Head of Equity Strategy
Summary: Last week was bad for equities with global equities down more than 4% but surprisingly our travel theme basket was only down 2% despite the ongoing cost-of-living crisis which is negatively impacting consumers around the world. Cruise line stocks such as Royal Caribbean and Carnival helped travel outperforming the overall market with the strong performance likely helped by easing prices across oil, gasoline, and diesel lowering the input cost pressure for cruise lines. In today's update we are also zooming in on the crypto theme as it was the worst performer despite a successful merge on the Ethereum network.
Cruise line stocks sail ahead in travel surprise
Last week was negative for global equities with the MSCI World Index down 4.2% as financial conditions continue to tighten. But in the middle of the sea of red, our travel basket was the best performing basket down only 2%. This is quite odd given the galloping prices on energy and food which are pulling income out of households and thus the expectation is that consumers will dial down on their discretionary spending which includes traveling.
If take a look at the travel basket we see that some of the strong performers last week were the cruise liners such as Royal Caribbean and Carnival up 5% and 1.5% respectively. The moves were not driven by any news so one potential driver could be lower prices on oil, gasoline, and diesel in the US as the country continues to release oil from its strategic reserves at a steady pace. As we highlighted in on Earnings Watch update on Friday, Carnival reports FY22 Q3 earnings (ending 31 August) on Friday this week with analysts expecting 800% revenue growth y/y and a return to profitability with $734mn in EBITDA expected. But as the normalized price chart below shows, the cruise line industry is deep under water compared to the period before the pandemic.
“The merge” fails to bolster crypto sentiment
As we wrote last week in our crypto update, the second largest cryptocurrency Ethereum successfully merged from proof-of-work to proof-of-stake which is technological implementation aimed to reduce energy usage and making the network more scalable. One would think that this event would bolster the outlook for the crypto industry but that turned out not to be the case. Our Bitcoin centric theme basket was the worst performing basket last week and even ETH, the naïve currency of the Ethereum network, was weak and is continuing down today against the USD trading just above the 1,300 level.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
