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June 25, 2024

Swiss Central Bank joins the ‘rate cut’ party, tech stocks continue to roar and Europe’s many disruptions.

Global capital markets had a mixed week and came out marginally in the green. The U.S. stock market got off to a slow start to the week, but recovered half way through as the S&P 500 crossed the 5,500 mark. The highest gainer was the technology sector once again. Signs of economic slowdown and the most recent unemployment data pushed up the Treasury bond yields during the week. In Europe, capital markets were still celebrating the rate cut announced by the ECB last week and a 25 bps cut by the Swiss Central Bank at the start of the week. However, as political turmoil gripped France and Germany announcing a slowdown in business activity, the European stock market lost ground and eventually posted a small gain. There are growing fears that the European IPO market is unlikely to see any new candidates until after the summer. In geopolitical news, Israeli forces continued their assault in Rafah and other areas across the Gaza Strip, while missile intercepts over northern Israel and fires from air strikes in southern Lebanon compounded fears that the Gaza war may be expanding into a wider conflict. Russia has expressed its openness to have security talks with the U.S. provided they must be comprehensive and include the subject of Ukraine.

Global Updates
  • The MSCI All Country World Index edged upwards overall, after a week marred with volatility. 
  • In the latest release of economic data, first-time applications for U.S. unemployment benefits fell moderately last week, while new housing construction dropped to the lowest level in nearly four years in May, suggesting that U.S. economic activity remained moderate in the second quarter.
  • The European markets rallied at the start of the week as the Swiss National Bank became the latest developed economy central bank to cut interest rates by 25 basis points to 1.25%. Towards the end of the week, French and German economic survey data came in weaker than expected, supporting expectations for policy rate cuts. In addition, Eurozone business growth decelerated sharply in June as demand fell for the first time since February.
  • The Bank of England kept its policy rate unchanged but was hopeful of rate cuts soon with inflation reaching the benchmark of 2%. The country’s consumer confidence indicator rose for the third consecutive month, exceeding expectations following UK inflation returning to the target inflation rate of 2%.
  • WTI crude futures trended up for the second week topping $81 per barrel on escalating conflicts and declining U.S. crude stocks.
  • The Shanghai composite index trended down for the sixth straight week owing to an imbalanced economic revival in China. 
  • Japan’s inflation rate rose to 3-month high with energy subsidies completely ending. The yen weakened again, forcing Japan to act against currency speculators. Japan’s PMI also fell with price stress and a fall in new export orders.
  • Sweden’s financial supervisory authority has fined Nasdaq Stockholm $9.6 million for not complying with bourse rules at several occasions in recent years.
  • The World Gold Council predicts 30% of world’s central banks will enhance their gold reserves with increasing pessimism in a dollar based global economy.
U.S. Equity
  • The S&P 500 & Nasdaq ended higher this week led by jumps in high-cap technology stocks Nvidia, Dell, Super Micro Computers and Accenture on AI-based positivity. The main sectors of growth were technology, energy, utilities and financials. 
  • Dell Technologies and Super Micro Computer stocks rose with Elon Musk’s announcement that the companies will design the hardware for his startup xAI. Accenture’s stock also gained with a surge in AI related bookings and higher-than-expected third quarter profits. 
  • Minneapolis Federal Reserve President Neel Kashkari announced that the Fed would implement a single rate cut by the end of this year according to their median forecasts. 
  • The U.S. government opened up competitive bidding for $850 million in grants to help small oil and gas producers monitor and reduce methane from their operations, a major part of the Biden administration’s plan to crack down on leaks of the potent greenhouse gas.
  • Goldman Sachs has raised the year-end target to 5600 for the S&P 500 citing strong earnings growth by five mega-cap U.S. tech stocks and a higher fair value price-to-earnings ratio multiple.
  • America’s largest technology focused ETF, The Technology Select Sector SPDR Fund, will quadruple its holdings of Nvidia’s stock to replace Apple stock in its quarterly rebalancing. 
  • Renewable energy provider ‘NextEra Energy’s’ stock dropped after announcing sale of equity units worth $2 billion, to repay debt and fund new projects.  
  • Tesla sued its EV battery supplier for disclosure of trade secrets in an improperly filed patent application. EV startup Fisker has filed for bankruptcy, failing to restructure. 
  • Honeywell International stock gained after the company completed the purchase of advanced defense electronic systems’ manufacturer CAES Systems for $1.9 billion.
  • Pharma manager Gilead’s stocks surged after significantly positive results in the phase-3 trials of HIV drug, Lenacapavir.
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U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index rose marginally this week with aggressive rallies by tech stocks offering investors profitable options. 
  • The U.S. 10-year Treasury yield rose to 4.22% and the yield on the 2-year note reset to 4.69% over the week.
  • The U.S. Dollar Index marginally ended the week at 105.54.
  • According to Securities Industry and Financial Markets Association data, the U.S. Treasury market has more than doubled over the past 10 years, from $12.5 trillion in 2014 to $27 trillion at the end of May. Going forward, federal debt could grow to $48 trillion by 2034.
Sources

