Citi: These two leisure stocks are in for a good time

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 - 3,802 (-0.45%)
  • NASDAQ - 11,729 (-0.14%)
  • CBOE VIX - 26.82
  • FTSE 100 - 7,156 (-0.74%)
  • STOXX 600 - 412.80 (-1.02%)
  • USD INDEX - 108.03
  • US 10YR - 2.935%
  • GOLD - US$1,735/oz
  • WTI CRUDE - US$96.40/bbl

CPI AND CENTRAL BANK WRAP

The overnight session was one for shocks to the system. US inflation came in much hotter than expected. The headline figure came in at 9.1%, far outpacing the Bloomberg median expectation of 8.8%. Core inflation also came in hotter than expected at 5.9%, outpacing the 5.6% expected by economists.

The figure caused losses across the board - from equity futures to the bond market. The 2s/10s spread also cratered further into negative territory. The spread now sits at -21 basis points (i.e. you would get 21 basis points more in yield by investing in a 2-year note than a 10-year note, thus defying regular logic.)

In Canada, the central bank went one better - shocking the financial markets by raising rates by a full 1% (aka 100 basis points). This is as Canadian inflation is staring down the barrel of an 8% reading itself. Talk about catch-up!

All eyes now turn to the next set of data prints - including jobs today at 11:30am and US producer prices later tonight.

THE CHART

(Source: Antipodes)

Today's chart comes to us from Jacob Mitchell at Antipodes and concerns "multiple dispersions". In a backdrop of stagflation, Jacob says investors need to be selective because a tough economic environment is challenging for "weak" cyclical stocks.

The predictions of stagflation (and recession) have also created a correlated drawdown between bonds and equities and within equities between the growth and value style. That is what is being represented in this chart.

You can read more from Jacob in an upcoming original series that the Livewire team are doing around the deglobalisation megatrend. 

STOCKS TO WATCH

In today's stocks to watch segment, we're off to the movies! Not to see Thor or Minions, but rather to see why Citi has provided such a glowing review of Event Hospitality (ASX: EVT) and Viva Leisure (ASX: VVA).

As Australia came out of lockdowns and as border restrictions eased, earnings for small-cap leisure stocks began to return after a two-year hiatus. But, in a cruel twist of fate, rising interest rates and costs of living pressures may start to dampen demand for leisure-related activities over the medium term. 

Nonetheless, Citi has a buy rating on both stocks - arguing revenues and margins at both companies could exceed guidance (and most importantly, expectations).

THE QUOTE

We recognize that this will mean some summer journeys will either be moved to another day, another airport or be canceled, and we apologize to those whose travel plans are affected.

You couldn't have made this up if you tried. Heathrow Airport has become the third major airport in Europe to put a cap on daily passengers at its terminals. The reason? They can't train new staff quickly enough to put them on check-in desks and security booths. 

In an open letter, Heathrow’s CEO has asked the airlines to stop selling new tickets as critical functions in the airport have been significantly constrained. What?! Now?! In the middle of Europe's first big summer since COVID-19? That's not gonna please a lot of folks.

BEST READS IN BUSINESS NEWS

Twitter Sues Elon Musk to Enforce $44 Billion Merger (WSJ): As expected, Twitter has sued Tesla founder Elon Musk over his aborted takeover offer. How each side will crunch their cases into 280 characters or less, I have no idea!

Chinese Homebuyers Across 22 Cities Refuse to Pay Mortgages (Bloomberg): If you want a reason to become even more sceptical of Chinese assets, this article will do the trick. Apparently, buyers across more than 30 projects have stopped paying mortgage repayments as of Tuesday. That's not good news for the country's burgeoning real estate crisis.

Today's report was written by Hans Lee.

GET THE WRAP

We're trying something new around here - a daily market preview with an intelligent twist. If you've enjoyed this edition, hit follow on my profile to know when I post new content and click the like button so we know what you enjoy reading.

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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