Silver banana goes to…

In this issue of the peel:

• ✈️ The S&P and the NASDAQ plunge as retail sales fall for the second straight month, reinvigorating tariff anxiety.

• 🛢️ Oil prices rally as tensions continue between Israel and Iran.

• 🤝 How a conflict between Israel and Iran could doom China’s oil supply due to its dependence on discounted Iranian crude oil.

Market Snapshot

Student Spotlight

A+ Equity Research Report 📊

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Find out more about WSO Academy here.

Banana Bits

• A U.S strike on Iran is currently being considered by President Donald Trump.

• Amazon CEO says that job cuts are to be expected as a product of generative artificial intelligence.

• Dynamite, a clothing retailer, is reportedly raising prices by 9% due to tariffs.

• Why the Fed is not planning a rate cut despite calming inflation.

• A new tax provision was added to Trump’s tax bill, where certain companies in the oil and gas industry will receive tax breaks for drilling costs.

The Daily Poll

Previous Poll:

Should rare earths be America’s top trade priority?

Definitely: 21.6% // One of Them: 62.2% // Not Really: 16.2%

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Macro Monkey Says

Markets Sink as Retail Sales Contract

Another aspect of uncertainty has seemingly been introduced through the current conflict between Iran and Israel. Markets are on edge as a result of the conflict, and it will likely stay that way until it is resolved or if it paves the way for a larger conflict. 

Additionally, oil prices rise as tensions between Iran and Israel continue. While Israel has not damaged any of Iran’s oil exportation, they have struck several oil fields, and many are questioning whether it will be further escalated. 

Since the trade talks occurred between the U.S and China in London last week, tariff news has taken a back seat to the conflict between Israel and Iran. Unfortunately, yesterday, retail sales were announced to have decreased for the second consecutive month, rekindling anxiety regarding tariff-induced inflation.

This could also be attributed to consumers trying to buy discretionary items before the tariff pricing, as well as producers attempting to sell those items. As a direct result, retail sales decreased because China and the U.S came to a trade agreement, meaning that the tariffs are no longer paused, albeit at much lower levels. 

This decrease in retail sales was primarily dragged down by items like “motor vehicles, gasoline, and building materials,” which saw demand spikes before tariff pricing. These metrics suggest that consumers are dialing back on their spending, representing a decrease in overall consumer sentiment.

While inflation has yet to have a tangible impact on inflation-based economic statistics, decreasing consumer sentiment on discretionary items could be a telltale sign that inflation is on the rise. 

The Takeaway?

While Israel and Iran are definitely not in all-out war, the markets will likely continue to respond to news regarding the escalation or de-escalation of the ongoing conflict. Furthermore, declining consumer sentiment could be a sign of inflation, despite the lack of tangible inflationary statistics that indicate inflation is on the rise. 

Career Corner

Question

How should you answer a desired salary question when you are required to select a number on the app?

Answer

Research their average salary on the WSO company database, Glassdoor, etc., and put that.

Head Mentor, WSO Academy

Check out WSO Academy!

What's Ripe

CERo Therapeutics Holdings (CERO) 188.7% 

• CERo Therapeutics, an immunotherapy company focused on developing next-gen T-cell therapeutics, saw exponential growth in their stock price yesterday. 

• This gain came as a direct result of the U.S Food and Drug Administration granting Orphan Drug Designation to CERo’s CER-1236, a drug that targets acute myeloid leukemia. This means the CER-1236 will have waived FDA approval fees and access to trial design grants. 

PureCycle Technologies (PCT) 19.0% 

• PureCycle Technologies, a plastics recycling company, witnessed a surge in its share price after they announced a $300 million funding round and a global expansion plan. Their global expansion plan involves reaching 1 billion pounds of installed capacity by 2030.

What's Rotten

Enphase Energy Inc. (ENPH) 24.0%

• Enphase Energy’s stock price plunged significantly yesterday after Congress changed Trump’s tax bill to accelerate the phasing out of solar and wind tax credits by 2028. This will directly impact Enphase’s business as they are a solar inverter and storage company.

• Additionally, this provision in Trump’s tax bill also hurt other businesses like FirstSolar, whose stock price decreased almost 18% yesterday.

Surgery Partners Inc. (SGRY) 12.3%

• Surgery Partners' stock price significantly dropped today after they rejected an offer from Bain Capital, a well-known PE firm, to take them private at a premium of about $26 per share. Shareholders were disappointed that Surgery’s management didn’t take the offer, despite the small premium, and as a result, many shareholders decided to sell. 

Thought Banana

China’s Reliance on Iranian Oil

One of the largest potential economic repercussions of the current conflict between Israel and Iran is that Iran has the third-largest amount of oil reserves in the world and is a major exporter of oil. 

The reason we’ve seen oil prices fluctuate so rapidly in the past few days is simply because if Iran is either unable to export oil or only able to export a limited amount, that will have extreme implications for the price of oil. 

Fortunately, Israel has not yet attacked Iran’s resources for the exportation of oil, including the vital Strait of Hormuz, an extremely vital region for the Iranian exportation of oil. Regardless, if the tensions between Israel and Iran continue to boil over more than they already have, that could easily change. 

Something else that is worth noting is that China’s extreme reliance on Iranian exports of oil could be compromised as a result of Israeli attacks on Iranian resources used to export oil. Iran exports approximately 1.7 million barrels of oil per day, which accounts for only about 2% of global demand. 

Furthermore, in late 2018, during Trump’s first term, the U.S withdrew from a nuclear deal with Iran and imposed sanctions on Tehran’s (the capital of Iran) exportation of crude oil. 

As a result of the sanction, most countries steer clear of Tehran’s oil, forcing them to sell discounted barrels to China and a few other countries. 

As we can see, in the past few years, Iran has been almost exclusively exporting oil to China, with over 90% of Iranian exports going there, according to the commodities data company Kpler.

This essentially gives Chinese companies extreme leverage over Iranian oil drillers, as China is the primary customer, allowing them to obtain dirt-cheap prices. On the other hand, the unfolding situation between Iran and Israel could result in a Chinese oil supply shock. 

The Takeaway?

While China’s deal with Iran allows them to acquire crude oil at a discount, the current conflict could result in problems for Chinese businesses that are reliant on oil. Despite this, if the conflict between Iran and Israel does not escalate further than it already has, it is unlikely that China will experience a crude oil supply shock. 

The Big Question: Will China’s oil addiction backfire if the Iran-Israel conflict escalates?

Banana Brain Teaser

Previous

Of the 150 houses in a certain development, 60% have air-conditioning, 50% have a sunporch, and 30% have a swimming pool. If 5 of the houses have all 3 of these amenities and 5 have none of them, how many of the houses have exactly 2 of these amenities?

Answer: 55

Today

The present ratio of students to teachers at a certain school is 30:1. If the student enrollment were to increase by 50 students and the number of teachers were to increase by 5, the new ratio would be 25:1. What is the present number of teachers?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
Chris, Vyom, Ankit, Mithun, Colin & Patrick

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