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June 14, 2024

The Fed’s ‘wait and watch’ approach, weakening inflation and trouble for the Petro-Dollar

Global capital markets went through a week of major developments. The most recent CPI print in the U.S. brought relief as it came in lower than expected. Despite the fall, the Fed kept rates unchanged in June, waiting for stable inflation rates closer to its target of 2%. The technology leaders in the U.S. had a strong week and powered the rally in the country’s equity market. Oracle signed deals with Microsoft, Google, and Open AI to develop their cloud infrastructure, Nvidia split stocks 10-for-1 and Broadcom announced a similar split after their second quarter earnings beat market expectations. Up on Capitol Hill, Republicans lobbied to extend the Trump tax beyond 2025 and increase the tax cuts for corporations. Elsewhere, European stocks fell during the week after rising political uncertainty gripped France and China’s CPI edged up month-over-month owing to a surplus in domestic demand. In geopolitical developments, Hamas tempered its ceasefire negotiations with a hardened stance on withdrawal of Israeli forces, while the Houthi rebels continued to disrupt shipping channels in the Red Sea using boat and missile attacks.

Global Updates
  • The MSCI All Country World Index had a tumultuous week and ended lower overall. The index initially plummeted after French President Emmanuel Macron dissolved the French assembly and called for snap elections. Later in the week, the announcement of soft U.S. inflation numbers helped the index recover some ground.
  • In the U.S., new claims for unemployment benefits increased last week and producer prices unexpectedly fell in May, keeping alive hopes that an interest rate cut by the Federal Reserve may be on the horizon. As a result, the S&P 500 and Nasdaq rallied and registered record closing highs during the week.
  • Brent Crude and WTI Crude futures recovered on rising global demand after a steep fall from 2-week highs following an increase in U.S. inventories of crude oil by 3.73 million barrels.
  • China’s CPI edged up by 0.3% while producers’ prices declined, signaling a stagnant domestic consumer demand. Chinese carmakers accelerated plans to build factories in Hungary and Poland after the E.U. imposed an additional 38% tariff on electric vehicles imported from China. 
  • Saudi Arabia chose not to renew its 80-year petro-dollar deal with the U.S.A., which expired on the 9th of June.  Saudi Arabia can now sell oil and other goods using different currencies, such as the Chinese RMB, Euros, Yen, and Yuan, instead of only U.S. dollars.
  • The Argentinian senate approved a package of free market reforms and fiscal actions to attract foreign investment and resuscitate its economy.
U.S. Equity
  • The S&P 500 & Nasdaq composite rallied with technology stocks leading the way yet again and softer-than-expected consumer inflation numbers. The Dow Jones index fell during the week.
  • U.S. inflation slowed to 3.3% in May with cooling inflation for food, shelter, transportation, and apparel. The 30-year mortgage rate also dipped by 18 basis points. Employers added 272,000 new jobs in May and hourly wages rose 4.1% even as the unemployment rate rose to 4%.
  • The Fed kept rates unchanged during its June meeting and has projected only one rate cut this year, while its outlook in March included three quarter-percentage-point reductions.
  • Oracle stock has surged during the week after announcements of large cloud infrastructure deals with Google Cloud, Microsoft and OpenAI. 
  • Apple’s market cap increased by 7% to the tune of $215 billion fueled by the announcement of its new AI powered developments and ChatGPT integration.  
  • KKR, CrowdStrike, and GoDaddy equities advanced with inclusion in S&P 500 index rebalancing this quarter, to replace Robert Half, Comerica, and Illumina. AMD stocks fell as Morgan Stanley downgraded the company based on limited potential for financial earnings of AMD’s AI business. 
  • Ilit Raz, the founder of AI-powered hiring startup Joonko, was charged by the SEC with defrauding investors for $21 million using delusive capabilities. 
  • Terraform, crypto tycoon Do Kwon’s company, has agreed to $4.5 billion penalty and wind down operations to settle its fraud lawsuit with the SEC.
  • Chinese retail brokerage firm Webull was banned by the Tennessee state government on state employees’ equipment.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index recovered this week on Fed’s inaction and cooling inflation. 
  • The U.S. 10-year Treasury yield reset to 4.27% and the yield on the 2-year note reset to 4.72% over the week after major fluctuations.
  • The U.S. Dollar Index marginally fell to 105.22 during the week.
  • The Fed’s Summary of Economic Projections signaled only one rate cut this year, possibly in December. Market priced in 25 bps rate cut in September with 61% probability.
  • Actively managed fixed-income funds have attracted $105 billion investments so far this year, $31 billion higher than last year.
Sources

