Well folks, happy thanksgiving to those of you in Canada! To our friends south of the border, have fun waiting till next month. It looks as though markets are slightly lower on this Canadian Turkey Day as premarket futures on the Dow, S&P and Nasdaq are trading 4, 14 and 24 bps lower at the time of writing. Today’s Monday report is centred on US and international markets as the TSX is closed, so read on for your daily dose of market inspiration!
Markets in Review
This week is sure to be an interesting one with multiple economic catalysts on the agenda. A few that we’ll be watching closely are Wednesday’s FOMC meeting minutes release, followed by Thursday’s announcement of September’s CPI figures and then capping off with retail data on Friday; with the latter two being released before the market opens, they’re likely to set the tone for the day’s trading. Panning to the S&P, pictured below, Friday was a rough day for the market as multiple geopolitical shifts centred on the Ukraine-Russian war took place causing the index to plunge back to its 52-week lows with the tech sector leading the losses. Regardless, all eyes will be on the continued success of this Q3 reporting period and Thursday’s CPI release to drag us from these depths.
Last, here’s a roundup of this Q3 earnings season by the numbers and a preview of the issuers slated to report this week: Earnings Growth: For Q3 2022, the estimated earnings growth rate for the S&P 500 is 2.4%. If 2.4% 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 June 30, the estimated earnings growth rate for Q3 2022 was 9.9%. Ten sectors are expected to report lower earnings today (compared to June 30) due to downward revisions to EPS estimates. Earnings Guidance: For Q3 2022, 65 S&P 500 companies have issued negative EPS guidance and 41 S&P 500 companies have issued positive EPS guidance. Valuation: The forward 12-month P/E ratio for the S&P 500 is 15.8. This P/E ratio is below the 5-year average (18.5) and below the 10-year average (17.1). Earnings Scorecard: For Q3 2022 (with 20 S&P 500 companies reporting actual results), 14 S&P 500 companies have reported a positive EPS surprise and 13 S&P 500 companies have reported a positive revenue surprise.
Trade of the Day - Short: PayPal Holdings, Inc. (PYPL-NASDAQ) | Timeline: 2 days
PayPal Holdings, Inc. (PYPL), a company we all know and love, operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. As fears of a recession are likely to decrease transaction volumes, profitability has become a huge concern amongst investors throughout this year - as a result, the company took action in not the most well-received of ways. Yesterday, Paypal announced it would charge customers up to $2,500 for misinformation - no one was happy about this. (Full Story) Turning to the chart, Payal’s stock has had a rough year so far, oscillating through this downward price channel since February. As it’s edged to the upper part of the channel in recent months, bulls have overbought this stock, signalled by the RSI’s rejection - and with the company’s most recent news and bearish speculation, the price should fall to the channel’s lower end.
Sabotage in the Kerch Strait
Over the weekend the Kerch Strait Bridge, a 19km long road and rail bridge between Russia and Crimea, was rocked by an explosion which knocked out some capabilities. As of Monday morning reports indicate the bridge can be used by individual motorists, and some rail activity has resumed, however larger vehicles have been forced to use a ferry. This bridge is significant as it was constructed by the Russians after the annexation of Crimea, and has been essential for supplying troops throughout the war. Officially, no culprit has taken responsibility for the attack, however, a Russian investigative committee has placed the blame on Ukraine. Vladimir Putin has also described the attack as an act of terrorism. To Hike or Not To Hike Friday’s extremely low 3.5% unemployment report has shown that even after multiple rate hikes the US labour market remains tight. This all while the Cleveland FED’s Nowcast has placed MoM CPI change for October at 0.7%, signalling that elevated inflation is ahead. This puts the Fed between a rock and a hard place. If they commit to hiking rates, global currencies will continue to be devalued relative to the USD at an unsustainable pace and a fracture of the global financial plumbing is likely. With a recession in the United States seemingly unavoidable. Although severe, these measures have the potential to bring inflation back towards 2%. If they blink now, a pivot may bring short-term relief to impoverished nations struggling to afford commodities, distressed global credit markets and individual consumers alike. Although this would only be a band-aid solution for an open artery, as spiking inflation would begin to erode the US and global economies.
EU countries eye deal on more energy measures within weeks
European Union countries will seek a November deal on more emergency measures to tackle high gas prices, officials said, although countries still disagree on what form those measures would take and whether they should cap gas prices. (Full Story)
French Fuel Shortages
Refinery worker strikes in the country are entering their 14th day, and have already reduced production in the country by 60% (Full Story)
Russian’s Launch Missile Strikes
Russia’s defence ministry said it hit “all designated targets” in a massive missile attack on Ukrainian military, communications and energy infrastructure on Monday. (Full Story)
Germany eyes possible political motive in railway sabotage
German police said Monday they're examining the possibility of a political motive in the suspected sabotage of a railway communication system over the weekend that brought trains to a standstill across the northwest of the country. (Full Story)
Beijing officials praise Elon Musk
Chinese government officials have praised Elon Musk for suggesting that Taiwan should become "a special administrative zone" similar to Hong Kong. Musk proposed his solution to the China-Taiwan conflict during an interview with the Financial Times published on October 7. (Full Story)
Chart of the Day: Global Bond Value Continues to Drop…
“If you’re not failing, you’re not pushing your limits, and if you’re not pushing your limits, you’re not maximizing your potential” - Ray Dalio
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