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Weekly investment update – The soft underbelly of hard inflation data

Warnings by the US and Chinese authorities have underscored the dilemma of conflicting inflation and growth data, with energy and tight labour markets…

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Warnings by the US and Chinese authorities have underscored the dilemma of conflicting inflation and growth data, with energy and tight labour markets pushing up producer and consumer prices amid creeping signs of softening growth. This has put global monetary policy, and markets in risky assets, in a bind.

The Dow Jones Industrial Average fell for the seventh consecutive week last week, while the benchmark US Treasury 10-year yield hovered around 3.0% (almost double the 1.6% of a year ago). Commodity prices came under selling pressure as risk aversion among investors mounted. Safe-haven flows pushed up the US dollar, driving its trade-weighted index to near two-decade highs (see Exhibit 1).

Policy warnings…

China fanned market worries early last week, with Premier Li Keqiang warning that the domestic jobs situation was getting ‘complicated and grave’. The country’s zero-Covid policy is taking a heavy toll on the local economy with negative spillover effects globally. While Shanghai’s lockdown may be wound down soon, other major cities (including Beijing) are facing renewed restrictions.

US Federal Reserve Chair Jerome Powell issued a warning mid-week: The Fed could not guarantee a ‘soft landing’ as it looked to get runaway inflation back to its 2% target amid a tight US labour market. The US Senate nonetheless overwhelmingly confirmed Powell for a second term, signalling monetary policy continuity.

Earlier in the week, former Fed Chair Ben Bernanke warned about the risk of stagflation in an interview with The New York Times.

Aggravated by hard inflation data…

US consumer price inflation was 8.3% YoY in April, down slightly from 8.5% in March. However, core inflation (which excludes food and energy prices), rose on the month from 0.3% to 0.6%, a level still too high for the Fed’s comfort.

Services inflation was particularly strong, rising by 0.7% MoM in April, marking the biggest monthly gain since August 1990. Underscoring continued robust consumer demand, retail sales rose by 0.9% vs the prior month, though this marks the third month in a row that the growth rate has decelerated. 

The prospects for inflation to fall back to the Fed’s 2% target anytime soon may not be good: High wage growth – hourly earnings rose at around 5% YoY – could continue to fuel inflation in the near term. We note that services inflation tends to be much stickier than other index components.

From the Fed’s perspective, these price pressures could in turn drive inflation expectations higher.

The market perceives the latest inflation report as sealing a 50bp rate rise at the June and July meetings of Fed policymakers. It also boosts the chances of the Fed persisting in its aggressive tightening stance at later meetings. A key question is the extent to which – and when – higher interest rates will hit real incomes and crimp demand growth, slowing the economy overall. 

The high services inflation data also suggests labour market tightness would have to ease significantly to bring wage growth back to levels that are acceptable to the Fed. We believe something will have to give. If not, the Fed may have to tap harder on the brakes down the line.

The ECB continues to move closer towards a hawkish policy, with the market now expecting its asset purchasing programme (APP) to end in July, to be followed by a 25bp rate rise soon after. Underpinning the ECB’s policy tightening stance is strong inflation, which rose by 7.4% YoY in April (same as in March), and falling unemployment (the jobless rate hit a record low of 6.8% in March).

The war in Ukraine has added to the upside risks to inflation via food and energy price increases and supply bottlenecks. In addition to higher inflation, the ECB also appears to be concerned about the spillover effects from wage increases. An increasing number of policymakers has spoken out recently in favour of an initial rate rise as soon as July.

And creeping signs of slower growth

Indications of weakening growth momentum have appeared, most noticeably in the UK where GDP growth contracted unexpectedly by 0.1% MoM in March.

In the eurozone, industrial production shrank by 1.8% MoM in March and manufacturing output was down by 1.6%. The main culprit was disruption caused by the war in Ukraine. The weakness was concentrated in Germany, whose supply chains are more integrated with eastern Europe. Its car sector is missing components produced in Ukraine.

