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.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
