Preview of week starting 11 July 2022

Public Holidays (China, Hong Kong, Singapore and USA)
Singapore - public holiday on 11 July 2022

Economic Calendar

This week's key economic data will be the Core CPI (Mom) June 2022.  This will reflect the ongoing inflation and with this data, the Fed can decide how they need to adjust their interest rate and asset sales accordingly leading to the next rate hike.

The crude oil inventories remain an item of interest as President Biden has committed a portion to be released to the market in an attempt to bring down the surging fuel costs.  This is a good attempt but it may not be sustainable for the longer term.  The crude oil inventories can provide an indication of how the producers view the market demands of coming weeks.

PPI is also an good indication on how the inflation has affected manufacturers.  Investing dot come has defined PPI as the following:

The producer price index (PPI) measures the average change over time in the prices domestic producers receive for their output. It is a measure of inflation at the wholesale level

The GDP of China will be revealed on Friday together with their industrial production.  As one of the world's factories, it is an important barometer of the health of global economy.  If there is a slowing down of GDP growth, this could easily ripple into the rest of the market accordingly.

Lastly, the core retail and retail sales will provide insights into the consumption of the general US economy.  This can reveal the consumption pattern and thus, a good indication of general consumer sentiments.  If the sales remain elevated, this implies the general public is still spending though there are more reports of consumer turning to cheaper alternatives to deal with the ongoing inflation.

Earnings Calendar

The earnings season starts again with the financial sectors.  There are new key ones that we should look out for.

PEPSICO

Profile of company taken from investing dot com:

PepsiCo, Inc. is a beverage and convenient food company. The Company's segments include Frito-Lay North America, which includes its food businesses in the United States and Canada; Quaker Foods North America, which includes its food businesses, such as cereal, rice, pasta and other branded food, in the United States and Canada; PepsiCo Beverages North America, which includes its beverage businesses in the United States and Canada; Latin America, which includes its beverage and convenient food businesses in Latin America; Europe, which includes its beverage and convenient food businesses in Europe; Africa, Middle East and South Asia (AMESA), which includes all of its beverage and convenient food businesses in Africa, the Middle East and South Asia; and Asia Pacific, Australia and New Zealand and China Region (APAC), which includes all of its beverage and convenient food businesses in Asia Pacific, Australia and New Zealand, and China region. Its brands include Lays, Doritos and Cheetos.

The forecast for EPS and Revenue stands at $1.74 and $19.51B respectively.  We have seen the stock price bounce from a recent low of $155.  The company has gained 14.99% in one year and this will be a good indicator of consumer consumption.

Delta Air Lines

Company profile from investing dot come:

Delta Air Lines, Inc. provides scheduled air transportation for passengers and cargo throughout the United States and across the globe. The Company's segments include Airline and Refinery. The Company has hubs and market presence in Amsterdam, London-Heathrow, Mexico City, Paris-Charles de Gaulle and Seoul-Incheon. Its airline segment is managed as a single business unit that provides scheduled air transportation for passengers and cargo throughout the United States and around the world and includes its loyalty program, as well as other ancillary airline services. Its refinery segment operates for the benefit of the airline segment by providing jet fuel to the airline segment from its own production and through jet fuel obtained through agreements with third parties. The refinery's production consists of jet fuel, as well as non-jet fuel products. It also maintains complementary portfolio businesses, such as its cargo business and its Maintenance, Repair and Overhaul (MRO) operation.

The forecast of EPS and Revenue stands at $1.65 and $12.23B respectively.  The stock has fallen 30.75% in a year and is lingering near the 52-week low region of $29.  The fuel increase, staffing shortage, and weather disruption have proven to be painful as the economy seeks to re-open from the pandemic.  The market should be looking out for signs of recovery but the staffing shortages may provide be an issue as seen during the recent summer travels.

Banking and Financial Sectors

In this, we will be taking an important reading of the financial climate as the economy battles inflation, fuel price surges and the fallout of the Russian sanctions.  There are several market leaders who will be sharing their outlook including Blackrock, Citibank, JP Morgan, Morgan Stanley, US Bancorp and Wells Fargo.  Typically, financial institutions benefit from the increase in interest rates.  However, demand curtailing can lead to reduced spending.  Both the earnings and outlook will prove to be critical for the market's outlook.  The outlook will probably outweigh the earnings.

Personally, I am taking a personal interest in Citi as one of the banks that Berkshire has invested in recently.

Company profile of BlackRock from investing dot com:

BlackRock, Inc. is an investment management company. The Company provides a range of investment and risk management services to institutional and retail clients. Its diverse platform of active (alpha) and index (beta) investment strategies across asset classes enables the Company to tailor investment outcomes and asset allocation solutions for clients. 

The forecast of EPS and revenue stands at $8.55 and $4.79B respectively.  The stock price has fallen 31.26% from a year ago.  Having hit the 52-week support of $575, the price seems to have bottomed up.  However, the outlook will be important as the market looks to reallocate its assets, and rebalance its portfolio in response to the outlook.

TSMC

This is one of the biggest players in the world of computer chips.  

Profile of TSMC taken from investing dot com:

Taiwan Semiconductor Manufacturing Co., Ltd. is principally engaged in the manufacture and sale of integrated circuits and semiconductor products. The Company is mainly engaged in the manufacture, sale and packaging test of integrated circuits and other semiconductor devices, the manufacture of masks, as well as the provision of computer-aided design services. The Company's products are applied to personal computer (PCs) and peripheral products, information applications, wired and wireless communication systems, industrial equipment, consumer electronics such as digital video disc players, digital TVs, game consoles and digital cameras. The Company is also engaged in the development of 5 nanometer process technology, mask technology, complementary metal oxide semiconductor (CMOS) image sensor technology, three dimensional (3D) IC and TSMC system on integrated chips (TSMC-SoIC) technology, among others. The Company distributes its products to the United States, Asia and Europe.

The forecast of the EPS and revenue stands at $1.43 and $17.66B respectively.  Following months of decline, the stock is lingering just above the recent low.  From a year ago, the price has fallen 32.39% and this earning should set an important outlook for the sentiments ahead.  It is not surprising if the movement of TSMC affects the rest of the market too.

Market News and my muse

Inflation hit over 50% in Sri Lanka and citizens stormed the President's palace. 

The assassination of ex-Japan PM Mr Abe has brought much concern.  While the investigation is ongoing, it is not the way to deal with "issues", causing the loss of a life of a world leader.

More Job, Expense Cuts Are Coming, According to theinformation Survey. Great insights from founders and execs. 

this is good news with 372k jobs added in June. however, we need to remember that the unemployment definition involves the people actively looking for work. not all are looking for work.  4.5m workers left in March alone.

Carl Richards said, “We’re wired to avoid pain & pursue pleasure & security. It feels right to sell when everyone around us is scared & buy when everyone feels great. It may feel right – but it’s not rational.”  The market is not rational because of a (wrong) herd mentality.

The greater fool theory states that you can make money from buying overvalued securities because there will usually be a greater fool who is willing to pay an even higher price. Eventually, the market runs out and of fools, prices drop following a sell-off.

Market outlook

From the 1D chart above, the Stochastic and MACD indicators are on the rise, suggesting an uptrend.  However, note that the stochastic indicator is expected to reach the "overbought" region soon.  The market may peak and the earnings can add to volatility.  

As the Ukraine war drags on, the sanctions in place, we can expect the prices to remain heightened though there was some relief in the decline in fuel costs from its recent peak.  The market looks to be making a recovery and thus, investors may rush in.  Personally, it is better to observe the market and the earnings will tell if the recovery can continue.