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September 6, 2024

Recession fears reignited, technology’s continued misery and choppy oil prices

September, a historically weak month for U.S. equities, commenced with a sharp drop amid fears of a possible recession. The weakening economic indicators over the last month has also added to expectation of a rate cut by the Fed in September and increased speculation on how many more could be there by the end of the year. The rout continued with below expectations Nvidia revenues and Intel AI chips failing tests. Treasury and bond yields also fell as investors sought safe havens. Bank of Canada eased policy rates by 25 bps for the third consecutive time.

Global Updates
  • The MSCI All Country World Index fell this week as fears of a recession spooked investors amidst slowing macroeconomic performance as well as the continued fall of Nvidia and other big names in technology.  
  • Crude Oil prices dropped below $70 per barrel this week due to weakening of oil demand in China and increased production by OPEC+ countries. However, prices subsequently recovered after the OPEC+ announced their plan to delay the increase in oil production and news emerged of decline in US oil inventories.
  • Bank of Canada eased policy rates by another 25 bps for the third consecutive month and indicated further easing on the horizon. The move was driven by weak growth and cool labour market. 
  • Factory orders in Germany rose 2.9% month-over-month in July, 2024; beating market expectations. The orders were primarily for transportation and electrical equipment.
  • China is considering the lowering of interest rates by up to 80 bps on $5.3 trillion of outstanding mortgages in two stages to reduce households’ borrowing costs and protect its financial system. 
  • Chinese financial institutions Guotai Junan Securities and Haitong Securities are planning a merger to create a behemoth with $228 billion in assets, through a share swap.
U.S. Equity
  • The S&P 500 & Nadaq and Dow Jones index tumbled this week, as recession fears were reignited. Nvidia lost $280 billion of market capitalization in a single day, the highest single day loss ever by any company. 
  • Continued contraction in US factory activity for the 21st consecutive month since October 2022 and shrinking job openings raised concerns about a potential deep recession in the US economy. The US trade deficit also widened.
  • Nvidia’s large loss this week was triggered by the assessments of JP Morgan and BlackRock Investment. The asset managers considered AI equities as overvalued and estimated AI investments will require years to be profitable. Nvidia’s problems were exacerbated by the U.S. Justice Department subpoenaing Nvidia and other companies for investigating antitrust violations.
  • Broadcom stock dipped after a lower-than-expected revenue in its fourth fiscal quarter. Broadcom’s broadband revenue fell 49% and non-AI networking revenue fell 41%. The cost of purchasing IP rights added to the loss. The company raised its forecasted annual revenue for AI to $12 billion due to increased demand for its AI chips. 
  • Bank of America will exchange tax credits for $205 million with Dakota ethanol producer Haverstone, which captures carbon below ground. The bank is also investigating a whistleblower complaint of information sharing prior to a stock sale in India.
  • Jet Blue stock rose after the company raised its guidance for the third quarter based on increased revenues and economical fuel prices. The company is an outlier in the bleak outlook of the airline industry this quarter.
  • Seven & I Holdings rejected the buyout offer by Alimentation Couche-Tard for undervaluing its 7-Eleven properties at $39 billion.
  • Verizon Communications has agreed to a $9.6 billion deal to acquire Frontier Communications.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index rose this week driven by investors seeking safer havens.
  • The U.S. 10-year Treasury yield fell to 3.71% over the week and the yield on the 2-year note edged down to 3.727%, the lowest in 23 months.
  • The U.S. Dollar Index fell to 101.93 this week.
Sources

HCM-030624-063.GWS

August 30, 2024

Rate cuts on the horizon, a resurgence in oil demand and small caps continue their winning streak

Global markets trended lower this week. The European and Asian markets trended up but were overshadowed by a worrying fall in the S&P index and Nasdaq. The Russell 2000 index rose as the small cap stocks continued to outperform their large cap counterparts. Fed Chair Jerome Powell indicated rate cuts are imminent to ward off cooling in the job markets, while inflation is within acceptable bounds. Positive U.S. economic data on GDP growth and core PCE inflation has increased the likelihood of a 25 bps rate cut by the Fed. Fears of oil supply disruptions resurged and oil prices increased.

