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Overview
We have the situation now where easing of restrictions is allowing the services side of the economy to open up. Disney reported its best quarter ever for revenue in its domestic parks and resorts for the 4th quarter. Revenue in its “theme parks, experiences and consumer products” division, doubled over the prior year to reach $7.2B and exceeded pre-pandemic levels. Profit margins interestingly rose in part because of lower spending on labour due to two new park navigation apps. In other signs that the services sector is opening up, both Uber and Lyft said airport trips more than doubled from last year. These results are an important measure of how much demand there is for services as restrictions ease.
Chart 1: S&P500 Hotels sub-indexes
Source: Bloomberg
Chinese equities continue to be battered by regulatory risk. The latest comes as authorities told the nation’s biggest state-owned firms and banks to start a fresh round of checks on their financial exposure and other links to Ant Group Co., renewing scrutiny of billionaire Jack Ma’s financial empire.More than a year after the Chinese government cancelled the biggest initial public offering in history by Ant, Beijing has showed no letup in a crackdown that has hit the tech sector hard. Officials have handed out billions of dollars in antitrust fines to end the domination of a few heavyweights as President Xi Jinping pushes for more “common prosperity.” Chinese technology shares are down 52% since peaking this time last year.
Chart 2: Chinese equities (CSI 300 Index) struggling
Source: Bloomberg
Something has gotta give. The normally very close relationship between the US dollar and market expectations of inflation seems to have broken down recently. This wouldn’t be the first time but it does suggest either inflation expectations need to fall or the US dollar needs to (note the USD is on an inverted axis so a move up implies a fall). Historically it has been the USD that has corrected in which case a lower dollar may be on the cards. That would bode well for emerging market equities.
Chart 3: Somethings gotta give
Source: Bloomberg
