Market Munch 🍕 | July 15 2022
Banks' bottom lines take a battering, Unemployment starts accelerating to new highs, and Oil slips down to it's lowest level since Putin pulled up to Ukraine.
Good morning Munchers!
Here is your daily dose of the news that’ll help you sound the smartest at the water cooler - in 4 minutes and 58 seconds.
Let’s dive in.
What’s hot, what’s not?
Market Commentary
Yesterday’s closing bell meant 5 red sessions in a row for the SP500 - over prolonged concerns about inflation.
Expectations of a 100bps rate hike are now 83% priced in. That’s up from 0% just 5 days back. Wild times.
Kickoff of 2022 earnings season derails the SP500 as some of the biggest banks missed profit expectations.
Story Roundup
1 - JP Morgan and Morgan Stanley’s bottom lines get a beating. 📉
Two of the biggest banks on Wall Street fell flat when it came to profits - casting a shadow across the market.
JP Morgan fell as much as 5% after a 30% miss in profit and Morgan Stanley dropped almost 4% before recovering through the trading day.
A lot of banks’ 2021 revenue was spurred because of a flurry of dealmaking action.
This revenue comes from taking a ‘slice’ of the total transaction value. As liquidity dried up across markets, so did dealflow, which in turn knocked banking earnings on their back.
Trading revenue for JPM was up 15% as a result of the choppiness in markets and they halted share buybacks due to newly imposed Fed capital requirements.
2 - Oil falls below $95/barrel for the first time since Ukraine invasion
Major crude benchmarks shed more than $5 a barrel as oil priced slid to levels unseen since Russia decided to invade.
The reason? Recession fears.
Investors are a little on tilt surrounding a possible recession soon - and this results in hammered demand forecasts.
This move reflects a little creeping concern for investors surrounding the fundamentals of oil. Higher supply is definitely there to play a role as oil-producers do their best to tame inflation. In addition, waning demand will also hurt the price of oil.
Last Tuesday the US Energy Administration suggested that petrol demand slipped to it’s lowest level since 1996.
Jitters over an economic slowdown, slowly slipping demand, and a tighter economy.
Guess we’re on a slippery slope.
3 - Europe comes to reality with the energy crisis. 🔥
French President Emmanuel Macron warned the public that they “must prepare for a scenario without Russian gas”
And this is considering the fact that France only depends on Russia for 17% of it’s gas. Neighbors Germany and Italy rely on Russia for 50 and 40 percent respectively.
There have been a few scares about Russia cutting off Europe’s gas supply as a negotiation tactic during the war - and energy ministers feel that the problem is very real.
Winter season is approaching fast - and the EU requires gas coffers to be filled at least 80%. Most of Europe is nowhere near that figure.
All’s fair in love and war, isn’t it?
4 - American unemployment notches fresh high. 💼
Applicants for unemployment benefits in the US jumped to the highest level since November.
Economists expected the number of jobless to jump to and stay at 235k - but the scale weighed in at about 244k.
The risk is surely for further increases in unemployment as the economy slows and more people are let go. The silver lining is that there will be no spikes - it’ll all come slowly.
This comes after some red-hot demand for the jobs market.
But then again - not surprising considering the amount of lay-offs within all the high-flying unprofitable companies that rode the liquidity wave of the pandemic.
5 - Soaring fuel prices batter demand in emerging markets.🛢️
Fuel prices keep notching higher highs - and it’s hurting demand a lot.
Paris-based IEA reported that the oil market “is walking a tightrope” given the amount of uncertainty that hangs around Russian supply of global energy.
Sky-high costs bundled with a deteriorating economy mean that consumers have lower discretionary spending.
And boom - demand begins contracting.
Traders, investors and consumers alike are looking for signs that could lead to a price cooldown - but the rebound in activity after COVID lockdowns wrap up could point to a different picture
Aaaand that’s a wrap.
Thanks a ton for reading. Any feedback is open - positive or negative. Hit my line at aryaansh.rathore@gmail.com or https://www.linkedin.com/in/aryaansh/.