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June 7, 2024

Rate cuts in Canada and Europe, increasing scrutiny of AI’s biggest players and Mexico’s first female president

In an eventful week, Canada became the first of the G-7 countries to cut interest rates. The European Central Bank followed suit and cut rates to the tune of 25 bps, but economists remain cautious about the immediate future. Global capital markets were trended upwards as all major economies welcomed the rate cuts in Canada and Europe. Treasury yields for most European countries appreciated post the ECB announcement. The American capital market continued to rise largely, but stalled briefly as Nvidia, Microsoft and OpenAI came under government scrutiny. Internationally, Chinese trade surplus grew to $82.62 billion with growing exports and slowing imports. The Bank of Japan continued to maintain its near-zero rate with the central bank lacking confidence on sustainability of wage and inflation growth. Outcomes of the Indian and Mexican elections disrupted their stock markets for a while with a sharp decline. Finally, the U.S. continues to pressure Israel to agree to a ceasefire deal, even as Hamas switched up its hit-and-run insurgent tactics. The Russian government announced this week that Western nations supplying Ukraine with weapons to strike Russian territory will have to reckon with Russia, after President Vladimir Putin said he was considering arming the West’s enemies in retaliation.

Global Updates
  • The MSCI All Country World Index rose sharply during the week, following announcements of rate cuts of 25 bps by the Canadian and European central banks.
  • The Bank of Canada (BoC) became the first central bank among G7 countries to cut interest rates, raising prospects for Canada’s economy. Canadian stocks and bonds rallied after the announcement, while the Canadian Dollar touched a near two-week low against its U.S. counterpart.
  • The European Central bank (ECB) cut interest rates by 25 basis points from record highs in a long-telegraphed move, but held back from any pledge to ease policy further after inflation and wage growth data in recent weeks came in above its expectations.
  • China’s privately published Caixin manufacturing PMI rose to 51.7 in May from 51.4 in April, indicating China’s factory activity expanded in May. The services sector also grew with a raised Caixin services PMI of 54.0. This is contradictory to NBS PMI, China’s official index, which indicated that China slid into contraction.
  • Claudia Sheinbaum made history as became the first female president of Mexico. Mexican stocks and the Peso edged down as investors fear increasing government intervention in the economy. Yields on Mexican government bonds rose, while yields on dollar bonds issued by Mexican companies declined. 
  • The OPEC+ members agreed to extend oil production cuts to 2025 and this is expected to keep oil prices elevated. The decision is also expected to influence elections in some of the member countries.
  • Australia’s manufacturing PMI rose from 49.6 in April to 49.7 in May, indicating a slow recovery in Australia’s manufacturing sector. 
  • South Korea’s trade ministry announced a 13.8% export growth in April. This was the eighth consecutive month of export growth, especially in semiconductors, powering the 11.7% year-on-year export growth of $58.15 billion.
U.S. Equity
  • The S&P 500 trended upwards as growth in Technology and Pharmaceutical sectors were slightly offset by a fall in Energy and Industrials. Nvidia stock dipped a bit following news of scrutiny by the Justice Department. The U.S. crude rate for July delivery fell 1.3% to $73.25 per barrel while Global Brent crude rate for August delivery fell to $77.52 per barrel.
  • The Federal Trade Commission has sent subpoenas to Microsoft and Inflection to start an antitrust probe of the Microsoft AI deal and OpenAI. It is suspected that the Microsoft-Inflection deal was structured to avoid an antitrust review by the government. 
  • GlaxoSmithKline shares dropped 9% after the Delaware State Court allowed more than 72,000 cases in the Zantac heartburn drug carcinogen case, known generically as ranitidine. In 2020, the U.S. Food and Drug Administration ordered the immediate removal of all ranitidine drugs from the market following the initiation of a 2019 investigation in which the agency detected low levels of contamination of N-Nitrosodimethylamine  in ranitidine, an impurity linked to some cancers.
  • BlackRock and Citadel have announced their backing for a new stock exchange to be set up in Texas by next year.
  • NYSE stopped trades in Berkshire Class A shares after a technical glitch caused a 99% drop in price to $185.1. NYSE also unwound trades already committed during the glitch.
  • Waste Management is nearing a deal to buy medical waste disposal company Stericycle for roughly $7 billion, including debt.
  • Vehicle tracking software maker CalAmp filed for bankruptcy and proposed a $229 million bonds equity restructuring deal for secured lender Lynrock Lake.
  • HF Foods has been ordered to pay a civil monetary fine of $3.9 million to the SEC to settle fraud charges.
  • Bed, Bath and Beyond dropped its sales guidance for second quarter by 2%.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index rose steadily this week. 
  • The U.S. 10-year Treasury yield fell sharply to 4.3% over the week and the yield on the 2-year note fell to 4.74%.
  • The U.S. Dollar Index marginally fell marginally to 104.05 during the week.
  • U.S. high-yield bond funds enjoyed the biggest inflows of the year in May, driven by the allure of higher yields, potential for price appreciation amid anticipated Federal Reserve rate cuts, and diminishing corporate credit risks.
Sources

