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November 15, 2024

Nvidia Sparks Market Rally, While Geopolitical Concerns Linger

The world’s equity markets continued to rally after chipmaker Nvidia posted unprecedented daily gains during the week. The effect of this surge had a global impact as equity markets rallied even though geopolitical tensions dominated headlines. The yields on fixed income securities advanced and the expectation of a rate cut in the U.S. by the Federal Reserve changed. It is now anticipated that even though there will be multiple rate cuts during the year, it may only happen during the second half of 2024. Geopolitical tensions continued in the Middle East, while the seemingly mysterious death of Alexei Navalny in captivity has raised alarm bells around the world about Russia’s autocracy and further sanctions have been announced by the U.S. against the Kremlin.

Global Updates
  • The MSCI All Country World Index rose during the week, primarily driven by the rally in the U.S. equity market.
  • The United States has announced more than 500 new sanctions against Russia over its invasion of Ukraine and the death in custody of the opposition figure Alexei Navalny.
  • Israeli Prime Minister Benjamin Netanyahu unveiled a plan for Gaza’s future post-Hamas, which includes the “complete demilitarization” of the enclave, closing off the territory’s southern border with Egypt, as well as the overhaul of Gaza’s civil administration and education systems.
  • The German and Dutch central banks posted multi-billion euro losses for 2023 and predicted more financial pain ahead. The banks are unlikely to pay dividends for years to come.
  • China’s central bank, the People’s Bank of China, has cut its key mortgage reference rate by a record amount. Its five-year loan prime rate has been cut from 4.2% to 3.95%, while keeping the one-year loan prime rate unchanged at 3.45%, as it ramps up efforts to stem a prolonged property crisis.
  • Argentina markets double down on Libertarian leader Javier Milei as investors believe that the new President can pull the country out of the present economic crisis.
U.S. Equity
  • The S&P 500 advanced during the week, reaching a new all-time high, driven by Nvidia’s impressive rally.
  • Nvidia posted revenues which were up by 265% on the booming Artificial Intelligence business, beating earnings and sales estimates.
  • Amazon has been added to the Dow Jones Industrial Average, replacing Walgreens Boots Alliance.
  • Goldman Sachs’ analysts no longer expect a U.S. interest rate cut in May and see four 25 basis point cuts this year.
  • Reddit paved the way for it to be the first major social media company to debut on the stock market in years after filing to go public.
  • U.S. money-market fund assets dropped for the second straight week on expectations that short-term rates will remain elevated for longer.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index declined over the week as bond yields increased.
  • The U.S. 10-year Treasury yield rose from 4.27% to 4.33% over the week, while the yield on the 2-year bond moved up from 4.59% to 4.69%.
  • Credit spreads tightened for both investment-grade and high-yield bonds.
  • The U.S. Dollar Index weakened over the week.

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November 11, 2024

Global Markets rise following president elect Donald Trump’s election victory and rate cuts by central banks

Global Markets gained this week driven by outcomes of the U.S. presidential elections and rate cuts by the Federal Reserve (Fed), Riksbank and Bank of England (BoE). The European markets lagged as markets digested potential foreign policy changes which could be implemented by the Trump presidency, continued contraction in manufacturing and poor corporate earnings. Asian markets also rose this week.

Donald Trump won the U.S. presidential elections this week. He will be appointed as the 47th U.S. president in January, 2025. China introduced a $1.4 trillion package to raise the debt ceiling for local governments but refrained from direct injection of liquidity into the economy.

