The USD/JPY exchange rate drifted upwards on Thursday morning as the US dollar index (DXY) rally gains steam after the Federal Reserve minutes. The pair rose to a high of 149.15, its highest point since August 1. It has risen by over 6.75% from its lowest point in September.

Japan’s sticky inflation

The USD to JPY pair rose after Japan’s statistics agency published a fairly strong inflation report. 

The Producer Price Index rose from -0.2% in August to 0.0% in September, higher than the median estimate of minus 0.3%. It rose from 2.6% to 2.8% on an annualized basis, beating the median estimate of 2.3%. 

The other recent report showed that Japan’s Consumer Price Index (CPI) rose from 2.8% in August to 3.0% in September. It has risen from the year-to-date low of 2.0% and is at the highest point since November last year.

These numbers mean that Japan’s inflation has become stubbornly high, pointing to a potential hawkish BoJ when it meets on October 31st.

The BoJ caught investors off-guard earlier this year when it raised interest rates by 0.10% and exited negative rates. It then hiked by 0.25% in its July meeting, leading to a major bloodbath in the forex and stock market as investors unwound the Japanese yen carry trade. 

The BoJ then left rates unchanged in the last meeting as the governor warned that more hikes should not be ruled out if inflation remained stubbornly high. 

Inflation pressures could continue now that the new government led by Ishiba Shigeru has directed his cabinet to compile a stimulus package. 

This package will likely come after the October 27 election. Some of the potential parts of the package will be boosting the minimum wage, subsidies to local governments, and payouts to low-income households. These are highly inflationary events that could push the BoJ to deliver more cuts.

Federal Reserve minutes

The USD/JPY exchange rate also rebounded after the Federal Reserve published minutes of the last meeting. 

These minutes showed that officials were divided on whether to cut interest rates by 0.50% or 0.25%. A good number of officials favored the 0.25% cut. 

Therefore, while more Fed officials preferred a 0.50% increase, they all agreed that the pace of cuts should normalize if inflation retreats and the labor market improves.

Last week’s US jobs numbers showed that the US was achieving these conditions. The labor market added over 254k jobs in September, while the agency revised the August jobs numbers upwards. After peaking at 4.3% in July, the unemployment rate retreated to 4.1% while wage growth was stronger than expected.

Analysts believe that Thursday’s inflation data will show that the trend was moving in the right direction.

The headline Consumer Price Index (CPI) is expected to drop from 0.2% in August to 0.1% in September. It will then drop from 2.5% to 2.3% on an annualised basis, meaning that it is moving to the Fed’s target of 2.0%.

Core inflation, which excludes the volatile food and energy prices, is expected to move from 0.3% to 0.2% and remain at 3.2% on a year-on-year basis.

The US will also release the producer price index (PPI) report on Friday. Economists expect the data to show that the headline PPI retreated from 0.2% in August to 0.1% in September, while the core figure fell to 0.2%.

If these estimates are correct, and if the October jobs numbers are correct, it means that the Fed will opt for a 0.25% interest rate in the next meeting.

A key factor that could affect US inflation is the elevated oil prices because of the rising geopolitical issues in the Middle East.

Israel is considering launching a major attack against Israel in response to the recent missile attack. As a result, Brent crude oil has jumped to $77.2, while West Texas Intermediate (WTI) has jumped to $74.

USD/JPY technical analysis

USD/JPY chart by TradingView

The daily chart shows that the USD to JPY exchange rate bottomed at 139.56 on September 16, and rebounded to 149.17, its highest point on August 16.

It has moved above the 50-day Exponential Moving Average (EMA), meaning that bulls are now in control.

The pair is attempting to move above the key resistance point at 149.35, its highest point on August 16, and the 200-day Exponential Moving Average (EMA). 

Also, the MACD indicator has moved above the neutral point, while other oscillators have risen. Therefore, the USD/JPY pair will likely continue rising as bulls target the next key resistance point at 151.91, its highest point in November last year. A drop below the 50-day moving average point at 146.68 will invalidate the bullish view. 

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The Royal Caribbean Cruises (RCL) stock price is firing on all cylinders and outperforming its closest rivals like Carnival and Norwegian. It has risen in the last three consecutive months, and is sitting at a record high of $193. 