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May 31, 2024

NVIDIA takes center stage, interest rate hike rumors return and China’s increasing troubles

Global capital markets trended downwards this week, with a sharp dip on Wednesday following the release of the latest U.S. economic data and persistent inflation problems. The NASDAQ and S&P index surged earlier in the week after the news of a stock split by Nvidia. Minneapolis Fed president Neel Kashkari’s statement about a return to a hawkish stance by the Fed brought that rally to an end and the talk of a possible recession towards the end of 2024 added to investor worries. Internationally, Eurozone’s inflation made the talk of rate cuts a distant possibility. The Chinese economy continued to stutter with a contraction in manufacturing activity and a worrying unsold stock pile of 60 million apartments in the country. Finally, in geopolitics, Ukraine was permitted to use American weapons for limited strikes inside Russia, while Israeli offensive on Rafah has opened the U.S. and Egypt to domestic political pressures.

Global Updates
  • The MSCI All Country World Index trended downwards this week and fell sharply on Wednesday after Minneapolis Fed president Neel Kashkari confirmed a hawkish monetary policy, with the possibility of a Fed rate hike if inflation remains stubbornly high.
  • Eurozone inflation in May came in at 2.6% year-on-year, a bigger-than-expected increase in inflation. Consequently, the ECB is unlikely to lower borrowing costs from a record high next week. 
  • Taiwan’s economic growth of 6.6% in the first quarter spurred by global demand for new tech has improved the island’s tech exports.
  • China’s commerce ministry customs agency and the central military commission have jointly announced control measures on exports of aviation equipment, technology and software for security reasons. This comes as a surprise after the country’s latest PMI data signaled a contraction in factory activity with falling new orders and foreign sales.
  • Global equity funds witnessed outflows to the tune of $4.9 billion for the first time in five weeks, hit by rising U.S. Treasury yields and investor caution ahead of a crucial U.S. inflation report.
  • Saudi Arabia’s government filed papers to sell a new stake in state oil giant Aramco that could raise as much as $13.1 billion, a landmark deal to help fund Crown Prince Mohammed bin Salman’s plan to diversify the economy. 
  • Republican nominee Donald Trump has been found guilty on all 34 charges against him and faces incarceration. But the conviction may not have any consequences on the election, as the appeals process is expected to take a long time.
U.S. Equity
  • The NASDAQ index crossed the 1700 mark this week pushed up by the demand for NVIDIA stock. All three indexes dipped early in the week with investors speculating on delayed rate cuts. The NASDAQ and S&P 500 rose later in the week, while the Dow Jones index continued to dip 
  • NVIDIA’s stock continued to soar and even crossed $1,150 mark briefly, after the company announced a 10-to-1 stock split scheduled for June 7th, 2024.
  • Brent crude futures corrected upwards this week from its fall the week before, even as USA crude and gasoline inventories declined by 6.5 million and 450 thousand barrels respectively.
  • Elon Musk addressed xAI investors on the plans to build a supercomputer. His estimated requirement of 100,000 semiconductors and a possible partnership with Oracle. 
  • American Airlines has dropped its guidance for the current quarter due to decreasing travel spending in the economy.
  • Software giant Salesforce’s stocks fell 20% after underperforming in the first quarter. Discount retailers Ross and TJX raised guidance for the year. Bulk retailer Costco shares touched a high of $817 this week with first quarter revenues beating investor expectations.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index declined marginally this week. 
  • The U.S. 10-year Treasury yield marginally rose to 4.56% over the week and the yield on the 2-year note rose to 4.95%.
  • The U.S. Dollar Index marginally rose to 104.88 during the week.
  • The part of the U.S. Treasury yield curve that plots two-year and 10-year yields has been continuously inverted since early July 2022. This streak has officially exceeded the record of 624 days inversion in 1978.
Sources

HCM-030624-063.GWS

May 24, 2024

Manufacturing marches on, inflation remains critical and a proposed ceasefire.

