the housing sector continued to bear the brunt of tightening financial conditions, data from the Mortgage Bankers Association (MBA) showed on Wednesday. (Full Story)

Europe turns to Africa in bid to replace Russian natural gas

  • A new liquefied natural gas project off Africa's western coast may only be 80% complete, but already the prospect of a new energy supplier has drawn visits from the leaders of Poland and Germany. (Full Story)

Ukraine's Zaporizhzhia nuclear plant loses external power

  • Ukraine's biggest nuclear plant, which is surrounded by Russian troops, has lost all external power needed for vital safety systems for the second time in five days, the head of the U.N.’s nuclear watchdog said Wednesday, calling it a “deeply worrying development.” (Full Story)

Mercedes-Benz and Microsoft collaborate on supply chain data platform

  • Mercedes-Benz and Microsoft announced a partnership on Wednesday using Microsoft Cloud for a data platform intended to improve production efficiency at over 30 passenger car plants globally, the carmaker said on Wednesday. (Full Story)


Chart of the Day: Agricultural Commodities


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