After tumbling to a low of $19.12 in 2020, the stock has pared back those losses, and soared by 920%, giving it a market cap of $50 billion.

RCL has become bigger than Carnival ($23 billion), Norwegian ($10 billion), and Viking Cruises ($16 billion), combined. 

This is even though its revenue figures are significantly lower than Carnival’s. RCL’s annual revenue in the trailing twelve months stood at $15 billion compared to Carnival’s $24 billion. Its profit of $2.5 billion was higher than Carnival’s $1.5 billion. 

Royal Caribbean is doing well

Royal Caribbean is a leading cruise line company that operates three key brands: Royal Caribbean International, Celebrity Cruises, and Silversea Cruises. These brands have 26, 16, and 11 ships, respectively.

The company has also created a partnership with TUI, the biggest holiday company globally. For example, it has a 50% joint venture with TUIC, which operates German brands TUI Cruises and Hapag-Lloyd

Like other companies in the cruise industry, Royal Caribbean was affected significantly by the last Covid-19 pandemic as its business shut. 

Unlike the aviation industry which received bailouts, cruise lines received little support, and had to rely on debt and equity. RCL’s long-term debt jumped from $8.2 billion in 2019 to over $17.9 billion in 2020.

It also diluted its investors by selling new shares, which pushed its common outstanding shares from 208 million in 2019 to over 256 million today. The company also slashed costs by furloughing workers.

Royal Caribbean’s annual revenue dropped from over $10.9 billion in 2019 to $2.2 billion in 2020. Most of its revenue in 2020 came in the first quarter before governments imposed travel restrictions. Its 2021 revenue tumbled to $1.5 billion. 

Since then, the company has been in a strong recovery as the cruise industry has bounced back. Its annual revenue rose to $8.8 billion in 2022 followed by $13.9 billion last year, and analysts expect that the trend will continue.

According to Yahoo Finance, its 2024 will be $16.5 billion followed by $17.9 billion next year. It will then get to $20 billion in either 2026 or 2027. 

RCL’s business is booming

The most recent financial results showed that its revenue continued doing well as it reached its financial targets 18 months earlier than expected. Some of these targets are its triple-digit EBITDA per average passenger cruise days (APCD), return on invested capital (ROIC) in its teens, and a double-digit EPS. 

The numbers revealed that its load factor surged to 108% while its net income jumped to over $854 million. 

The company is benefiting from the renewed demand for cruising, which has seen forward bookings surge. Unlike in the past when cruising was a reserve for the elderly, many young people have embraced the trend. 

For RCL, higher demand means that it has room to boost prices. It also implies that the company has substantial customer deposits on hand. It ended the last quarter with $6.2 billion in customer deposits, which it can use to generate returns.

Valuation concerns remain

Royal Caribbean is doing well, and therefore, requires a premium valuation. As mentioned above, a key concern is whether the company is severely overvalued or whether the other brands are cheaper. 

RCL has a forward P/E ratio of 16.5, which is lower than the S&P 500 multiple of 21 and the consumer discretionary median of 18. 

It also has a forward EV-to-EBITDA multiple of 12, higher than the industry median of 10. These numbers mean that the company is trading at a premium, especially considering its substantial debt load of over $20 billion. 

To some extent, this premium valuation can be justified by its growth metrics. It has a trailing revenue growth of 27.7% and a forward metric of 26. Its forward EBITDA growth is 108%, which is impressive. The next key catalyst to watch will be its earnings, which are set to happen on October 29. 

Read more: Carnival stock sits at a key price: comeback could be epic

Royal Caribbean stock price analysis

The weekly chart shows that the RCL share price has been in a spectacular bull run in the past few years, as I predicted. It recently flipped the important resistance point at $133.80, its highest point in 2020. 

The stock formed a golden cross pattern as the 50-week and 200-week moving averages crossed each other. 

Meanwhile, the Relative Strength Index (RSI) has moved to 71, meaning that it is not extremely overbought. The Chaikin oscillator has remained above the zero line.

