Charts and caffeine: A tale of two BNPL stocks

Welcome to Charts and Caffeine - our daily markets wrap featuring the best charts and reads from across Livewire's team of expert editors. Let's get you caught up on the overnight session.

MARKETS WRAP

• S&P 500 - 4,132 (-0.63%)
• NASDAQ - 12,081 (-0.41%)
• CBOE VIX - 26.19 (-1.32%)

• GERMAN DAX - 14,388 (-1.29%)
• STOXX 600 - 3,784 (-1.48%)

The Euro fell like a stone overnight after it was revealed Eurozone inflation soared to 8.1% in May. Energy costs soared nearly 40% last month alone! Is stagflation inevitable? This chart may go some way to explaining that, with a link to how that might affect the prospects for the ECB.

Remember, 100 basis points of hikes are already priced into the curve.

• USD INDEX - 101.80 (+0.13%)
• AU10YR - 3.362%
• US10YR - 2.853% (+10bp)
• GOLD - US$1,839.60/oz
• BRENT CRUDE - US$116.14/bbl

Of note, crude oil futures finished a sixth straight month of gains overnight. At one point, they also touched their highest since 2012.

STOCKS WRAP

US markets returned from their long weekend in a sour mood, finishing lower on the day. European consumer goods giant Unilever saw its shares soar after activist investor Nelson Peltz take a 1.5% stake in the company. 

In M&A land, Yamana Gold (NYSE:AUY) shares also soared (before coming back down to Earth) after South African miner Gold Fields Ltd agreed to buy the Canadian miner in a $US6.7 billion deal. 

THE CALENDAR

Today's the big one - GDP in Australia. It should show that the Australian economy is still growing in the face of global headwinds, floods, the Omicron variant, and the war in Ukraine.

The good news (or bad, depending on the way you look at it) is that tomorrow's figure will most likely not shift the needle for the Reserve Bank's rate hike plans. 

Of interest, CBA, ANZ, and Barclays all upgraded their forecasts for today's print after some of yesterday's last-minute "partials" data.

Update: The NAB upgraded its GDP forecast this morning from +0.1% q/q to 0.7% q/q - which is some jump!

Apart from the GDP print, we'll get labour force insights from the Eurozone and the US. Plus, ECB President Christine Lagarde speaks later yet this evening - in case you needed to make some plans!

THE CHART

One of my favourite stories I did a while back debates whether growth or value-oriented strategies will win out in the long run. Dr Philipp Hofflin of Lazard Asset Management told me that no only would value win out, we are still only part of the way through the growth stock rout. 

The chart shows that while valuations in high PE stocks have fallen considerably, they remain well above long-term averages. Hofflin expects this unwind to continue for a few years and says it will be punctuated by some strong rallies in these high PE stocks. You can read more about Hofflin's updated view in my boss James Marlay's piece out now. 

(VIEW LINK)

While we're speaking of value, we're running a collection of pieces this week on the trades made by the world's most well-known investors. Today, Warren Buffett of Berkshire Hathaway is featured.

THE STOCKS TO WATCH

Our chart delved into all things high PE stocks so I think it's appropriate we should take a look at a couple of those high PE stocks in a space which went from "very loved" to "no love" very quickly - buy now pay later.

Two brokers continue to have two buy/outperform ratings on two very different BNPL companies. What stands out to me are the reasons. 

Macquarie has kept the outperform rating on Square (ASX:SQ2) following its investor day. It says the US commercial opportunity for the company could be worth - get this - $120 billion. The company's low penetration estimates are also favourable given, as the broker explains, they tell us no particular merchant segment is close to reaching peak penetration. (Translation: that's vital.)

Then, there's Humm Group (ASX:HUM). UBS continues to have a buy rating on this BNPL name too. The catch is that view will be entirely dependent on whether Latitude Financial (ASX:LFS) still wants to buy out its consumer finance business. (The shareholder vote takes place next month).

For more reading on the "growth traps" that BNPL stocks have been so caught up in, I highly recommend this read from Ben Inker at GMO:

Education

Growth traps snap shut

View

THE QUOTE

I am not taking 50 basis-point hikes off the table until I see inflation coming down closer to our 2 percent target.

This quote got some attention in the markets on what was supposed to be a relatively quiet day. Federal Reserve Governor Christopher Waller said he wants to see more interest rate increases for the rest of 2022 until inflation is back in the band.

Remember - inflation came down last month but it's still hot, hot, hot. Ironically, his colleague (Atlanta Fed President Raphael Bostic) argued that there should be a pause after September when the central bank is supposedly set to reconsider its plans.

BEST READS IN BUSINESS NEWS

Shanghai faces talent exodus as lockdown dashes workers’ hopes for a better life (SCMP): Same theme, different country. After the harsh lockdowns experienced in China's largest city, it seems there are more than a few people who want out.

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