Market risk on momentum is back with inflation expectations starting to peak, US Consumer Price Index (CPI) for July came in softer at 8.5%, Producer Price Index (PPI) also showed a decrease by 0.5% MoM.
This is in line with our expectations that inflation will began to ease in the 2H22 which also implies more policy maneuverability of the Fed in the upcoming FOMC meetings. This helped to drive a sharp reversal in risk assets with Nasdaq recovering by 12.4% and S&P also gaining 9.3% over the last month.
While the absolute inflation print still looks high and some would argue that we are in a bear market rally, a more docile inflation expectation and investors remaining cash up on the sidelines after year-to-date drawdown could mean that equity markets volatilities could ease further.
Oil price is one that is being watched closely, having been trending downwards to $93.8/barrel, below year-highs, and could be moving towards surplus levels soon in the current quarter according to OPEC. This could bring about further alleviation to inflation expectations.
$Booking Holdings(BKNG)$ results showed the tourism sector normalizing with room nights surpassing pre-pandemic levels in 2Q22.
Rooms nights surged by 56% YoY and gross bookings were above expectations during the quarter. This was despite the fears that inflation and geopolitical risks would curtail discretionary travel demand. Alternative accommodation, a sector where $Airbnb, Inc.(ABNB)$ operates, is one that Booking is also actively seeking to compete in, with 6.6m listings available on Booking.com.
$Sea Ltd(SE)$ is expected to report on 16 August key concerns centering on foreign currency exchange with a strengthening dollar.
E-commerce revenue, while still a pillar of sales growth for the company, will be a segment keenly watched, especially with a challenging YoY comparable and potential headwind from inflationary impacts faced regionally. Ecommerce’s path to profitability is a balancing game of expansion of new geographies versus improving unit economics of others. Gaming is expected to continue to be dragged by Free Fire’s ban in India and a shift in consumer trends post pandemic.
$Sanofi SA(SNY)$ , $GlaxoSmithKline PLC(GSK)$ and $Haleon(HLN)$continue to decline on pressures of a potential personal-injury litigation of the heartburn drug Zantac that is alleged to cause cancer. $Pfizer(PFE)$ which marketed Zantac for a limited period (but has stopped for more than 15 years) also saw weakness in its share price for being implicated. While uncertainty of the litigation settlements stands, the aggregated financial impact could potentially run into the tens of billions.
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