Charts and caffeine: Could this ASX small cap beat Telstra at its own game?

Charts and Caffeine

Livewire Markets

Welcome to Charts and Caffeine - Livewire's pre-market open news and analysis wrap. We'll get you across the overnight session and share our best insights to get you better set for the investing day ahead.

MARKETS WRAP

  • S&P 500 - 3,912 (+3.06%)
  • NASDAQ - 12,106 (+3.49%)
  • CBOE VIX - 28.35

Stocks rallied after fresh economic data tempered investors’ expectations of steep rate hikes in the states. Company-specific, Zendesk surged 28% after it confirmed it was the subject of a $10 billion takeover. Fedex shares extended their rally following its upbeat earnings report.

Speaking of upbeat, shares of Carnival (cruise lines) jumped 12% after management said it was on track for a nearly 50% increase in quarterly revenue compared with the first three months of the year. Finally, shares of LendingTree tumbled after the online financial marketplace lowered its earnings outlook for the current quarter.

  • FTSE 100 - 7,209 (+2.68%)
  • STOXX 600 - 412.92 (+2.61%)
  • USD INDEX - 104.12
  • US10YR - 3.138%
  • GOLD - US$1828/oz
  • WTI CRUDE - US$107.06/bbl

Oil gained while - of all things - nickel and zinc futures prices slumped on Friday. Both are now down double digits year-to-date (nickel especially, down 50%+).

THE CALENDAR

The good news? The data front is a little quieter this week. The bad news? The central bankers are still talking in great volume.

Among the highlights - two doses of ECB President Christine Lagarde, two doses of the US Federal Reserve (Chair Jerome Powell and another speech from St Louis Fed President James Bullard), and one dose of Bank of England Governor Andrew Bailey.

Outside of the speeches, we get US consumer confidence on Wednesday evening. That is crucial because confidence is already at a three-month low and the hiking cycle has only just begun.

Later yet, we'll get GDP figures for Canada and the US. For the latter, recession watch is on the cards. We're one quarter down and there only needs to be one more for the definition to be achieved.

Finally, another measure of inflation hits the wires on Thursday evening - US core PCE. Although this particular data point is hardly noticed by most media organisations, it's actually vital for the Federal Reserve - and thus, the future of interest rates.

THE CHART(S)

All this talk about capitulation has made me curious. The humongous sell-off in equities has garnered a lot of attention, especially as the S&P 500 moves in and out of bear market territory. But has anyone been paying attention to the sell-off in bonds? Remember, the huge spike in yields means the actual bond price is going down. Thus, you could make the case that capitulation is actually more of a bond question than an equities question. Source: Bank of America

STOCK TO WATCH

This is a relatively quiet time for the brokers as they hunker down ahead of ASX confession season (the prequel to the earnings season sprint.) Today, I thought I'd take a look at how five brokers each took away something different from the same company's investor day - TPG Telecom (ASX:TPG).

Please press one for Credit Suisse - they see good momentum in the mobile business, driven by benefits from price hikes and the return of roaming revenues as people return to overseas travel. Neutral rating maintained.

Press two for Macquarie - they're encouraged by the upselling and earnings guidance but it's early. Nonetheless, it gets an outperform rating.

On line three - Morgans is confident in the company's ability to execute, buoyed by the sale of one of its towers. The team rate the company an add (and the same for key rival Telstra).

After the hold music, line four gives us the view of Ord Minnett - who believes the business is in a unique position, given the options for growth in service revenue which could come from raising prices or growing subscriber numbers. A strong balance sheet to boot makes this a solid buy.

Finally, press five for UBS - who believe in the company's long term potential far more than their headwinds. Its merger with Vodafone could also present cost synergies. It's another buy here.

So that's four ringing endorsements and a hold - not bad! And you didn't even need to wait on the line to hear all about it.

THE STAT

20%: The increase in demand for power on Australia's east coast between 29th May and 1st June. (Source: ANZ Research)

I specifically bring this stat up because of the chart that follows it. As Australia becomes a country under an energy crisis, gas and electricity prices have soared. As ANZ's commodities czar Daniel Hynes pointed out:

Australia’s east coast power market is not out of the woods. This winter’s crisis has highlighted systemic constraints, which will only intensify.

That brings me to this chart - which may make your wallet cry a little:

Long Whitehaven? Coal prices continue to soar - and show no signs of letting up.

THE QUOTE

The perceived risk of these investment ideas is quite high in an environment where everyone is focused on inflation. But in my view, the actual risks, where much bad news is already priced in, is much lower.

Greg Canavan of Fat Tail Research wrote this brilliant piece on Friday looking at the challenges that inflation presents. His thesis is that we're already in the rear view mirror (though central banks have to deal with the delayed data to make their calls). He also points out Powell is making two mistakes (of weirdly similar natures) in the same term. I highly recommend you read his piece:

Macro
Why inflation is a rearview mirror story

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Charts and Caffeine
Markets Wrap
Livewire Markets

Charts and Caffeine is Livewire's daily pre-market news and analysis wrap. Every day, Livewire's team of market journalists and editors get you across the overnight session and share their best insights to get you better set for the investing day...

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