Global Updates
  • The MSCI All Country World Index rose sharply this week as global markets reacted optimistically to the U.S. presidential election and the rate cuts by the Fed, Riksbank and BoE. European markets were subdued due to disappointing earnings in the oil and gas sector and luxury firms, possibility of Trump tariffs, and the continued contraction in European manufacturing.
  • European manufacturing continued to contract for the 28th consecutive month, albeit at a slower pace. Italy’s private sector expanded in October driven by the expansion in the services sector with a PMI of 52.4, even as the manufacturing sector contracted with a PMI of 46.9. German industrial orders rose by 4.2% in September, even as exports and industrial output declined.
  • FTSE 250 marginally gained and FTSE 100 lagged this week due to underperformance by Richemont, Vistry, Rolls-Royce, John Wood Group, etc. Moreover, the BoE cut policy rates by 25 bps to 4.75% and projected a slowdown in its rate cutting cycle considering the inflationary effects of the new budget.
  • Associated British Foods reported $2.6 billion in pre-tax annual profits driven by strong grocery sales and lower costs.
  • Novo Nordisk reported third quarter sales beat driven by 79% growth in sales of its weight loss drug Wegovy and earnings in line with expectations. The company’s profits rose to $3.92 billion.
  • Sports accessories company Puma maintained its full year guidance range of $677.8 million and $732.4 million, enthused by growing sales in the third quarter and a strong orderbook for rest of the year.
  • Ferrari reported a 7% increase in sales and earnings to $1.78 billion, bucking the downward trend in the auto sector. Ferrari reiterated the full year guidance, despite falling sales in China, due to a superior product mix and personalization options.
  • BMW’s quarterly net profit plunged 84% and 16% drop in sales, weighed down by the higher costs of a recall and a drop in demand from China.
  • Energy prices gained over the week due to uncertainty in the future U.S. foreign policy and the estimated impact of Hurricane Rafael on U.S. oil production. Saudi Arabia’s national oil company Aramco reported 15.4% drop in third quarter profits due to lower oil prices and weak margins during the quarter.
  • Vestas Wind Systems shares dipped due to annual profit margins of the company coming in at the lower end of its guidance range due to higher costs, logistical disruptions, increasing competition and warranty provisions.
  • Marks & Spencer reported higher profits of $511.1 million for the first half of fiscal year 2025. The company tempered expectations for the rest of the year owing to uncertainty in consumer spending.
  • China’s trade surplus rose to $95.27 billion due to a larger than expected 12.7% year-on-year growth in exports and 2.3% fall in imports.
U.S. Equity
  • The S&P 500, Dow Jones index & Nasdaq indices surged this week following Donald Trump’s victory in the U.S. presidential election and the 25 bps rate cut by the Fed. Fed Chair Jerome Powell reiterated that the U.S. monetary policy will be data driven to support economic and employment growth even as inflation steadily contracts.
  • The Fed cut policy rate to 4.5%-4.75% range by 25 bps, driven by the Feds target of improving employment and growth to achieve a soft landing for the American economy. Weekly jobless claims marginally increased by 3,000 claims in the last week. Labour markets are expected to recover in November due to the waning effects of hurricanes and worker strikes.
  • The Boeing strike ended after machinists ratified the 38% wage hike agreement between the workers’ union and Boeing.
  • Super Micro Computer lagged owing to lower-than-expected sales and delay in filing the annual report for the latest fiscal year. Last week Ernst and Young had resigned as the company’s auditor citing mistrust of management, demoralizing investors.
  • Trump Media & Technology has reported a loss for the third consecutive quarter due to high costs.
  • Blackstone is in talks to acquire a minority stake in the hedge fund Millenium Asset Management. Blackstone’s real estate division is also seeking to acquire the retail store operator Retail Opportunity Investments in a $4 billion deal.
  • Nvidia stock rallied to become the first company to cross a stock market valuation of $3.6 trillion driven by investor optimism on lower taxes and regulations in a Trump regime.
  • Nvidia and Sherwin-Williams will replace Intel and Dow Inc. in the Dow Jones Industrial Average index for blue-chip stocks from today, reflecting their ascendancy in the global stock markets.
  • Gold prices dipped to their lowest in five months weighed down by the potential impact of Trump government on interest rates and inflation.
  • Exxon reported higher than expected profits of $8.6 billion in the third quarter driven high production volumes which offset the low prices during the quarter. The company raised its dividend to 99 cents per share for the fourth quarter.
  • Arm Holdings (ARM) stock gained after the company reported higher than expected revenue and net income of $844 million and $107 million respectively.
  • Qualcomm stock gained owing to quarterly revenue of $10.24 billion beating expectations and raising revenue guidance to $10.5 billion to $11.3 billion for the current quarter. The company also announced a $15 billion share buyback.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index lagged this week.
  • The U.S. 10-year Treasury yield rose to 4.30% and the yield on the 2-year note remained in line at 17% over the week as markets digested The U.S. presidential election results and the Fed’s rate cut.
  • The U.S. Dollar Index rose to 104.49 this week.
Fixed Income

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October 25, 2024

Lower-than-expected corporate earnings, uncertainty of Japanese elections and possible delays in further rate cuts

Global Markets ended lower this week weighed down by weak corporate earnings and political uncertainty in U.S. and Japanese elections. Comments by Federal Reserve officials indicated the adoption of a cautious data-driven approach to determine further lowering of rates as inflation figures continue to be monitored closely before any further decision is taken. Markets now anticipate the Fed to implement only a 25 bps rate cut, due to favorable inflation and unemployment numbers. Oil futures rose in response to the continuing tensions in the Middle East. Indian and Chinese leaders met to re-engage politically, on the sidelines of the BRICS summit in Kazan, Russia.