Therefore, the stock will likely continue soaring ahead of its earnings release. However, a short-term pullback cannot be ruled out before then. 

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The iShares 20+ Year Treasury Bond ETF (TLT) and the Vanguard Long-Term Treasury Index Fund ETF (VGLT) ETFs have pulled back in the past few weeks as investors assess the next actions of the Federal Reserve and a potential black swan event in the US. 

The more popular TLT ETF retreated to $94.45, down by 7.05% from its highest point this year. Similarly, the VGLT fund has retreated by 6.12% to $59. The two three-star rated funds have had positive total returns this year, rising by over 13%. 

Federal Reserve actions

The TLT and VGLT funds are some of the biggest bond funds in Wall Street with over $58 billion and $19 billion, respectively. 

TLT tracks the ICE U.S. Treasury 20+ Years Bond Index while the VGLT invests in government bonds with a maturity of between 10 and 25 years. 

These funds are affected by the movement in long-term interest rates in the United States, which is in turn, influenced by the Federal Reserve’s actions.

The most recent data shows that the benchmark 30-year Treasury Yield was trading at 4.34%, up from the year-to-date low of 3.8%. Shorter-term yields have also bounced back, with the two-year rising from 3.5% to 4%.

These yields have jumped because of the changing view about the Federal Reserve. A few weeks ago, the consensus view among analysts was that the Fed would deliver several jumbo rate cuts to put a check on the labor market. 

That happened after a series of weaker jobs reports. For example, the Bureau of Labor Statistics (BLS) revised downwards the number of jobs created in the 12 months to March this year by over 800k. 

More data showed that the unemployment rate crawled back from a low of 3.5% this year to 4.3%, while wage growth slowed.

All this happened at a time when the country’s inflation was moving downwards. After peaking at a 40-year high of 9.1% in 2022, the headline Consumer Price Index (CPI) has retreated to 2.5%. 

The closely watched personal consumption expenditure (PCE) has also retreated from 6.8% to 2.2%, meaning that these figures are approaching the Fed’s 2.0% target. 

The next key catalyst for the TLT and VGLT ETFs will be the upcoming US inflation data, which will likely have little impact on the next Federal Reserve actions. Analysts expect the data to show that the headline CPI retreated from 2.5% in August to 2.3% in September. 

Black swan event ahead

The biggest risk for US long-term bonds and ETFs like TLT and VGLT is that the economy faces a major black swan event after the upcoming general election. 

The swan event to watch is the public debt, which has entered beast mode in the past few years. Data shows that the total public debt has risen from about $10 trillion to $33.5 trillion today, and is adding $1 trillion after every three months. Granted, the GDP has risen from $14.7 trillion to $28.1 trillion in the same period.

This debt increase has happened when Democrats and Republicans were in power. Donald Trump, a Republican, added public debt by over $8 trillion, in part because of tax cuts and his pandemic response. 

However, the challenge is that the current trajectory is not good, and the situation could worsen after the next election.

A report by a non-partisan agency estimated that Trump’s actions will boost the budget deficit by $7.5 trillion in the next decade. His plan to extend his tax cuts and implement additional ones will influence this deficit. 

Kamala Harris is also expected to boost the deficit in her tenure because of her welfare spending, which will be influenced by her tax increases. Her spending will boost the deficit by $3.5 trillion. 

Therefore, the black swan event is where the US loses the last Triple-A credit from Moody’s. S&P downgraded the US to AA+ in 2011, while Fitch did the same in 2023. Moody’s has warned that the ongoing unconstrained spending could push it to slash its rating. 

As such, there is a risk that the US could go through what the UK went through during the mini-budget crisis in 2022.

VGLT vs TLT: which is a better buy?

The VGLT and TLT ETFs are risky funds to invest in because of the elevated US public debt risks. However, if I had to recommend – and I am not – I believe that the smaller VGLT is a better one to invest in.

VGLT has a dividend yield of 3.86% while the TLT fund yields 3.85%. Its four-year average yield is 2.75% while TLT is 2.48%.

Another important data is that VGLT is a cheaper fund to invest in because of its 0.04% expense ratio compared to TLT’s 0.15%. These factors explain why the VGLT has done better than the TLT in the last few years. 

