😍 Hedge funds' new favorite stock

Inflation goes global | Inditex mixes and matches |

Hi Reader, here's what you need to know for June 10th in 3:12 minutes.

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Today's big stories

  1. Chinese inflation just hit its highest level since 2018, putting the world on edge about higher prices to come
  2. Hedge funds have a new favorite stock, and you can either be with them or against them – Read Now
  3. Zara-owner Inditex announced stronger-than-expected quarterly results, despite the lockdown thorn in its side

Follow The Leader

Follow The Leader

What’s Going On Here?

Data out on Wednesday showed that Chinese producer price rises grew by their fastest since 2018, and the rest of the world might not be far behind.

What Does This Mean?

China was the first place to bounce back from the coronavirus pandemic, and things are still going strong. So strong, in fact, that demand for some products seems to be outstripping supply. That’s pushing prices up, which might be why the country’s “producer price index” – which tracks the prices of manufacturer-bought goods and services – was up a higher-than-expected 9% in May compared to a year ago.

Commodities are a big reason why: the prices of oil and certain metals have gone through the roof this year, and China’s a major buyer. No wonder, then, that the country’s recently taken steps to bring commodity prices back down…

Why Should I Care?

The bigger picture: Inflation could be China's next big export.
The risk of high producer prices isn’t just that they feed into Chinese consumer prices: it’s that they’ll push up consumer prices in the US and Europe too, given that China’s one of the world's biggest exporters (tweet this). That’d push inflation in those regions even higher, at a time investors are already worried it’s too high. More worrying still is that China-linked inflation mightn’t show up in Western data. Governments, after all, don’t pay much attention to prices of West-bought Chinese goods when they calculate inflation, which means economists and central banks might miss its effects even as consumers feel the pinch.

Zooming out: US and China are leaving the others behind.
The World Bank’s expecting the Chinese and US economies to grow 9% and 7% this year compared to last, which would drive global economic growth up by 5.6%. But the world’s developing countries – which are bound to keep struggling with the pandemic – are only likely to grow 2.9%, their second-slowest growth rate in the past 20 years.

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2. Analyst Take

Should You Follow Hedge Funds’ Lead?

What’s Going On Here?

Fresh data has shown that hedge funds’ top stock pick right now is – drumroll please – our old friend Facebook: 27% of them own shares in the giant, and 57% have it as a top ten holding.

And you might well agree with them: the company’s revenue growth, after all, is expected to be double that of the online advertising market this year.

Or you might disagree, and point to the fact that a recent Apple software update threatens the social media company’s entire business model.

But whether you’re bullish or bearish on Facebook, there’s a way to put your money where your mouth is.

So that’s today’s Insight: why hedge funds are so keen on Facebook, and the two opposing ways to play the company’s stock.

Read or listen to the Insight here

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Shabby Chic

Shabby Chic

What’s Going On Here?

Inditex loves this whole “reintegrating-into-polite-society” look you’ve got going on: the biggest fashion retailer in the world announced stronger-than-expected quarterly results on Wednesday.

What Does This Mean?

It’s been a weird year, and not a particularly helpful one for gauging growth. That’s why Inditex put its update into context by comparing last quarter’s sales to those in 2019. And it wasn’t exactly a favorable match-up: the Zara owner’s first-quarter sales were down 12% from the same time that year.

Still, it’s not exactly a fair fight: Inditex’s stores were open for 24% less time. So all else equal, you’d probably expect sales to fall by around a quarter. A drop-off of only half that size, then, was seen as a nice surprise, and helped drive a better-than-expected quarterly profit. The trend looks set to continue too: Inditex said that sales are up 5% versus 2019 so far this quarter, even though its stores have been open for 10% less time than normal.

Why Should I Care?

For markets: The only way is growth.
UBS argued in February that investors would, by the second half of the year, only care about stocks with strong earnings growth, rather than the cheap-looking “value” and economically sensitive “cyclical” stocks that were popular in the first half. But the bank might not have been ambitious enough: Inditex’s high-growth stock is up about 9% in the last three months alone, while a key index of European energy stocks – which ticks both the “value” and “cyclical” boxes – has stayed flat.

The bigger picture: Keep up with the last fashion.
Sustainability’s been important to European investors for a while now, and it’s forced the fashion industry – the second-most polluting in the world – to do some soul-searching. That’s why second-hand fashion startups have been making a name for themselves. US investors might want to start taking notice of them too: US ecommerce company Etsy just bought UK fashion reseller Depop for $1.6 billion.

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💬 Quote of the day

“Don’t spend time beating on a wall, hoping to transform it into a door.”

– Dr. Laura Schlessinger (an American talk radio host and author)
Tweet this

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🤔 Q&A · RE: Tick Tick… Boom?

Q: “Why are higher interest rates bad for stock prices?”

– Muskan in the UK

A: “Higher interest rates don’t necessarily cause stocks to fall, but they do make it more difficult for stocks to rise. For one thing, higher rates mean new bonds offer investors a better return than they used to, encouraging investors to sell stocks to buy bonds. For another thing, higher rates theoretically slow down economic growth by making it more expensive to borrow money – and, by extension, spend it. That’s usually bad news for companies’ earnings growth and, in turn, their stock prices. But it’s important to remember that interest rates only tend to rise when the economy is doing well, which should more than offset any negative impact from higher rates themselves.”

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🎯 On our radar

  1. Three simple ways to grow your crypto. Because stocks, bonds, and savings accounts just don’t cut it.*
  2. The next Simone Biles? How one American gymnast is defying all the odds.
  3. The must-have guide to real estate investing online. Crowdstreet has what you need to invest in real estate this year – and it’s free.*
  4. Climate change before their very eyes. Two Arctic explorers are living on the front line.
  5. Sex is back in fashion. Apparently erotic watches are the next big thing.

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🌎 Finimize Live

🚽 Sh*t happens

Grocery stores have done well out of the pandemic, and not just because of all the TP people have been stocking up on. So join Shopfloor Insights’ founder on June 10th for How Not To Get Lost In Supermarket Stocks, and find out how to pick grocery’s big winners.

🛒 How To Not Get Lost In Supermarket Stocks: 6pm UK time, June 10th
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🚀 How To Diversify Beyond Stocks And Bonds: 6pm UK Time, June 22nd
🤑 How To Earn A Passive Income From Crypto: 12pm NYC time, June 24th
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Image credits: NordWood Themes @nordwood - Unsplash, Giphy, Hakan GERMAN - Shutterstock | schab, Yulia Reznikov - Shutterstock, zara.com

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