Global Updates
  • The MSCI All Country World Index significantly underperformed this week with the sharp fall in American markets, weighed down by underwhelming corporate earnings and rising treasury yields. European, Asian and Emerging markets were lower, while the Nikkei 225 and Topix indices also dipped due to political uncertainty regarding the upcoming elections in Japan.
  • The U.K. GfK Consumer Confidence index fell to its lowest levels for the year, in October. The potential tax hikes in the upcoming budget impacted the optimism of households and businesses. German business confidence also improved in October as manufacturing finally expanded after many consecutive months of contraction.
  • Oil Futures rose after news of a possible surplus from increased crude processing by the U.S. This was not sufficient to offset the continued expectation of a shortfall in energy demand from China.
  • Barclays’ stock rose to a nine year high after it reported a 23% jump in third quarter profits to $2 billion driven by the performance of its UK and investment divisions along with cost-cutting measures implemented this quarter. Barclays is set to completely takeover the banking division of Tesco in the next week. 
  • French jet engine manufacturer Safran has raised fuller profit guidance and lowered revenue guidance simultaneously. Safran’s revenue from aftermarket services has grown 26.2% and core propulsion grew 11.9% in the January to September period. This growth is driven by 17% higher sales in the same period. The company lowered revenue predictions due to supply bottlenecks.
  • Germany company SAP’s third quarter revenue of $9.17 billion surpassed expectations, due to a 9% quarterly growth driven by a 25% rise in sales from its cloud computing division.
  • The French Luxury company reported 11.3% growth in quarterly revenue to $3.99 billion, in line with estimates.
  • Chinese autonomous driving startup Pony.ai has filed for an IPO in the U.S.A with the Securities and Exchange Commission. The company also opened its first European R&D center in Luxembourg in a tie up with Emile Weber, to promote and deploy their autonomous technology and vehicles in Europe.
U.S. Equity
  • The S&P 500, Dow Jones index & NASDAQ indices dipped this week. Earlier in the week, markets were weighed down by the poor performance of IBM, Honeywell, Boeing and McDonald’s. Markets were buoyed up by the third quarter results of Tesla, later in the week. The earnings reports of most companies have been underwhelming for investors so far, leading to the indices declining for three consecutive days. Markets were also pressured by higher treasury yields affecting U.S. stock futures.
  • U.S. private sector activity has risen, in an auspicious start to the fourth quarter. The expansion is primarily driven by the service sector offsetting the contraction in manufacturing activity. Unemployment claims also fell to 227,000 by 15,000 claims in the previous week indicating a decline in unemployment.
  • Federal Reserve officials foresee slower rate cuts in the near future, as there is increasing chatter that the jumbo cut of 50 bps in September was possibly premature.
  • Tesla stock gained following the release of higher-than-expected earnings and close-to-expected revenues. Tesla revenue rose by 8% to $25.18 billion and net income rose to $2.17 billion. Elon Musk projected a 20%-30% vehicle growth due to lower costs and autonomous technologies.
  • Boeing stock lagged following the extension of a six-week strike by the machinist union after the rejection of the deal offered by the company.
  • IBM stock also fell due to third quarter revenue falling short of estimates due to the weak performance of its consulting business. The revenue grew only 1% to $14.97 billion.
  • Southwest airlines reported 5.3% year-to-year growth to a record $6.87 billion in operating revenue for the third quarter. The company’s higher than expected profits declined to $67 million due to high labor costs. 
  • Coca-Cola reported a 1% decrease in third quarter revenue, falling to a higher-than-expected $11.9 billion. The company projected a 10% growth in full-year revenue in line with forecasts.
  • Starbucks has suspended its 2025 outlook due to disappointing third quarter outcomes. The company’s revenue declined by 3% to $9.1 billion and adjusted earnings fell 24.5% to 80 cents per share. Starbucks’ new CEO Brian Niccol has addressed the concerns of investors and employees and mentioned implementation of a new strategy designed to turn the company around.
  • Honeywell stock declined due to a 5% dip in the sales of its Industrial Automation division weighed by the decline in demand for its products. The company lowered its full-year sales outlook despite a 6% growth in revenues to $9.73 billion. The company’s adjusted Earnings per Share of $2.58 was higher than early projections. 
  • General Motors shares surged after the company’s quarterly net income of $3.3 billion exceeded expectations by 28%. The company has also raised its full-year guidance.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index dragged this week.
  • The U.S. 10-year Treasury yield rose to 4.17% and the yield on the 2-year note rose up to 4.05% over the week. Yields rose as markets digested the Federal Reserve’s comments on the trajectory of future rate cuts.
  • The U.S. Dollar Index rose to 104.04 this week.
Sources

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October 18, 2024

Another Technology Sell-off, dipping optimism in Chinese stimulus and Middle East continues to simmer

Global markets ended lower this week despite the gains in the U.S. markets. Asian markets were muted due to a technology selloff and decreasing investor confidence in Chinese stocks. The European Central Bank chose to cut rates to drive up a sluggish economy. Growth in sales and slowing unemployment raised investor optimism in American markets. TSMC profitability drove up chip stocks after an initial dip during the week. Tensions in the Middle Eastern continued to escalate as the Israeli military confirmed the death of Hamas leader Yahya Sinwar.

