Inventory Insanity
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Hi all, another intense week as markets moved sporadically amidst a flurry of significant headline data and news. US equities, commodities, and cryptocurrency finished the week relatively strong while US bonds and European FX continued to decline.
In this week’s market wrap, we’ll be focusing on the following:
Nike
OPEC+’s most recent meeting
Elon Musk and Twitter
US Equities
Nike, the Greek Goddess of Over-Supply
Long story short, Nike has way too much stuff lying around. Last week, Nike announced that its inventories rose 44% in the last quarter, most of which is comprised of apparel that arrived late. They plan to liquidate these excess goods in the coming months by aggressively offering discounts that are likely to further suppress their profits which already suffered a 22% decline last quarter. The day after the announcement, Nike’s share price dropped more than 10%.
Nike Share price ($), Source: Yahoo Finance
OPEC+ Reunion
WTI crude oil futures continue to tick higher following OPEC+’s meeting on Wednesday, where they agreed to cut oil supply by 2 million barrels per day in order to keep oil prices up. The move received backlash from the Biden administration, as the White House accused OPEC+ of siding with Russia and acting against the interest of global consumers. OPEC+ members responded by stating that they were simply taking action to preserve the price stability of oil, with the UAE energy minister explicitly mentioning the 2008 oil price crash.
Elon x Twitter
Twitter shares (NYSE: TWTR) skyrocketed 22% following the mid-week news that Elon Musk will be buying Twitter for the initial agreed amount of $44bn, or $54.20 per share. This marks the end of a legal battle that has lasted months as Musk previously rejected the deal, accusing Twitter of providing him with an inaccurate number of bot accounts. However, Elon isn’t the only loser in this situation. The banks that agreed to fund the takeover (e.g BofA and Barclays) are now projected to lose hundreds of millions of dollars as they will be funding it themselves and taking up the losses instead of raising money via debt markets. This is due to the current volatility of debt markets as well as litigation risks.
An Optimistic Start for the S&P
The S&P500 started the week particularly strong, with the index jumping 2% following a weak ISM Manufacturing PMI reading of 50.9 on Monday, the lowest since May 2020. The index rallied another 3% the next session and stayed relatively flat for most of the week as weak US economic data gave investors hope that the Fed will ease up on rate hikes in their next meetings. However, stocks fell by nearly 3% on Friday due to the higher-than-expected Non-Farm Payrolls reading of 263k versus an expected 250k, which essentially took away any chance of a Fed pivot.
S&P500 Index YTD, Source: Yahoo Finance
Thanks for reading this week’s Market wrap!
Muhammad
Disclaimer
This communication is for informational and educational purposes only and should not be taken nor used as investment advice, as a personal recommendation, or solicitation to buy or sell any financial instrument. This material has been prepared without considering any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or structured product are not, and should not be taken as, a reliable indicator of future performance. I assume no liability as to the accuracy or completeness of the content of this publication.