Global capital markets trended sideways, apart from a dip on Thursday, following the news of global manufacturing expansion. The markets remained generally balanced, after news of falling inflation in the UK and solid corporate earnings reports. The news of global expansion in manufacturing has led to further speculation that the elevated interest rates are doing little to slow down an expanding global economy and concerns remain about any chance of a soft landing when economic activity does begin to slow down eventually. In terms of securities, NVIDIA was the market MVP this week with unexpected profits pushing stock value past the $1,000 benchmark. While Citibank was pulled up and fined by British regulators for its part in the mega market crash in 2022, the U.S. Securities and Exchange Commission approved the public access to the first ETF holding cryptocurrency. The U.S. Dollar appreciated during the week, owing to better economic performance indicators. Finally, in geopolitics, it is rumored that Vladimir Putin is ready to discuss terms of a ceasefire in Ukraine, while aid to affected areas in Palestine continue to meet blockages as the fighting in the city of Rafah has blocked major routes.

Global Updates
  • The MSCI All Country World Index was trending sideways, till it fell sharply on Thursday as the latest PMI data pointed to a global expansion in manufacturing. As a result, investors anticipate interest rate cuts to be delayed even further.
  • U.K. inflation fell to 2.3% in April, but remains higher than acceptable levels. Money markets lowered their expectations of rate cuts in June and raised expectations of rate cuts in September.
  • In a recent poll of Eurozone economists, inflation in the area is expected to have risen in the month of April. The European Central Bank will announce the official figure on May 31st and if it has indeed risen, rate cuts by the central bank could possibly be pushed back further. 
  • According to Russian sources, Russian President Vladimir Putin is ready to halt the war in Ukraine with a negotiated ceasefire that recognizes the current battlefield lines. However, the Kremlin is prepared to fight on, if Kyiv and the West do not respond. 
  • Japan’s 10-year government bond yield rose 1.6 basis points, crossing 1% for the first time in 11 years. The spike resulted from investor speculation that the Bank of Japan would raise rates from 0.1% to counter inflationary pressures and a weakening yen.
  • Citibank was fined $62 million by British regulators over ‘fat finger trading’ and control errors which caused the $444 billion crash in 2022.
U.S. Equity
  • The S&P 500 Index rose over the week overall, after a slight tumble on Thursday with the release of higher-than-expected manufacturing PMI data.
  • The Federal Open Market Committee (FOMC) released the minutes of its meeting held on April 30 – May 1 with members expressing uncertainty about the efficacy of rate cuts in lowering inflation.
  • Pfizer launched a multi-year cost reduction program to improve operational efficiency, network structure changes and product portfolios. First phase of operational efficiencies is geared to generate $1.5 billion savings by 2027.
  • NVIDIA announced a 10-for-1 stock split as its shares surged past $1,000 following larger than expected quarterly earnings of $26.04 billion and net income of $14.88 billion. 
  • Biogen acquired Human Immunology Biosciences (HI-Bio) for $1.15 billion to expand its immunology portfolio. 
  • DuPont promoted current CFO Lori Koch to CEO, effective from June 2024, as the company seeks to achieve capital allocation efficiency by splitting into three publicly traded companies. The spinoffs will focus on electronics, water and industrials. 
  • The SEC approved the first U.S. ETF holding cryptocurrency, Spot Ether ETFs, making trade in cryptocurrency accessible.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index declined marginally this week. 
  • The U.S. 10-year Treasury yield marginally rose to 4.47% over the week and the yield on the 2-year note rose to 4.93%.
  • The U.S. Dollar Index marginally rose to 105.09 during the week as the dollar appreciated against the Euro and Yen.
  • Trading in China’s $5.5bn issue of 30-year sovereign bonds was suspended twice during the week, after frantic retail buying by domestic investors, with bond prices rising by as much as 20% in a single day.
Sources

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May 17, 2024

Inflation relief, Warren Buffet’s secret and China’s battle for revival

The three major indices the Nasdaq, S&P 500 and Dow Jones index, surged as a downtrend emerged in CPI numbers this week. The same rise was seen in markets across the globe, as European inflation also displayed a rather stagnant trend. Falling demand with lowering consumer inflation and rising production costs fueled investor expectations of rate cuts by the Federal Reserve sometime later this year. In commodities, crude oil prices rebounded from two month lows as the market balanced economic growth against the weak global demand forecasted by IEA for 2024. Warren Buffet’s Berkshire Hathway finally revealed the investment he has kept under wraps since last year as the insurance giant, Chubb. Buffett’s company had shielded the position from public knowledge as it was building the stake, requesting “confidential treatment” from the SEC in previous filings. As the technology sector rallied during the week, Google’s announcement of its new processor Trillium, a chip with five times better computing performance compared with the TPU v5e, created buzz around the future of AI and its leaders. Finally, geopolitical tensions continued to be elevated, as the U.S. delayed the sale of munitions to Israel after the siege on Rafah, while Ukraine had to be double down on its efforts to stop the advance of Russian troops in the north eastern city of Kharkiv as President Putin ordered the practice of nuclear drills in Russia.