Global Updates
  • The MSCI All Country World Index marginally dipped this week with the sharp fall in European and Asian markets driven by tech selloffs and decline in luxury goods demand. The waning optimism for China’s ‘bazooka’ stimulus also weighed on Asian stock markets.
  • The U.K. recorded 0.3% growth in retail sales in September led by sales in tech products. U.K. consumer price inflation fell to 1.7% in September from 2.2% in August. 
  • The European Central Bank cut interest rates by 25 bps to 3.25%. This is the third rate cut by the ECB this year to promote economic growth. 
  • Eurozone trade surplus fell to 4.6 billion Euros in August driven by the declining exports to China.
  • China reported 4.6% year-on-year higher than expected economic growth in the third quarter, slowing down from the previous quarter’s 4.7% growth. Exports growth also slowed to 2.4% (in dollar terms). 
  • Gold reached a record high crossing the $2,700 per ounce level this week. Global demand for gold has been rising due to interest rate cuts by major banks and demand for risk-free assets.
  • Energy prices continued to decline this week. Brent crude futures reached $74.6 per barrel in a sharp decline, driven by concerns regarding future demand for energy and possibility of a global glut in supplies.
  • TSMC reported a 54% growth in third quarter profits, boosted by increasing demand of iZts chips for AI applications. The company’s net revenue of $10.1 billion exceeded expectations.
  • LVMH reported a 3% drop in third quarter sales, with revenues coming in at $20.8 billion. Barclays had initially estimated a 3% growth in sales for the company. LVMH attributed the drop in sales to the falling demand for luxury goods in China.
U.S. Equity
  • The S&P 500,  Dow Jones index &  Nasdaq indices rallied this week 
  • The U.S. Commerce Department recorded a higher than expected 0.4% growth in retail sales and 0.7% growth in core retail sales in September driven by the drop in gasoline prices. Weekly jobless claims also declined by 19,000 in the previous week. Given the positive data, the Federal Reserve is likely to opt for a smaller 25 bps rate cut.
  • McKinsey has laid off 500 employees from its China division. The company is dissociating from government linked clients to manage security risk of its China operations.
  • Blackstone reported a 9.9% growth in Assets under Management to $1.11 trillion, with $40.5 billion inflow from its credit and insurance business in the third quarter
  • Morgan Stanley reported higher-than-expected profits and earnings in the latest quarter. Profits grew 32% to $3.19 billion and revenue grew 16% to $15.38 billion.
  • United Airlines announced $1.5 billion share buybacks following higher than expected third quarter earnings and profits.
  • Nvidia Corp. and Micron stock dipped this week due to concerns of US restrictions on chip sales. Their stock eventually recovered due to resurgence in AI stocks. 
  • Advanced Micro Devices (AMD) stock has dropped as the company has been unable to convince investors of its competitiveness against Nvidia. Intel and AMD are teaming up to ensure compatibility of their chips to multiple software. 
  • Netflix stock gained after the company’s third quarter 15% growth estimate came in higher-than-expected, with 19% revenue growth in APAC region. The company also raised its profit margin outlook for next year to 28%.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index rose marginally this week.
  • The U.S. 10-year Treasury yield  rose to 4.1% and the yield on the 2-year note edged up to 3.97% over the week.
  • The U.S. Dollar Index rose marginally to 103.66 this week.
Sources

HCM-030624-063.GWS

October 11, 2024

More rate cuts incoming, UK’s economic growth and Hurricane Milton makes landfall

Global Markets rose marginally this week. U.S. markets reversed initial gains this week, due to higher unemployment numbers and sticky inflation. The Federal Reserve is now expected to keep rates unchanged in its November meeting.  Markets were cautious on Chinese stocks, as investors awaited further clarity by China’s ministry of finance on the stimulus measures indicated in September. Chinese stocks declined with profit-taking, even as the Chinese markets reopened. The escalation in Iran-Israel rhetoric pushed up oil prices once again. Hurricane Milton continued to wreak havoc in the U.S. in the wake of damage caused by the hurricane Helene.

