Comment of the Day
Video commentary for June 28th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: downside key reversals for the Dow and S&P, Nasdaq 3% lower, oil firm, copper rolling over, Dollar firm, emerging currencies weak, Renminbi downside key reversal, H-Shares relative strength for now,
Inventory Woes Lead to Another Margin Miss
This article from Bloomberg may be of interest to subscribers. Here it is in full:
Concerns about company margins have been in focus as stock prices have slid this year. Another major US corporation is reporting a miss, which may add to anxiety about the upcoming earnings season.
Nike’s fourth-quarter gross margin trailed estimates, with an 80 basis-point drop from the prior year, due to what the firm said were higher inventory “obsolescence reserves” in China, along with elevated freight and logistics costs. Production issues amid Covid shutdowns have been resolved, but shipping logjams are still an issue, boosting inventory as many items were stuck in transit.
Earlier this month, bellwether national supermarket chain Kroger also reported a profit-margin miss, because of some price cuts and higher supply-chain costs. That was exactly the combination of factors that’s been a source of worry about corporate profitability.
Nike shares initially popped in postmarket trading, but pared some gains. Watch for more from the company on its 5pm conference call. Meantime, big banks, like JPMorgan, BofA and Morgan Stanley (NYSE:MS), are announcing their shareholder payout plans in the wake of the Fed’s stress tests; shares were mixed with JPM dipping slightly.
My view - Nike is another company dealing with high inventory levels. That’s stranded capital until the excess levels are worked off. Given the seasonal nature of many product lines and the industry practice of bringing out new designs on a regular basis, there is a clear scope that significant discounting will be required to clear stock levels. That’s good news for consumers, less so for Nike.
EU Nears Combustion Car Era's End as Italy May Drop Opposition
This article from Bloomberg may be of interest to subscribers. Here is a section:
In an attempt to enable a compromise, Germany proposed adding in a non-binding part of the car emissions law a call on the commission to propose registering after 2035 vehicles running exclusively on carbon-neutral fuels. The addition is important to Germany and can be a bridge for the overall discussion, said Environment Minister Steffi Lemke.
“We need a strong and fast CO2 reduction, but we need to keep openness on technologies,” she told the ministers. “We hope that this addition, which is important to the German government, hopefully this is agreeable and which can enable us to reach a joint acceptable solution.”
My view - As a major energy importer the EU has a clear incentive to reduce dependence on imported fuels. That’s well understood. The other side of that argument is Russia is clearly of the opinion that if the EU does not wish to buy its exports, it will find customers that do.
Rupee Has RBI Backstop as $2B of FX Futures Roll Into July
This article from Bloomberg may be of interest to subscribers. Here is a section:
The Indian rupee, which fell to a record low of 78.79 on Tuesday, may draw support from the rolling of over of nearly $2 billion in currency futures, positioning in the derivatives segment show, apart from central bank intervention.
The outstanding position in dollar/rupee futures contracts due to expire on June 28, have fallen by nearly $1.4 billion between Monday and Tuesday, while open positions maturing on July 27 have jumped by roughly $2 billion to $5.8 billion during the same period.
India’s monetary authority has been intervening across markets in recent months to defend the local currency with some analysts expecting it to weaken past 81 per dollar by year-end. The RBI has about $590 billion of forex reserves, after it ballooned to a record high of over $640 billion in September last year.
My view - The Rupee might be short-term oversold but it is trending lower. This has been a significant breakdown and suggests the surprises will be on the downside even if in the short-term there is scope for a bounce.
Eoin's personal portfolio: commodity short initiated, investment position sold June 23rd 2022
One of the questions subscribers as most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.