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The Stellantis (STLA) stock price has moved into a deep bear market as doubts about the company’s future remains. Its American shares plunged to a low of $13.40 on Wednesday, its lowest point since January 2023, and down by over 51% from its highest point this year.

Stellantis has severely underperformed other large automakers. It has dropped by almost 40% this year, while Ford has fallen by almost 10% this year while Renault and General Motors have risen by 34% and 9.52%, respectively. 

Stellantis business is struggling

Stellantis is not a popular name, yet it is one of the biggest companies in the auto industry. It owns some of the most popular brands, especially in Europe and North America.

It was formed through the merger of Fiat Chrysler with PSA, a French company known for its Peugeot brand. 

Before that, Fiat acquired Chrysler, the smallest of the large Detroit automakers from bankruptcy. 

Some of the other popular brands in the Stellantis umbrella are Alpha Romeo, Dodge, Jeep, and RAM. 

Stellantis’ business has gone through a rollercoaster in the past few years. Its revenue surged from $149 billion in 2021 to $179 billion and $189 billion in the next two years. This revenue growth translated to more robust profits, with the net income jumping from $14.2 billion in 2021 to $18.59 billion last year. 

This profitability has made Carlos Tavares one of the best-paid executive in the auto industry, making $39 million in 2023. His salary was higher than Jim Farley’s (Ford) $26 million and Mary Barra’s (GM) $27.8 million. 

Tavares also made more money than Luca de Meo, Renault’s CEO who earned about $6.33 million. 

The challenge, however, is that many of Stellantis brands are not doing well, partly because of many years of underinvestment. Just recently, Kevin Farrish, the head of the US National Dealer Council wrote a scathing letter, saying:

“We did not create this problem, the federal government did not create this problem, the UAW did not create this problem, and your employees did not create this problem — you created this problem.”

Read more: Stellantis stock can only go up after US sales decline: here’s why

Stellantis top brands are not doing well

In a recent article on Stellantis, I warned that some of its brands risked going extinct, especially in the United States. 

First, there is Alfa Romeo, a brand whose closest competitors are the likes of BMW, Audi, and Lexus. Over the years, the brand has not done well and is not the first car that most people think about when buying a vehicle. As the chart below shows, total sales in the US have tanked in the past few years. 

The other notable brand is Maserati, a luxury brand that competes with the likes of Ferrari, McLaren, Aston Martin, and Porsche. Like with Alfa Romeo, very few people think of Maserati when doing their luxury car shopping. For example, data shows that the brand sold 6,500 cars in the first quarter of the year, down from 15,300 in the same period last year. 

RAM, one of the best pickup trucks in the US, is also losing market share. Its sales plunged by about 20% in the first half of the year. Its sales have trailed those from Toyota, GM, and Ford. This is a notable development because the US is one of the most important markets for Stellantis.

Other brands that have seen substantial weakness are Jeep, Chrysler, and Dodge. For example, Jeep sales in the US dropped by 34% from the record high.

At the same time, the company is bracing for more competition from quality and affordable Chinese brands, especially in the European market.

Stellantis stock dropped after weak earnings

Analysts believe that Stellantis needs more measures than those announced yet, which have included layoffs.

The most important one is that the company needs to invest in its core brands to grow its market share. To some extent, the company should consider strategic alternatives for some of its top underperforming brands.

The most recent results show that Stellantis combined shipments dropped from over 3.3 million in the first half of the year in 2023 to $2.9 million. 

Its net revenue dropped from 98 billion to €85 billion in that period, while its basic earnings per share fell to €1.87. 

Stellantis stock price analysis

STLA chart by TradingView

The weekly chart shows that the STLA share price peaked at $27.7 in March 2024, and has plunged to $13.40. 

It has dropped to the 61.8% Fibonacci Retracement level. Also, it has dropped below the 50-week and 200-week Exponential Moving Averages (EMA), meaning that bears are in control.

Also, the MACD and the Relative Strength Index (RSI) have continued falling. Therefore, the path of the least resistance for the Stellantis share price is bearish, with the next point to watch being at $9, the 78.6% retracement point. 

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