Global Updates
  • The MSCI All Country World Index marginally rose this week.
  • The UK’s economy registered a 0.2% growth in August, following the absence of growth in June and July, due to rising industrial production and gains in services. The gains were largely offset by the decline in the Energy sector.
  • Canada recorded a larger-than-expected trade deficit of $806 million in August, its sixth consecutive monthly shortfall, as imports rose while exports declined
  • Europe based investment trust Tritax EuroBox, has agreed to sell its logistics business to the Canadian asset management company Brookfield Global Asset Management for $728 million.
  • Nihon Hidankyo, the Japanese atomic bomb survivors’ group, won the 2024 Nobel Peace Prize for its efforts to achieve a world free of nuclear weapons.
  • The escalation in Iran-Israel rhetoric pushed up oil futures, which had started cooling due to the delay in Israel’s expected retaliation to Iran’s missile attack.
  • The Washington Supreme Court has agreed to review the decision by a state appeals court in a school contamination case against Bayer’s Monsanto, which had earlier cleared the company.   
  • Anglo-Dutch company Unilever has exited the Russian market and sold its existing Russian business to the Arnest Group.
  • Hurricane Milton could cost insurers between $30 billion and $60 billion. But this revised estimate is much lower than the $100 billion forecasted damage earlier this week, before the storm’s arrival on Wednesday evening.
U.S. Equity
  • The S&P 500,  Dow Jones index & Nasdaq indices rallied this week driven by high third quarter profit estimates reported by seven companies including Eli Lilly, Allstate and Zebra Technologies. Markets retreated from the record highs in response to the release of sticky inflation data later in the week. 
  • U.S. consumer inflation remained sticky in September, disappointing market and policymakers. Annual inflation slowed to 2.4% and month on month inflation was in line at 0.2%. Both measures were higher than expected.  The decline in energy and shelter prices was offset by higher food and transportation prices. U.S. factory gate prices inflation was 0.1% month-on month in September, declining from the 0.2% in August.
  • U.S. initial jobless claims rose by 33,000 new claims to 258,000 claims in the last week, surpassing expectations. 
  • The Fed’s September meeting minutes showed a “substantial majority” of officials supported an outsized half-point rate cut. However, there was broader agreement that the move would not commit the Fed to any particular pace of cuts in the future.
  • Advanced Micro Devices (AMD) shares lagged as they were unable to convince investors that its new AI chips can compete with Nvidia. Micron Technology shares gained as it could engineer higher memory in the use of its High Bandwidth Memory (HBM) components in AMD’s new AI chips.
  • RBC Capital identified CrowdStrike as one of its top software stocks with growth potential. CrowdStrike Holdings stocks gained from this announcement after struggling with the fallout from a global systems crash caused by the company’s update.
  • Amazon has expanded the reach of its same-day pharmacy delivery business to twenty new cities.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index dipped marginally this week.
  • The U.S. 10-year Treasury yield  rose to 4.06% and the yield on the 2-year note edged up to 3.97% over the week.  The premium on the 10-year note turned positive this week driven by election uncertainty and low probability of aggressive rate cuts by the Fed.
  • The U.S. Dollar Index rose marginally to 102.93 this week.
Sources

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October 4, 2024

Worrying global economic data, resurgent oil prices and growing workforce concerns

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Global Updates
  • The MSCI All Country World Index fell slightly during the week, after a mixed week in terms of overall performance. Chinese equities recorded the best session in 16 years on Monday, after economic stimulus measures announced by the Chinese government were very well received by investors. However, as the week progressed, the rise price of crude oil amid increased tensions in the Middle East weighed heavily on sentiment and market returns. 
  • The U.S. economy added far more jobs than expected in September, quashing expectations for another jumbo rate cut from the Federal Reserve and soothing some concern about the outlook for growth. 254,000 workers were added to nonfarm payrolls last month, well above the expected 140,000 by leading economists.
  • U.S. services sector activity jumped to a one and a half year high in September amid strong growth in new orders, more evidence that the economy remained on a solid footing in the third quarter.
  • Manufacturing activity across the Eurozone slowed in September at its fastest pace this year as demand waned sharply despite factories cutting prices and Germany, Europe’s largest economy, recorded its most pronounced worsening of conditions for 12 months.
  • Eurozone business activity slipped back into contraction in September although the downturn was not as steep as initially thought. HCOB’s composite Purchasing Managers’ Index for the bloc dropped to 49.6 in September from August’s 51.0.
  • Chinese and global institutional investors are revisiting Chinese property bonds, betting on an improvement in outlook as the government accelerates efforts to boost economic growth and revive the property sector. This comes after the announcement on Tuesday of the most aggressive stimulus measures since the pandemic, mostly targeting the property sector and triggering a rally in the offshore bonds of property developers. 
  • Oil prices gained during the week as investors feared a wider Middle East conflict could disrupt crude flows. This happened in the midst of the U.S. discussing whether it would support Israeli strikes on Iran’s oil facilities as retaliation for Tehran’s missile attack on Israel.
  • Japan’s service sector activity expanded for the third straight month in September, but the pace slowed slightly and confidence dipped in a sign of the broader economic strains amid weakness in manufacturing
U.S. Equity
  • The S&P 500 and NASDAQ index edged lower during the week, as the latest economic data on jobs and unemployment had investors worried about the quantum of the next rate cut by the Fed. Technology had a good week, but rising oil prices and worries of increased tensions in the Middle East weighed on returns.
  • U.S. manufacturing held steady at weaker levels in September, but new orders improved and prices paid for inputs declined to a nine-month low, which together with falling interest rates bode well for a rebound in activity in the coming months.
  • New orders for U.S.-manufactured goods unexpectedly fell in August, while business spending on equipment appears to have pulled back in the third quarter. Factory orders dropped 0.2% after a slightly downwardly revised 4.9% increase in July.
  • The United Auto Workers union at Stellantis’ Los Angeles parts distribution center voted in favor of authorizing a strike if the carmaker failed to settle grievances with the union over investments in the U.S.
  • A strike by dockworkers on the U.S. East Coast and Gulf Coast that disrupted much of the nation’s ocean shipping during the week ended, but the key issue of the growing use of automation remained unresolved.
  • Blackstone expects the private credit market to reach $30 trillion in the coming years
  • Spirit Airlines shares slumped 40% after the Wall Street Journal reported that the ultra-low-cost carrier was in talks with its bondholders about a potential bankruptcy filing.
  • General Motors has temporarily halted truck and SUV production at two assembly plants in Texas and Michigan because of impacts to its suppliers due to Hurricane Helene.
  • Tencent Holdings and Ubisoft Entertainment’s founding Guillemot family are considering options including a potential buyout of the latter.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index declined marginally this week.
  • The U.S. 10-year Treasury yield  rose to 3.97% and the yield on the 2-year note edged up to 3.90% over the week. 
  • The U.S. Dollar Index rose significantly this week after US payroll data for September vastly exceeded expectations.
Sources

