Comment of the Day
24th April 2023
Eoin Treacy
Apr 25
Video commentary for April 24th 2023
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: stocks ease, dollar and gold firm as dollar eases. China pulled back from 200-day MA. 10-yr Treasury contracts
Tech Surge Sends Valuations to Extremes, but Traders Don't Care
This article from Bloomberg may be of interest to subscribers. Here is a section:
Tech stocks in the S&P 500 are trading at almost 25 times prospective earnings. To justify such a multiple, the Fed would need to cut rates by at least 300 basis points, data compiled by Bloomberg Intelligence show. That’s more than five times what the swaps market is pricing in for rate cuts this year.
“Traders are betting on a big about-face in the Fed’s interest-rate policy, but there is no certainty as to whether, and when, this will happen,” said Quincy Krosby, chief global strategist at LPL Financial. “Longer-term, the sector’s growth prospects are attractive, but not at the current valuations.”
A bleak earnings outlook for tech companies supports the skepticism. Analysts expect a 15% slump in the sector’s first-quarter profits — the third-largest decline among the S&P 500’s 11 industry groups, data compiled by Bloomberg Intelligence show.
Eoin Treacy's view
The most fervent hope of investors is we are going back to the good old days of permanently low interest rates, where the There Is No Alternative (TINA) market persists indefinitely. The challenge is that inflationary pressures are still conspicuously firm. If the Fed cuts rates by 300 basis points, which I believe is likely, that will be in response to a significant growth shock. Technology earnings are unlikely to be immune to that kind of development.
This section continues in the Subscriber's Area.
Italy Rethinks Its Close China Ties as US Backs Stronger Break
This article from Bloomberg may be of interest to subscribers. Here is a section:
“Italy is stuck between a rock and a hard place, and what to do with the cooperation pact is a real diplomatic conundrum for Meloni,” Francesca Ghiretti, an analyst at the Mercator Institute for China Studies research firm, said in an interview.
“Renewing it would send a very difficult message to Washington, but not renewing it would put a strain in relations with China.”
With US-China relations deteriorating, Beijing is looking to prevent Europe from following Washington, particularly on measures like export controls of key technologies. The EU is struggling to balance a desire to engage with China on trade and investment with resisting economic coercion.
Eoin Treacy's view
Memoranda of Understanding (MOUs) are not worth the paper they are written on. More often than not, they are an opportunity for politicians to stand around congratulating one another and make for good headlines. Concrete efforts to follow through on these photo opps is a lot more difficult. That’s exactly where Italy’s MoU on the Belt and Road Initiative sits. It is about to expire but nothing has been done to further it since it was signed. Nevertheless, refusing to re-sign is a PR mess.
This section continues in the Subscriber's Area.
Haleon PLC (LSE:HLN, NYSE:HLN) is feeling in rude health after the flu season
This article from The Times may be of interest to subscribers. Here is a section:
Haleon was demerged last July in the largest London stock market listing in more than a decade. It is the first listed company to be focused purely on consumer health and its product portfolio spans oral and respiratory health, digestive health, pain relief and vitamins, minerals and supplements.
In an update, it said that sales within its respiratory health unit had jumped by 39 per cent to £510 million in the first quarter to March 31. Oral health sales rose by 9.4 per cent to £811 million, pain relief sales increased by 14 per cent to £724 million and sales of digestive health and other products climbed by 11.9 per cent to £536 million. Only its sales of vitamins, minerals and supplements were flat, at £405 million, leaving total revenue for the quarter up 13.7 per cent at £2.99 billion.
Haleon said the pressure on its vitamins, minerals and supplements unit was “largely” because of a strong quarter for its Emergen-C supplement brand during the coronavirus wave in early 2022. Sales had risen at a double-digit pace in Europe, the Middle East and Asia, Latin America and Asia Pacific, it said. Trading in the Asia Pacific region had been boosted “by strength in China, particularly in pain relief as lockdowns ended, combined with elevated Covid-19 and cold and flu incidence”.
Eoin Treacy's view
Several years ago a delegate at The Chart Seminar recounted how his family had the rights to import and sell several large international brands in Peru. He said it was clear from the pattern of sales that the commodity boom was ending in 2011. He also said that during the years when the Dollar was weak, demand for premium imported brands surged.
This section continues in the Subscriber's Area.
Eoin's personal portfolio: commodity long breakeven stop triggered April 19th 2023
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.
This section continues in the Subscriber's Area.
© 2023 Eoin Treacy
548 Market Street PMB 72296, San Francisco, CA 94104