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Charts and caffeine: Morgan Stanley's bull case for Altium

The Morning Wrap

Livewire Markets

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 - 3,760 (-0.13%)
  • NASDAQ - 11,528 (-0.16%)
  • CBOE VIX - 29.15

US markets opened significantly lower than where they closed. Energy shares were hit the most - for the reason listed below.

  • FTSE 100 - 7,089 (-0.88%)
  • STOXX 600 - 405.74 (-0.7%)
  • USD INDEX - 104.21 (-0.22%) - after an outstanding run, the bull case for the US Dollar has been fading in recent days.
  • US10YR - 3.16% (-14bp)
  • WTI CRUDE - US$104.30 (-4.77%)

Oil prices have been weighed by fears the Fed’s efforts to fight inflation will slow the economy and reduce demand for fuel. 

THE CALENDAR

Rising food prices pushed the United Kingdom’s consumer price inflation to a 40-year high of 9.1%. Even excluding soaring food and crude oil prices, inflation still came in a hair under 6%. While in line with expectations, economists already expect the worst is yet to come.

Meanwhile, in Washington, Federal Reserve chairman Jerome Powell said they could lift the US interest rate by 1% at any future meeting if its efforts to tame rampant inflation were not successful. And yet, the risks of recession are still not "particularly elevated".

Tonight, it's all things PMIs - the surveys that economists use to measure the state of activity around the world. 

THE TWEET

Here's one take on all this central bank speak - and I suspect a lot of people will feel this exhausted especially after whole weeks that have been jammed by interest rate decisions
Here's one take on all this central bank speak - and I suspect a lot of people will feel this exhausted especially after whole weeks that have been jammed by interest rate decisions

THE CHART

Talk about a blow-up! Cryptocurrency assets have experienced an unprecedented rise to the top of many a trader and investors' watchlists. But whatever goes up must come down eventually. In Australian dollar terms, the world's largest cryptocurrency is down 55%, and a slew of crises have certainly dented investors' confidence. This chart shows the rise and fall of the crypto bubble in comparison to other bubbles of the past. These include the US housing bubble which caused the Global Financial Crisis. Look at how small that bright green line is compared to the teal Bitcoin line! Perhaps most remarkable of all, this has all occurred before any concrete regulation in the world's major markets. (Source: BofA Global Research)
Talk about a blow-up! Cryptocurrency assets have experienced an unprecedented rise to the top of many a trader and investors' watchlists. But whatever goes up must come down eventually. In Australian dollar terms, the world's largest cryptocurrency is down 55%, and a slew of crises have certainly dented investors' confidence. This chart shows the rise and fall of the crypto bubble in comparison to other bubbles of the past. These include the US housing bubble which caused the Global Financial Crisis. Look at how small that bright green line is compared to the teal Bitcoin line! Perhaps most remarkable of all, this has all occurred before any concrete regulation in the world's major markets. (Source: BofA Global Research)

STOCK TO WATCH

Today's stock to watch is Altium (ASX:ALU). It stems from a Morgan Stanley note around the global semiconductor chip crisis - a topic that we have talked about extensively here:

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Are we at big tech's turning point?
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Analysts Andrew McLeod and Chris Boulus give an interesting case for why Altium is a top pick to fight the chip shortage. While the supply chain issues are well-known, they think the market has missed how ALU is benefitting from the crisis thanks to greater demand for its products. 

It also helps that the company's share price is well below its own target valuation. The company gets an overweight rating with a healthy price target of $35.

Will this call end well? Altium's share price has taken quite the beating. (Source: Trading View)
Will this call end well? Altium's share price has taken quite the beating. (Source: Trading View)

Note: While ASX companies indirectly exposed to the semiconductor chip crisis are many, the actual number of players that deal with its challenges day-to-day is actually a very small number. ETF Securities has a SEMI ETF dedicated to the field but none of the semis or semi-equipment companies in Australia are larger than a small-cap.

THE QUOTE

Notwithstanding these efforts, your Administration has largely sought to criticize, and at times vilify, our industry. While today’s geopolitical situation is contributing to this energy crisis, bringing prices down and increasing supply will require a change in approach.

The opinions of Mike Worth, Chevron CEO, have a lot of weight. This timely letter is addressed directly to the President of the United States. To me, it says a lot about how the conversation has shifted so far, so quickly from ESG to energy security by any means. Biden has been demanding oil producers increase supply. But how can you do that if the infrastructure isn't up to scratch or the labour isn't there? The story is an ever-evolving one.

Speaking of which - here's a great chart that I found on how oil prices seem to mimic the rise and fall of inflation in a weirdly beautiful way. Given we have midterm elections in America around the corner, this will be absolutely top of mind.

So it's not the 1970s? Maybe or maybe not. But you also can't deny the correlation. At various events in the last half-century, the price of oil does have a way of correlating with the eventual pace of inflation. 
So it's not the 1970s? Maybe or maybe not. But you also can't deny the correlation. At various events in the last half-century, the price of oil does have a way of correlating with the eventual pace of inflation. 

BEST READS IN BUSINESS NEWS

Warren Buffett’s Estate Planning Sends Charities Scrambling (WSJ): If you read yesterday's Trending on Livewire newsletter, you'll note that we made our Stats Incredible segment about Warren Buffett's charity lunch bids. Well - it's all part of how the billionaire investor promised to give away a massive bulk of his fortune. 

Kellogg to focus on snacks with surprise three-way split (Reuters): This speaks to something Anthony Aboud from Perpetual Asset Management wrote about not too long ago - why demergers can be a good thing in the right context. I wonder if it will also work out for Kellogg.
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The case for breaking up: 3 ASX demergers that went well, and 1 that should
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The Morning Wrap
The Morning Wrap
Markets Wrap
Livewire Markets

Livewire and Market Index's pre-opening bell news and analysis wrap. Available weekday mornings and written by Kerry Sun.

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