Global Updates
  • The MSCI All Country World Index spiked during the week after the positive news of U.S. inflation falling in April month-over-month. The technology and utilities sectors, which are interest rate-sensitive, were instrumental to the spike.
  • The U.S. government had an interesting week as it announced its decision to supply Israel with $1 billion in military aid, while imposing increased tariffs on $18 billion imports from China including EV batteries, computer chips, medical products, and semiconductors. 
  • The European Commission forecasted a soft landing for the EU economy in 2024 with lower inflation of 2.5% and economic growth.
  • The Chinese central bank started its 1 trillion Yuan worth bond issues this week. Also, China’s central government is considering buying millions of unsold homes to ease oversupply in the market and support the real estate sector.
  • Ukrainian President Volodymyr Zelenskiy visited Kharkiv as Russian forces have made inroads of at least several kilometers into the north of the region, forcing Kyiv’s outmanned troops to try to hold the line on a new front. Russian President Vladimir Putin has ordered his military to practice the deployment of tactical nuclear weapons after what Moscow said were threats from France, Britain and the United States.
U.S. Equity
  • The S&P 500 Index rose over this week, with the latest CPI data indicating a drop in inflation.
  • Warren Buffet’s Berkshire Hathway revealed a $6.7 billion stake in insurance provider, Chubb. The insurance provider made headlines in March after the company underwrote Donald Trump’s nearly $92 million appeal bond in E. Jean Carroll’s defamation lawsuit.  
  • Insurance giant Aflac acquired 40% stake for $100 million in private lender Tree Line Capital Partners, to enter the private lending sector for small and medium sized companies.
  • European energy majors Shell and Total Energies have proposed listing their stocks in U.S. stock markets for improved valuations compared to European markets.
  • Cisco Systems stocks rose as quarterly revenue of $12.7 billion beat expectations.
  • Alphabet unveiled Trillium, a custom chip for AI data centers, five times faster than existing processors. Alphabet also added generative AI to its google search engine and android smartphones. 
  • Reddit shares rallied towards the end of the week following a partnership with artificial intelligence firm OpenAI that is expected to draw in more users for the social media platform with AI-enhanced experience and attract more advertising revenue.
  • Endeavour Group’s $13 billion deal to take the company private was in the spotlight as the board made public its decision to deny minority shareholders the ability to veto the deal.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index spiked early this week in anticipation of CPI data indicating rising inflation but fell after the official release of decreasing inflation. 
  • The U.S. 10-year Treasury yield marginally fell to 4.37 over the week and the yield on the 2-year note fell to 4.79.
  • The U.S. Dollar Index marginally fell to 104.62 during the week as the dollar depreciated against the Euro and Yen.
  • U.S. Treasury Department released data of China offloading $53.3 Billion in treasury and agency bonds, with escalation of American tariffs on Chinese goods.
Sources

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May 10, 2024

Technology leads the way yet again, job numbers decline as the Fed waits for further confirmation

Global Stock Markets rose over the week. The S&P 500 index rallied as the Magnificent Seven led the way for the second week running, with good corporate earnings numbers and stellar plans for AI-related investments in the near future. Soft jobs data released this week indicated that the U.S. economy could finally be slowing down, paving the way for a change of stance on monetary policy. The energy sector continued to lead the market with 1.1% growth in value due to rising international demand. In technology, Intel and Qualcomm stocks dropped as U.S. government revoked their export licenses to Huawei. Uber Technologies and Disney stocks also slipped as they reported losses, despite increasing revenues. The U.S. government halted arms exports to Israel for the conflict in Gaza, but Israeli troops proceeded with their plans to lay siege to the city of Rafah.

