The Sandbox Daily (8.22.2022)
Football !! (and inflation), Russian natural gas, U.S. corporate debt-to-equity ratio, and the euro breaks parity (again)
Welcome, Sandbox friends.
Today’s Daily discusses the impact of inflation on the upcoming football season, Russia scheduling another Nat Gas pipeline shutdown, U.S. corporate debt-to-equity ratio at historically low levels, and the euro breaking parity with the U.S. dollar (again).
Let’s dig in.
EQUITIES: Dow -1.91% | Russell 2000 -2.13% | S&P 500 -2.14% | Nasdaq 100 -2.66%
FIXED INCOME: Barclays Agg Bond -0.44% | High Yield -1.13% | 2yr UST 3.316% | 10yr UST 3.024%
COMMODITIES: Brent Crude -0.11% to $96.61/barrel. Gold -0.85% to $1,748.0/oz.
BITCOIN: -1.24% to $21,171
US DOLLAR INDEX: +0.73% to 108.962
CBOE EQUITY PUT/CALL RATIO: 0.74
VIX: +15.53% to 23.80
Ready, set, hike – tackling inflation this tailgating season
With the end of summer in sight, football fans are getting excited for the start of a new season. But this year, fans will not just be coping with the usual parking lot traffic and last second heartbreak. They will also be dealing with some of the highest inflation seen in decades. Below are 12-month price changes for categories relevant to every football game and fan:
We all know gasoline (+44%) and airfare (+28%) prices are weighing heavily on the family budget, but inflation has broadened out across almost every category. Grocery prices have jumped 13.1% since last July – the biggest one-year gain since 1979 – following steep increases in costs for agricultural commodities, transportation, and labor. Ground beef is up +9.7%, while beer prices have risen +4.6%. And regardless of what they are grilling, fans should brace for propane and firewood to cost about 22% more than last year.
Ready, set, hike!
Source: Wells Fargo, Sam Ro
Russia temporarily shutting off Nord Stream gas flows to Europe
Russian state-owned energy exporter Gazprom PJSC said it would shut down the Nord Stream natural-gas pipeline to Germany for three days of maintenance later this month (Aug 31 – Sept 2), ratcheting up the pressure on energy-starved Europe.
The unexpected move could complicate efforts by Germany and much of Europe to fill gas reserves and stave off widespread rationing to keep its population warm through the long continental winter, as well as averting factory shutdowns. Moscow has already throttled back deliveries over the pipeline – its main gas link to Europe – to 20% of its maximum capacity, citing technical issues with its turbines. The temporary closure wasn’t previously announced and comes just weeks after the 760-mile-long Nord Stream pipeline – which connects Russia’s prolific Siberian gas fields with Germany under the Baltic Sea – was shut for 10 days of annual maintenance in July.
This news led to European and American natural gas futures trading higher by as much as 10% today, setting another record high. Natural Gas prices in the United States are up +150.1% year-to-date, as measured by the Henry Hub Natural Gas futures contracts. Over the last five years, Natural Gas has averaged a price of $3.289 per contract; today it’s trading at $9.329.
Source: Wall Street Journal, Natural Gas Intelligence
Corporate debt at historically low levels
US corporate debt to equity levels, an often quoted indicator tracking leverage in the system, are very low by historical standards, currently at 25% and sitting at the low end of its 50-year range. Broadly speaking, corporate balance sheets are in good shape – a healthy fundamental indicator in the face of rising interest rates, slowing growth, and a possible recession looming on the horizon.
Source: Bank of America Global Research
Euro breaks parity against dollar, again
The euro fell to a new two-decade low as a resurgent dollar and the prospect of a difficult winter for the European region begin to take hold. The currency was trading Monday at levels last seen in 2002, just a few years after the currency came into existence. “The end of summer sees the euro back under pressure, partly because the dollar is bid and partly because the Damoclean sword hanging over the European economy isn’t going away,” wrote Societe Generale SA foreign exchange chief strategist Kit Juckes in a note to clients.
Source: Bloomberg
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.