Why FedEx's earnings warning should alert Amazon

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 - 3,900 (+0.69%)
• NASDAQ - 11,953 (+0.77%)
• CBOE VIX - 25.76
• USD INDEX - 109.61
• US 10YR - 3.49%
• FTSE 100 - 7,237 (-0.62%)
• STOXX 600 - 407.86 (-0.09%)
• UK 10YR - 3.1535%
• GOLD - US$1676/oz
• WTI CRUDE - US$85.16/bbl
• DALIAN IRON ORE - US$99.26/T

THE CALENDAR

The RBA drops its latest meeting minutes at 11:30am before deputy governor Michelle Bullock delivers a speech tomorrow to the Bloomberg Address. The context around its fourth 50 basis point rate hike will be important, as will any clues as to whether a fifth is on the way. 

Later tonight, it's Canadian inflation figures for the month of August. Last month, inflation actually dipped on the headline figure but with core inflation still above 5% year-on-year, it's not like the headaches have gone away for the Canuck consumer.

THE CHART

This chart perked the interest of both Chris Conway and myself. Ray David, Schroders' portfolio manager for Australian equities took a look at the state of value versus growth-oriented investing in times when monetary policy has shifted. While it's not the most revolutionary chart of all time, it does prove how important being prepared is for change.

Alternatively, you could just ignore value and growth biases and invest in the market as one giant beast. Airlie Funds Management chatted about this during their roadshow, and the write-up of that is available here:

Equities

Where Airlie is bullish in a market full of bears

View

THE STAT

5%: The new Federal Reserve "terminal" rate forecast from ANZ has investors worried about whether the world's largest central bank may actually go 100 basis points this week, as supposed to the fully priced 75 bps.

Citigroup is far less concerned (or more constructive, depending on your point of view) about the possibility of the Fed funds rate needing to go far higher than markets are expecting. They have a 55% probability priced in for a "soft landing" (aka the dream scenario), and only a 5% chance of an economic disaster. If they are right, the S&P 500 has another 20% priced into its upside. If they're wrong, it's a 20% downside prediction. 

Talk about wild swings!

STOCKS TO WATCH

We're going global for today's stocks to watch - and we're doing it with the help of one of Bridge Street's most well-known investors: Charlie Aitken of Bell Potter.

In his weekend note, he tells clients that there is more volatility coming over the next few months and that we should all be prepared for the two Fed's - namely the Federal Reserve and FedEx. 

In yesterday's report, you may remember we discussed FedEx (NYSE: FDX) - the American freight giant that has cut hiring, its earnings outlook, and more besides. Why? Because a global recession is now imminent, according to the opinion of its CEO. 

But Aitken made a very good point. If FedEx is in trouble, what might that say about its rivals? Namely UPS (NYSE: UPS) and Deutsche Post (ETR: DPW), the owner of DHL. Then, he made another point - what about companies like Amazon (NASDAQ: AMZN)? Think about it - Amazon has a lot of warehouse space, and a lot of employees, and it ships out all its products itself (as supposed to outsourcing). Most concerning of all to Aitken, it continues to trade at 50% above pre-pandemic levels. Aitken argues this reflects the perfection that it's priced for:

Clearly, there have been hints from online shopping giant Amazon about slowing growth rates in online shopping. AMZN over-invested in employees and warehouse space over the pandemic and has been shutting warehouses and letting go of employees this year.

While there aren't any companies quite like Amazon - or FedEx for that matter on the local bourse - Aitken does point to companies like Goodman Group (ASX: GMG) as a sign of how investors are looking at the transition between e-Commerce and brick/mortar is working out.

Either way, there are plenty of lessons here for investors. 

TODAY'S TOP READ

Hans Lee wrote today's report.