Even in the US, recent data showed signs of slowing growth. Jobless claims filings showed an increase in initial claims; the May Senior Loan Officer Opinion survey recorded a drop in demand for mortgages; the University of Michigan consumer sentiment May index hit its lowest level since the start of the pandemic; and the May Empire State Manufacturing survey plunged.

China also released weak data, with industrial output, fixed-asset investment and retail sales all showing year-on-year declines. The property market’s woes deepened, with new home sales and starts falling precipitously.

Investment implications

Mr. Bernanke’s warning of stagflation underscores the dilemma facing policymakers and financial markets: Inflation and growth data are sending conflicting signals. Parts of the US yield curve are inverted, pointing to some risk of an economic recession.

The slowdown concerns are linked to inflation forcing the Fed to tighten policy into restrictive territory and turning weaker growth into a contraction.

The situation is similar in the eurozone: inflation is at its highest ever and could lead the ECB to take stronger measures, exacerbating headwinds from weak Chinese activity and a Russia-induced energy supply shock.

Against the backdrop of the continuing Ukrainian conflict and prolonged supply-chain disruptions, we do not favour sovereign bonds and European equities at this point. We prefer commodities, Japanese and emerging market equities, including Chinese stocks.


Disclaimer

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience.

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Chi Lo. The post Weekly investment update – The soft underbelly of hard inflation data appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

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Modified mRNA Demonstrates 10-Fold Protein Production

Scientists at Hong Kong University of Science and Technology came up with a technique to increase the efficiency and potentially the efficacy of mRNA therapeutics….

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Scientists at Hong Kong University of Science and Technology came up with a technique to increase the efficiency and potentially the efficacy of mRNA therapeutics. mRNA molecules have what is called a poly-A tail, which is basically a string of adenine nucleotides at one end. These researchers discovered that by replacing some of these nucleotides in the mRNA tail with cytidine, a cytosine base with a ribose sugar attached, that they could enhance the resulting protein production of the mRNA and increase its stability and life-span. The technique could lead to more effective mRNA therapies and vaccines, potentially enabling clinicians to achieve similar or better effects with smaller doses.

mRNA therapies have come a long way in just the last few years. The COVID-19 pandemic has propelled this approach from an emerging technology to a mainstay of our vaccine response. The concept is elegant – deliver mRNA strands to the patient, and allow their own cellular machinery to produce the relevant protein that the strands code for. So far, so good – the approach, once considered unrealistic because of the fragility of mRNA, has proven to work very well, at least for COVID-19 vaccines.  

However, there is always room for improvement. One of the issues with current mRNA therapies is that they can require multiple rounds of dosing to create enough of the therapeutic protein to achieve the desired effect. Think of the multiple injections required for the COVID-19 vaccines. Creating mRNA therapies that can induce our cells to produce more protein would certainly be beneficial.

To address this limitation, these researchers have found a way to modify the poly-A tail of synthetic mRNA strands. They found that by replacing some of the adenosine in the mRNA tail with cytidine, they could drastically increase the amount of protein the resulting strands ended up producing when applied to human cells and in mice. This translated to 3-10 times as much protein when compared with unmodified mRNA.

The researchers hope that the approach can enhance the effectiveness and required dosing schedules for mRNA therapies.

“Increasing the protein production of synthetic mRNA is generally beneficial to all mRNA drugs and vaccines,” said Becki Kuang, a researcher involved in the study. “In collaboration with Sun Yat-Sen University, our team is now exploring the use of optimized tails for mRNA cancer vaccines on animal. We are also looking forward to collaborating with pharmaceutical companies to transfer this invention onto mRNA therapeutics and vaccines’ development pipelines to benefit society.”

See a short animation about the technology below.

