Charts and caffeine: Pizza and wine with a side order of buy the dip

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 - 3,819 (-0.07%)

Shares in Bed Bath and Beyond (NYSE:BBBY) were slaughtered after the retailer posted an even steeper loss than last quarter. The CEO is also leaving after just three years in the top job. 

  • NASDAQ - 11,658 (+0.18%)
  • CBOE VIX - 28.08
  • GERMAN DAX - 13,003 (-1.73%)
  • STOXX 600 - 413.42 (-0.67%)
  • USD INDEX - 105.10
  • US10YR - 3.087% (-12bp)
  • GOLD - US$1,819/oz
  • WTI CRUDE - US$109.63/bbl

THE CALENDAR

Last night's data flow was mild but a show-stopper. Spanish inflation stole all the thunder. The June print clocked in at 10% year-on-year for the first time since 1985. For reference, wage growth is only about half of that. 

In the meantime, US GDP contracted 1.6% last quarter - putting it one step closer to a technical recession. But some economists say we are already in one.

Tonight is core PCE night in the US (aka the preferred inflation measure for the Federal Reserve). Estimates are calling for a 0.4% rise month-on-month but anything can happen. We'll also get GDP figures from Canada too. The Canadian and Australian economies are, in many respects, quite similar. This could make this number worth watching.

THE CHART

For those who want to see inflation come down, this is a very good leading indicator of any sign that it will. Container freight rates are falling across the globe - signified by this chart and many lines. Each colour represents the major shipping routes of the world - i.e. from China to the West mostly (or sometimes between Europe and the United States). All the numbers that were peaking due to the Chinese lockdowns are starting to come down dramatically. That's a huge boost for supply chains and shipping delays - meaning consumers get their goods in a more timely manner. The next step now is for production supply to keep up with demand. For most goods, that should just take some time and catch-up. For others (e.g. semiconductors), the catch-up may be years away.

STOCKS TO WATCH

As we get to the end of the week, I figure we'd talk about what you might be having for dinner - pizza and some red wine. Morgan Stanley has run the ruler over two ASX dinner time favourites and dished up an overweight rating in the process.

The two are Domino's Pizza (ASX:DMP) and Treasury Wine Estates (ASX:TWE).

Here's the thesis, served up on a silver platter:

In the case of Treasury Wine, the team notes that it's a company that has been resilient during periods of economic weakness. Much like your regular groceries, your glass of wine with dinner doesn't stop automatically just because demand for most other things is down! This chart from the team's note also puts this resilience in context.

More wine! (Source: Morgan Stanley)

Further, its exposure to agribusiness (i.e. the costs of producing grapes) gives it a strong position right now. According to the company, the lower production cost of the last few years is still yet to hit the balance sheet. When it does, the balance sheet will look even healthier than it does now. 

Finally, the brokers note that the company is trading on a robust but attractive valuation. 

In the case of Domino's Pizza, the team is betting management can execute its global foot traffic presence in the face of rising inflation. The company is also seen as a value play if predictions of a weaker consumer eventuate. After all, if you can't afford expensive dinners - consumers may need to downgrade to cheaper alternatives!

But the most important thing of all is sustainable revenues. 80% of Domino's earnings are actually linked directly to franchisees (food margins and royalties). The business knows this - and has been proactive in harnessing this by creating a huge, multinational network of franchisees and stores (i.e. economies of scale.)

Best of all - much like Treasury Wine - it's trading at an attractive valuation! Drink responsibly, eat well, and be merry.

THE QUOTE/stat

Australia has the highest debt-GDP ratio among the G10 and is relatively vulnerable to higher interest rates.

This from TD Securities seems to tick both the quote and stat for today. It also explains why the exhaustion in the housing market (particularly Sydney and Melbourne) is so pronounced. This chart helps also illustrate that:

Debt, debt, and more debt!

GET THE WRAP

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If you have a chart and/or a stat that you would like to see featured in a future edition of the newsletter, drop us a note at content@livewiremarkets.com.

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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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