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September 27, 2024

China’s fresh stimulus measures, Europe’s rate cut decision and Japan’s new Prime Minister

Global markets rose through the week spurred on by the stimulus package announcement by the Chinese central bank with further support for the country’s troubled property sector. U.S. markets also trended higher, owing to the latest labor and manufacturing data, which elevated investor optimism. Inflation has eased more than expected in two of the euro zone’s biggest economies and the German jobs market has continued to cool this month, adding to an already substantial case for the European Central Bank to cut borrowing costs further. Despite the Fed approving a half percentage point reduction in its baseline short-term borrowing rate, treasury yields on the 10-year note moved higher, particularly at the long end of the curve. In Asia, along with China’s stimulus announcement, Japan’s ruling LDP announced Shigeru Ishiba as the successor for outgoing Prime Minister Fumio Kishida.

Global Updates
  • The MSCI All Country World Index jumped this week driven by a number of international developments. It was also in part due to the lagged effects of the Fed’s rate cut decision. The variety of stimulus measures introduced by the government of China and People’s Bank of China also contributed. 
  • Eurozone private sector business activity declined for the fourth consecutive month in September as indicated by the HCOB Composite PMI, which was lower than expected. Manufacturing output declined in Germany and France. The services sector growth slowed, especially in France.
  • China announced multiple stimulus measures including 50 bps rate cuts in Reserve Requirement Ratio, 20 bps rate cut in short term rates, reduced mortgage rates, bank refinancing and issue of $284 billion of sovereign debt to revive the Chinese economy. 
  • Chinese industrial profits contracted 17.8% year-to-year in August and earnings growth slowed down to 0.5% in the January to July months as per the data released by National Bureau of Statistics.
  • Oil prices trended lower due to dwindling optimism regarding a resurgence of Chinese energy demand increasing likelihood of supply shocks from OPEC+. US oil inventories fell by 4.5 million barrels in the last week exceeding the 1.4 million barrels expected deficit.
  • Shigeru Ishiba won the ruling Liberal Democratic Party (LDP) leadership election by securing 215 votes and is set to become the next prime minister of Japan. The former defense minister won against Sanae Takaichi, who secured 194 votes.
  • The Swiss franc appreciated after the Swiss National Bank loosened interest rates by 25 bps to 1%, even as domestic inflation decelerated. 
  • Bank of Mexico has lowered its policy rates by 25 bps to 10.5% in a deflationary environment.
  • Hurricane Helene roared through Florida and Georgia states as one of the most powerful storms to hit the United States, killing one person, swamping neighborhoods and leaving more than 2 million homes and businesses without power.
U.S. Equity
  • The S&P 500 and Dow Jones index touched record highs, while the Nasdaq index also rallied this week driven by the continuing effects of Fed’s monetary easing and positive data on labor and manufacturing. 
  • US private sector business activity continued to expand in September as indicated by the S&P Global Composite PMI of 54.4, marginally declining from 54.6 in August.
  • US jobless claims dropped unexpectedly to 218,000, which was 4,000 claims less than expected in the last week.
  • Sales of new single-family homes in the U.S. dropped 4.7% in August to 716,000 units, which was 16,000 units more than expected.
  • The 30-year mortgage rate eased by 1 bps to 6.08% the lowest since September 2022, trickling down from the Fed’s 50 bps rate cut.
  • The U.S. Justice Department hit Visa with an antitrust violation case, for its illegal strategies to monopolize the card-payments business.
  • Micron stock rose after a higher than the expected revenue projection of $8.5 to $8.3 billion for the fourth quarter. The projection is attributed to the demand for its memory chips used in AI technology.
  • U.S. Steel announced that an arbitration board had ruled in favor of Nippon Steel’s $14.9 billion buyout of the company, but that the United Steelworkers union disagreed with the decision.
  • Merrill Lynch, Pierce, Fenner & Smith and Harvest Volatility Management have agreed to pay a combined $9.3 million to settle U.S. Securities and Exchange Commission charges related to investment limits and fees.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index rose marginally this week.
  • The U.S. 10-year Treasury yield  rose to 3.79% and the yield on the 2-year note edged up to 3.627% over the week.  Analysts find the upward trend in yields at the beginning of a monetary easing cycle to be counter-intuitive.
  • The U.S. Dollar Index rose marginally to 100.74 this week.
Sources