Global Updates
  • The MSCI All Country World Index rose during the week as investors were encouraged by European policymakers signaling rate cuts could be implemented soon.
  • The United States has restricted Chinese access to American tech by revoking export licenses of processors by Intel and Qualcomm to Huawei and high-tech imports from China. Despite this, the United States has overtaken Germany as China’s largest trading partner.
  • Riksbank, Sweden’s central bank, became the second advanced economy to lower key interest rates by 25 basis points to 3.75%. 
  • The Bank of Japan’s policy board expressed concern over the rising inflation as a weak yen drives up import prices. Governor Kazuo Ueda expressed the possibility of an early rate cut if inflation exceeded forecasts. 
  • U.K.’s National Institute of Economic and Social Research speculated that the Bank of England will implement rate cuts twice this year, starting in August, to spur economic growth beyond the forecasted 0.9% GDP growth for 2024. 
  • Chinese president Xi Jinping visited Europe to negotiate trade and cement the shaky economic recovery in April.
  • The United Nations warned that aid for the Gaza Strip could grind to a halt in days, as Israeli troops took their ground war with Palestinian fighters into the crowded city of Rafah, a key aid corridor for the famine-threatened strip.
U.S. Equity
  • The S&P 500 Index rose over the week, supported by better-than-expected corporate earnings announcements and the exciting growth prospects of AI related technologies.
  • Stocks of the ‘Magnificent Seven’ companies signaled a mixed trend in the markets. While Microsoft, Meta and AMD stocks rose, Apple’s stock fell following Berkshire Hathway’s decision to trim 13% of its stake in Apple to shore up their cash position. 
  • Tesla shares declined following the announcement of sales falling by 18% year-on-year in Q1 2024, even though global EV sales continued rising. During the week, Tesla also announced its plan to introduce Robo-taxis in August and gain the first-mover advantage.
  • Intel shares declined as the company lowered its sales outlook following U.S. government restrictions on sales to Huawei Technologies. Qualcomm stocks remained unaffected as the revenue impact was already priced in. 
  • The U.S. Labor Department reported 175,000 new jobs added in April, 50% less than March. Unemployment rose by 3.9% in the same period.
  • TikTok sued the U.S. government citing the violation of the First Amendment rights of millions of Americans through the imposition of a ban on the app.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index remained stable this week with minor fluctuations as the Fed kept interest rates unchanged owing to sticky inflation. 
  • The U.S. 10-year Treasury yield marginally fell to 4.45 over the week, while the yield on the 2-year note rose slightly to 4.82.
  • The U.S. Dollar Index marginally rose to 105.26 during the week driven by strong corporate earnings in Q1 2024, and the depreciation of Yen, Yuan, and other currencies.
  • The U.S. Treasury auctioned 30-year bonds for $25 billion at a yield of 4.63%.
Sources

HCM-030624-063.GWS

May 3, 2024

Earnings week, US Fed’s stern stance and Europe’s sticky inflation

Global stock markets had major fluctuations over the week as investors buoyed by the performance of large corporates followed by a dearth of policy rate changes by the U.S. Federal Reserve. Fed Chair Jerome Powell remains apprehensive of inflationary pressures in the economy and held interest rates steady, as the economy remains strong with strong job numbers expected to be announced at the end of the week. Apple and Alphabet announced major equity buybacks to the tune of $180 billion, causing equity markets to surge again. U.S. Strategic Petroleum Reserves (SPR) hit a 40 year low of 366 million barrels of crude oil reducing the buffer against energy inflation. Spreads on U.S. high yield bonds remained tight despite a pick-up in distress within the asset class, as investors see the majority of issuers weathering higher-for-longer interest rates. Political uncertainty gripped the country with pro-Palestine protests across major university campuses, leading to many arrests of student protestors. As a result, President Joe Biden’s popularity declined during the week, despite news of Donald Trump’s controversial plans if he is elected in November.

Global Updates
  • The MSCI All Country World Index remained largely unchanged during the week, as the positive effect of encouraging corporate earnings was largely offset by the Federal Reserve (Fed)’s decision to keep policy rates unchanged. Even though the markets have priced in one rate cut this year, it is not expected to happen until after the November elections. 
  • Pablo Hernandez de Cos, the Governor of the Bank of Spain, said the European Central Bank (ECB) is confident that eurozone inflation will fall to targeted 2% by 2025. In the euro region, inflation stagnated to 2.4%. ECB is considering multiple rate cuts this year as planned but if the U.S. Fed does not cut rates, the interest rate spreads, leading to a weak euro, imported inflation and higher long-term yield.
  • The OECD has forecasted a 3.1% growth rate for the global economy for 2024, as the U.S. and China are expecting a growth rate of 2.6% and 4.9% respectively, compensating for the sluggish growth of 0.7% in Europe and 1.1% in Japan.
  • Technology behemoths Microsoft and Meta declined in value despite announcing strong quarterly earnings, as their capital expenditure for AI dampened investor sentiment. Alphabet’s market capitalization surged with the announcement of its first dividend and a higher-than-expected Q1 earnings, followed by a $70 billion stock buyback. Tesla stock also surged in response to China permitting Tesla to roll out its self-driving technology. Apple also announced a record $110 billion share buyback plan during the week.
  • ING Group announced a $2.5 billion euro share buyback following strong first-quarter performance of 1.58 billion profits spiking shares up by 5%. European banks are benefiting from rising interest rates.
U.S. Equity
  • The S&P 500 Index had a reactive week. The index surged by 35 points in response to higher-than-expected corporate earnings early in the week, then declined by 95 points in response to Fed’s decision to keep rates unchanged; and finally, gained back 60 points towards the end of the week as investor confidence grew as April’s job numbers are expected to be around 243,000 and the rise of average earnings to be around 0.3%.
  • U.S. Fed Monetary Policy Meeting led to no concrete outcomes due to uncertainty in economic activity and inflation. Fed chair Jerome Powell announced investors could expect rate cuts later this year. 
  • U.S. Strategic Petroleum Reserves (SPR) hit a 40-year low of 366 million barrels of crude oil. The reserves have been used to supplement oil imports and maintain inflation.  The reserves will be critical as oil prices continue to rise amidst global geopolitical uncertainties. U.S. consumer confidence continued to drop for the 23rd month based on concerns of gas price inflation. 
  • Meta shares dipped 2.4% after continuous growth in Q1 2024 as a response to the European probe of Meta’s handling of disinformation under European Digital Services Act and the Oversight Board. 
  • Chubb issued its first tranche of $350 million insurance payments of the $1 billion plus damages for the Baltimore bridge collapse to Maryland. The final payout may still be contested by the insurers.
  • Canadian legislators have agreed to hold on the grant of exemptions for use of Russian titanium by major aerospace companies, even though the recent sanctions have input costs and supply chain blockages.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index remained sticky with minor fluctuations over the week, in response to the Fed’s continued tightening stance on monetary policy.  
  • The U.S. 10-year Treasury yield fell to 4.59% during the week. The yield on the 2-year Treasury fell to 4.88% . 
  • The U.S. Dollar Index marginally fell by 1% during the week.
Sources