Study in journal Molecular Therapy – Nucleic Acids: Cytidine-containing tails robustly enhance and prolong protein production of synthetic mRNA in cell and in vivo

Via: Hong Kong University of Science and Technology

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LIV Golf Expands to Courses Used By PGA Tour

LIV Golf announced three new venues to its 2023 calendar.
The post LIV Golf Expands to Courses Used By PGA Tour appeared first on Front Office Sports.

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LIV Golf is pushing further into the PGA Tour’s turf.

The Saudi Arabia-backed league announced three new venues for its 2023 season, all of which are used regularly by the PGA Tour or DP World Tour.

  • In February, LIV Golf will come to El Camaleón in Mexico’s Mayakoba resort area. The course, designed by Greg Norman prior to his role as LIV Golf CEO, was the PGA Tour’s first course in Latin America.
  • In April, LIV will travel to Sentosa in Singapore, which has hosted the Singapore Open.
  • In June, the tour will make its trip to Spain’s Real Club Valderrama, whose history includes the Ryder Cup and DP World Tour events.

LIV is also adding The Grange Golf Club in Adelaide, Australia, as it grows to 14 events next year.

The PGA Tour, which is under investigation by the Justice Department over antitrust concerns, hired lobbyist and major Republican fundraiser Jeff Miller to improve its standing in Washington.

PGA Tour Hires Top Republican Strategist Amid LIV Golf Clash

The PGA Tour could be seeking help on the antitrust front.
December 1, 2022

Bank Shots

LIV golfers Phil Mickelson and Sergio Garcia responded to Tiger Woods after the latter called for Norman’s ouster due to his pugilistic stance toward the PGA Tour.

“Greg Norman is our CEO, and we support him,” said Garcia. “We all wish we could come to an agreement. There are people who could have done wrong in both places, but it seems that there are only bad guys on one side.”

Mickelson responded to a comment by Woods that the PGA Tour had to take out a huge loan to survive past the pandemic by tweeting out financial information from the Tour’s public documents.

The post LIV Golf Expands to Courses Used By PGA Tour appeared first on Front Office Sports.

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XPeng stock rises 48% from a double-bottom pattern. Should you buy it?

Shares of XPeng Inc. (NYSE:XPEV) rose 48% on Thursday premarket after promising delivery outlook. XPeng posted 5,811 electric vehicle deliveries in November….

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Shares of XPeng Inc. (NYSE:XPEV) rose 48% on Thursday premarket after promising delivery outlook. XPeng posted 5,811 electric vehicle deliveries in November. Despite the number falling 63% from the prior year, it increased 14% from October. The increase in deliveries reflected the easing of Covid-19 rules, which have hit EV makers in China this year.

XPeng said it expects the deliveries to rise significantly in December 2022. The deliveries will be boosted by a ramp-up in the production of G9s. Analysts project up to 10,000 deliveries in December. The delivery outlook overshadowed a reported Q3 loss of $0.39. XPeng’s revenue, however, rose 19.3% to $959.2 million or £786 million. The positive stock market news and outlook boosted the outlook for XPEV, which is already down 80% YTD.

XPEV recovers above the MA amid a bullish RSI divergence

XPEV Chart by TradingView

On the daily chart, XPEV recovered above the 20-day and 50-day moving averages. It is for the first time that the stock is recovering above the moving averages since July. 

XPEV is also recovering from a double bottom that formed close to $6.2. A bullish RSI divergence also occurred towards $6.2. The level could prove to be the bottom price if XPEV maintains the recovery. The RSI reading of 60 indicates that XPEV is yet to reach overbought levels.

How attractive is XPEV?

This article finds investing in XPEV favourable in the short term. With the deliveries and outlook, XPEV could continue to rise. The levels around $12 and $14 should be watched.

It should be noted that Chinese car sales tend to pick up towards the end of the year. So, it is possible for XPEV to maintain gains in the medium term, with the expectation.

However, we consider the greater stock market risks still high. China also still needs to ease its strict Covid-19 policy further, and it could weigh the automakers.

The post XPeng stock rises 48% from a double-bottom pattern. Should you buy it? appeared first on Invezz.

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