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September 20, 2024

The Fed rate cut the world was waiting for, crude oil’s rebound and China’s continued worries

Global markets surged following the Federal Reserve’s rate cut announcement of half a percent, the first rate cut in over four years. This was especially welcome news for the technology sector, which rallied on the prospect of lower lending costs and improved capital flow prospects in the near future. Other rate sensitive sectors also advanced in the U.S. The Bank of Japan and the Bank of England chose to keep rates steady. In France, much needed political stability seems to be on the horizon as a new cabinet will shortly be revealed. Chinese policymakers continued their struggle in finding the right measures to revive domestic demand in the economy, as the country runs the risk of exacerbating debt risks while trying to provide growth stimulus. Finally, crude oil prices are firmly on the road to recovery after barrel rates jumped after the Fed’s rate cut.

Global Updates
  • The MSCI All Country World Index surged this week. After the Fed’s announcement, markets around the world were in the green towards the end of the week. The U.S. central bank kicked off an anticipated series of interest rate cuts with a larger-than-usual half-percentage-point reduction that was meant to show policymakers’ commitment to sustaining a low unemployment rate now that inflation has eased.  
  • In macro news, US weekly jobless claims fell to a four-month low, pointing to solid job growth in September and offering confirmation that the economy continued to expand in the third quarter. 
  • Chinese policymakers are likely to step up measures to help the economy meet an increasingly challenging growth target for 2024. Excessive domestic investment amid weak demand has also fuelled deflationary pressures, which have already pushed down prices and forced companies to reduce wages or fire workers to cut costs.
  • Oil prices eased towards the end of the week, but were on track to register gains for a second straight week following a large cut in U.S. interest rates and declining global stockpiles. Prices have recovered after Brent fell below $69 for the first time in nearly three years last week.
  • The U.S. Energy Department plans to award $3 billion to 25 battery manufacturing sector projects in 14 states as the Biden administration works to shift the supply chain away from China.
  • After months of deadlock after the election, France seems to be on the cusp of political stability. Prime Minister Michel Barnier is set to present a new cabinet of ministers to President Macron.
  • The European Commission plans to announce a $39 billion loan to Ukraine as part of a G7 scheme to raise $50 billion on the back of future profits from frozen Russian state assets.
  • The Bank of England chose to exercise caution and leave its key interest rate steady at 5%. The bank plans to reduce the stockpile of British government bonds by 100 billion in the next 12 months. 
  • Bank of Japan also retained policy rate at 0.25% driven by the need to maintain the recovery in consumption and corporate profits notwithstanding rising inflation. In addition, Japan’s exports and imports with the U.S. declined by -0.71% and -2.01% respectively. Worldwide Japanese exports slowed to 5.6% in August and imports to 2.3%.
U.S. Equity
  • The S&P 500 and Dow Jones index touched record highs after the Fed’s much-awaited announcement. The NASDAQ also rallied during the week. 
  • In addition to approving the half-percentage-point cut Fed policymakers projected the benchmark interest rate would fall by another half of a percentage point by the end of this year, a full percentage point next year, and half of a percentage point in 2026.
  • PCE inflation estimate has been lowered to 2.3% for 2024 and 2.1% for 2025. Core inflation was also revised to 2.6% for 2024 from 2.8%. 
  • Intel is planning to isolate its chip manufacturing from chip designing, as an independent subsidiary. To further minimize costs will hold the new manufacturing plants in Germany, Poland and Malaysia in stasis. Notwithstanding, Intel’s foundry has won the contract for producing custom AI chips for Amazon’s cloud services.
  • Microsoft has raised its quarterly dividend payout by 11% and announced stock buyback worth up to $60 billion.
  • Nike CEO John Donahoe, who is retiring in October, will be replaced by Elliott Hill, the former president of Nike’s consumer and marketplace.
  • Verizon’s third quarter earnings might be affected, with $1.7-1.9 billion severance charge after 4,800 employees accepted the company’s buyout offer. 
  • Boeing has announced a hiring and pay freeze to manage the fallout from the workers’ strike that impacted the company’s capability of managing its existing orders. Boeing is also furloughing large numbers of salaried employees to manage its cash crunch and threat to the company’s credit rating.
  • Publicis has purchased Mars United Commerce for $600 million to expand from physical advertising to E-commerce and retail.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index declined marginally this week.
  • The U.S. 10-year Treasury yield rose to 3.713% and the yield on the 2-year note edged up to 3.568% over the week.  
  • The U.S. Dollar Index fell slightly to 100.56 this week due to the concerns on likelihood of other major central banks sustaining a tighter monetary policy for longer and risk-on investing motivated by expectations of a soft landing.
Sources

