💎Hot Inflation in Economy💎

Equity markets were crashing down as bond yield continues to rock the boat and Russell 2000 took the biggest hit as major indices dived further into the trading session.

🪜Bond yield continue to climb🕹

Stocks were under pressure as bond yield spiked up on the backdrop of geopolitical risk in the Middle East coupled with Omicron looming in the background. In addition, investors are bracing for the reality of multiple rate hikes given the relentless hot inflation running. 

10 years treasury yield hit 1.87%, which is the highest level since before the pandemic onset. Recall that the yield stood at 1.53% at the beginning of the year. This ultimately adds pressure to Nasdaq, given that most high technology stocks promise profits in the future that is discounted in the present value. 

Investors will have to look at corporate earnings to determine whether the economic expansion is sufficiently strong to help companies earn a fatter profit to justify the elevated valuation.

✈️Pika World Markets Insight✈️

💻Microsoft: A dream comes true🖨

The latest announcement by Microsoft to buy Activision Blizzard for $68.7 billion is expected to be a massive test for Biden’s administration which is often seen as unfriendly to significant technology acquisition. 

So far, most of the eyes are on the issue of online advertising dominance, allowing Microsoft to dodge away much of the scrutiny. However, the deal presents complicated relationships. For example, games such as Call of Duty is also popular on competing platforms such as Sony PlayStation. Hence, regulators are likely to request Microsoft not to limit the games by Activision to Xbox. 

If the acquisition is successful, it will be a giant leap for the company as it dives further into consumers needs and expands its sphere of social interaction, which is increasingly a highly contested sphere. 

🚧Peloton: Problems surfacing intensify🚦

There is plenty of bad news surrounding the company, such as the expected slow down in demand for its products. Consumers are also likely to pay more as an additional $250, and $350 will soon be added as part of the delivery and set up costs for its various product. 

The price increase is part of the strategy by the company to cope with inflation and supply chain-related costs. However, analysts aren’t warming to the prospects despite possibly adding about $150 million into its fiscal 2023 revenue. 

Recent news showed that the company is on the route to cost rationalization, resulting in the firing of workers as its cost structure becomes a heavy boat. The axe is likely to chop on the apparel division, which has seen poor sales.

🛩Equity markets on the rock🌋

Stocks continued its slides after the yield reverse some fall and on track to hit 2%. Pika World expects that the yield to stabilise around 2% to 2.25% as buyers may step in to purchase more bonds and help cap down the yield. As the Fed pumps less money into the economy, we expects the yield to continue its ascent. 

The higher oil prices are likely to add fuel to the already problematic inflation. It had jumped to the highest level since Oct 2014. Moreover, geopolitical risks that are generally difficult to hedge have realised their impact on the equity market. 

Supply risks climbed given the risk of a Russian invasion of Ukraine on the backdrop of a weak political will by OPEC to achieve its production targets. In addition, we have read about countries such as Nigeria and Angola facing difficulties to hit their quotas due to production woes. 

If oil prices contribute further to the bleak inflation narrative, Pika World expects more pressure on the equity market. 

Pika World is expecting a highly volatile week ahead as a stream of earnings calls will help us shed light on the impact of multi-dimensional concerns confronting businesses. 

Cheers, 

Pika Nat.