HCM-030624-063.GWS

April 26, 2024

Mixed Market Signals: Earnings Buoy, Fed Tightens, Global Deal Stalled

Global stock markets made marginal advances over the week as investors weighed on the performance of large corporations and a steady, tightening stance of many of the world’s central banks. It was officially announced that even though the S&P 500 made advances since the start of 2024, the index has grown by just 4% since the turn of the New Year. In another announcement, equity buybacks are estimated to be $1 trillion this year, the highest it has been over the last decade. U.S. crude inventories fell by about 3.2 million barrels for the week ending April 19, pushing up energy prices. Majority of the ‘Magnificent Seven’ announced strong earnings for the first quarter of 2024 (Tesla was the only outlier). The giants also announced major capital outlays to stay in the race for AI dominance. In the Mining industry, a major acquisition by BHP Group of Anglo American Mining could consolidate the industry even more than it currently is. And finally, after several months of delays, the U.S. Senate has passed a $95 billion package sending aid to Ukraine, Israel and Taiwan.

Global Equity
  • The MSCI All Country World Index advanced during the week as investor and consumer confidence improved backed by solid corporate earnings announcements during the week.
  • The U.S. economy grew at its slowest pace in nearly two years during the first quarter of 2024. A surge in imports, a small build-up of unsold goods at businesses and signs an acceleration in inflation reinforced expectations the Federal Reserve would not cut interest rates before September.
  • In a mega deal for the mining industry, BHP Group bid $39 billion for Anglo American Mining, a deal that could forge the world’s biggest copper mining corporation. The deal is driven by a scramble for copper and other metals central to the world’s clean energy shift, and could have major repercussions for South Africa, which has seen the platinum it mines fall out of favor. The bid, however, was rejected by Anglo American.
  • In a harsh statement by the NATO secretary, China has been warned to stop supporting Russia ‘s war in Ukraine if it wants to enjoy good relations with the West. China-Russian trade hit a record of $240.1 billion in 2023. Chinese shipments to Russia jumped 46.9% in 2023 while imports from Russia rose 13%.   
  • Bank of Japan Governor Kazuo Ueda left interest rates unchanged during the latest meeting, with the expectation that inflation will remain unchanged at 2%.
U.S. Equity
  • The S&P 500 Index recorded a marginal increase in market activity during the week, as earning week had a lesser-than-expected impact on the market.
  • Hasbro, Boston, AT&T, General Motors, Novartis, Kimberly-Clark, & Comcast shares surged after reporting better-than-expected first-quarter earnings.
  • Microsoft and Alphabet shares were trending 4-5% higher towards the end of the week, buoyed by better-than-expected corporate earnings.
  • Meta shares suffered heaviest losses during the week, despite exceeding quarterly profit and sales forecasts, as it raised its full-year capital expenditure guidance, citing higher legal costs and increased spending to build out its AI infrastructure.
  • Tesla’s reported revenue fell 9% in the first quarter, while profits fell by 50% from the previous year.
  • Shares of Boeing & Enphase Energy slid, after earnings came in lower than expected.
  • The U.S. housing market is currently in a slump, as mortgage rates have surged past 7%.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index remained constant with slight fluctuations as equity markets recovered this week with Q1 corporate earnings buoying up investor and consumer confidence.
  • The U.S. 10-year Treasury yield grew marginally from 4.66% to 4.68% over the week, while the yield on the 2-year note marginally from 5.01% to 4.98%.
  • The U.S. Dollar Index marginally fell during the week as investors confidence gradually improved with encouraging results of corporate earnings from Q1, 2024.
Sources

HCM-030624-063.GWS

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