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September 13, 2024

Global optimism returned with moderating inflation, the technology sector’s revival and continued choppiness in oil prices

Global markets recovered from their fears of a global recession in the second week of September. Technology stocks like Nvidia and Tesla led the resurgence in markets. The cooling of inflation in US consumer prices and factory gate prices increased confidence of monetary easing by the Federal Reserve (Fed). The European markets also trended up this week due to easing of policy rates by the European Central Bank (ECB). Oil prices continued to be choppy in response to the latest data influencing prices.

Global Updates
  • The MSCI All Country World Index surged, buoyed by rising technology stocks and optimism regarding easing monetary policy by the Fed and ECB.
  • The US annual inflation rate slowed to 2.5% in August from 2.9% in July, below expectations of 2.6%. This is the lowest inflation since February 2021. 
  • Energy prices declined by -4% and food inflation slowed to 2.1%. Core inflation remained steady at 3.2%, lowest in three years. Markets anticipate the Fed will limit rate cuts to 25 bps considering persistence in inflation. 
  • The ECB cut its key lending rates by 25 bps to 3.5%. Inflation and labor costs have moderated in the European Union but economists anticipate the 3.5% interest rate to continue to dampen economic growth. 
  • Oil prices were choppy this week. Prices were initially pressured lower by the economic slowdown in the U.S. and China. Later hurricane Francine disrupted crude production in the Gulf of Mexico, pushing up prices.
  • Iron ore prices have dropped to two-year lows of $90.25 per ton, with slowing demand from China. Mining companies expect copper demand from energy transition to support revenues. 
  • German business association BDI has urged the German government to invest $1.55 trillion to correct the bottlenecks of energy costs, labor shortage and cost, bureaucracy and high taxes.
  • The European Union is set to impose an antitrust fine on pharmaceutical giant Teva, specializing in generic drugs, for the use of unfair practices to hamstring its rivals. The Court of Justice also upheld the EU’s antitrust crackdown on Ireland’s tax concessions to Apple and Google’s anti-competitive practices. 
  • Abu Dhabi National Oil Company is expected to acquire the German plastics and chemicals company Covestro for $15.90 billion.
U.S. Equity
  • The S&P 500, Nasdaq and Dow Jones index rallied this week driven by the strong performance of technology and semiconductor stocks. The markets were also optimistic of monetary easing by the Fed following the release of economic data confirming cooling inflation and need for economic growth.
  • Producer Price Index (PPI) data indicated cooling inflation in August in the U.S. The monthly inflation in PPI and core PPI was marginally higher than expected at 0.2% and 0.3% respectively. The jobless claims in the first week of September rose by 30,000 claims indicating a persistently soft labor market.
  • BlackRock purchased a minority stake in Bapco Energies’ pipeline project linking Bahrain and Saudi Arabia. 
  • The U.S. Federal Energy Regulatory Commission has approved BlackRock’s $12.5 billion acquisition of utilities investor Global Infrastructure Partners.
  • Wells Fargo stock dropped due to the Office of Comptroller of the Currency restricting the bank from operating in medium or high-risk activities. The regulator found the bank susceptible to money laundering and illegal transactions.
  • Goldman Sachs stocks fell due to CEO David Solomon anticipating a 10% decline in third quarter trading revenues and drop in revenues next month due to the company offloading its GM card business.
  • Boeing workers are striking after rejecting the company’s four-year contract offering 25% higher wages and a $3,000 signing bonus. This will impact the production of Boeing Max 737 jets, already struggling with structural issues, production delays and debt pressures.
  • Moderna shares fell after the company announced restricted spending on research and drug development and forecasted lower than expected sales in 2025.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index rose marginally this week.
  • The U.S. 10-year Treasury yield fell to 3.646% over the week and the yield on the 2-year note edged down to 3.591%, the lowest in 24 months.  The higher-than-expected core CPI increased the probability of a 25 bps rate reduction by the Fed.
Sources

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