Global Updates
  • The MSCI All Country World Index inched lower this week pressured by the fall of Nvidia’s stock. 
  •  The U.S. core PCE inflation slowed to 2.8% in the second quarter lower than the expected 2.9%. Core PCE inflation was 3.7% in the first quarter of 2024. 
  • Fed chair Jerome Powell signaled a September rate cut is highly probable in his Jackson Hole address. He suggested the 2% target inflation rate is achievable, citing the controlled decline in inflation in the past months. The markets are pricing in 100 basis points in rate cuts by the year’s end.
  • Germany’s Ifo Institute’s business-climate index fell to 86.6 in August from 87 in July indicating decreasing optimism in German companies amid four consecutive months of contraction in manufacturing by German industries.
  • Brent crude prices rose driven by the reemergence of conflicts in the Middle East with expected higher oil demand from a resurgent U.S. economy and cessation of oil production in Libya.
  • The People’s Bank of China is planning to inject $42 billion into the Chinese financial system by keeping the interest rate of 2.3% for its one-year medium term lending facility unchanged and rolling over those loans.
  • Chinese giants BYD and Huawei reported higher profits despite falling consumer demand in China.
  • Canada announced it is rolling back pandemic era rules, which permitted employment of temporary foreign workers to bridge labor shortages.
U.S. Equity
  • The S&P 500 & Nadaq indices fell during the week. The Dow Jones index closed at a record high this week following the release of encouraging U.S. economic data by the commerce department. 
  • The U.S. Commerce department reported higher-than-expected economic growth, spurred by strong domestic consumption and revised lower inflation rate. The real GDP growth was revised up to 3% from 2.8% for the second quarter of 2024.
  • Nvidia’s stock dipped despite its record $30 billion quarterly earnings in line with forecasts and a strong sales outlook. Investors were disappointed due to the failed expectations of Nvidia beating forecasted revenues by a high margin, similar to previous quarters. 
  • CrowdStrike’s stock rose after its second quarter revenues beat the early revenue forecasts. The company lowered its annual revenue guidance due to the $60 million incentives offered to retain customers after a company update caused a global systems shutdown.
  • Dollar General’s earnings fell short of expectations and lowered its annual sales and profit forecasts. The company attributed its lower earnings to falling customer incomes, inventory damage and theft.
  • Apple and Nvidia are in fundraising discussions to invest in OpenAI for its next funding round.
  • Clothing giant Gap reported 5% increase in sales revenues to $3.72 billion exceeding the forecasted revenue of $3.63 billion. 
  • Edgar Bronfman exited the bidding process to purchase Paramount.
  • The National Labor Relations Board has rejected Amazon’s appeal against the unionization of its Staten Island warehouse workers.
  • Curt Calaway will replace John R. Tyson as CFO of Tyson Foods with immediate effect. Tyson Foods will also sell its 49% stake in the joint venture with Godrej in India.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index edged lower this week.
  • The U.S. 10-year Treasury yield rose to 3.865% and the yield on the 2-year note edged down to 3.90% over the week.
  • The U.S. Dollar Index recovered and rose to 101.3 this week following the upward revision of U.S. GDP data for the second quarter.
Sources

HCM-030624-063.GWS

August 23, 2024

Markets continue their recovery, as all eyes turn to Jackson Hole

World markets continued to rise this week albeit slowly following the release of mixed data. Markets are encouraged by the signs of an economic soft landing on the horizon as small and mid-cap stocks continued their winning streak. The announcement of weak labor market data raised expectations of a rate cut in September. Investors keenly await Fed Chair Jerome Powell’s statement at the conclusion of the Jackson Hole Symposium. In the UK, consumer confidence remained strong with the latest batch of economic data, while PMI numbers in Germany indicate a possible contraction in business activity.

Global Updates
  • The MSCI All Country World Index inched up this week with automobile stocks pushing up European equities. Technology and small-cap stocks pushed up American equities, but the rise was tempered by the announcement of a weakening labor market. 
  • The United Kingdom’s GfK Consumer Confidence index remained unchanged in August indicating unchanged consumer confidence. UK equities fell, as they were impacted by lower metal prices, falling factory orders and sticky consumer confidence. UK businesses reported improvement in economic growth in August.
  • Crude Oil futures fell weighed down by decreasing demand in China and concerns for slowdown in the U.S and European manufacturing.
  • Chinese property developer Kaisa has arrived at a debt-restructuring plan with offshore debt holders. The company plans to offer new debt of $5 billion in notes and $4.8 billion in convertible bonds.
  • China’s oil imports from its major supplier Russia has reduced by 7.4% year-to-year in July. 
  • S&P Global released the HCOB German flash composite Purchasing Managers’ Index for August, indicating the second month of contraction in the German Manufacturing sector. 
  • Bank of China has appointed Ernst and Young as its auditor, replacing PricewaterhouseCoopers following a regulatory investigation into PwC’s work on China’s Evergrande Group.
  • International gold prices have continued to rise reaching record highs driven by a weak dollar, rising international demand and expectations of rate cut by the Federal Reserve.
  • Japanese inflation rate remained in line at 2.8% and core inflation rose to 2.7% in July for the third consecutive month. Bank of Japan governor Kazuo Ueda expressed their willingness to tighten policy if inflation remains sticky.
U.S. Equity
  • The S&P 500, Dow Jones Index and Nasdaq indices crept up this week owing to the rally in technology stocks.
  • The US labor department revised the estimated total payroll employment downward by 0.5% (818,000) between April 2023 to March 2024.  
  • Edgar Bronfman has initiated a $4.3 Billion bid for Redstone’s holdings in Paramount. Media experts are considering the offer as an attempt to scuttle the merger of Paramount and Skydance Media.
  • AMD declared its plans to acquire server designer, ZT Systems, for $4.9 billion to expand its AI infrastructure to compete with Nvidia
  • The US Federal Aviation Administration will be inspecting all Boeing 787 Dreamliners following the mid-air autonomous dive that injured 50 passengers in March. 
  • Berkshire Hathaway offloaded $550 million of Bank of America stock while retaining 12% of the bank’s outstanding shares. 
  • Lowe’s has lowered its full-year guidance after weak demand in the home-improvement sector led to weak sales in the latest quarter. 
  • Wells Fargo will be offloading the majority of its third-party mortgaging-servicing business to Trimont, making Trimont the largest servicer in the U.S.
  • Financing Elon Musk’s takeover of Twitter has become a burden for the seven banks backing the deal due to declining valuation, advertiser dissatisfaction and poor fiscal management. The banks have been unable to offload the $13 billion debt. 
  • Off-price retailer TJX Companies’ stock gained as the company raised its annual profit forecasts after beating quarterly revenue estimates.
  • The Alaska Air and Hawaiian Airlines $1 billion merger deal has cleared the US Justice Department’s scrutiny without any objections.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index rose this week.
  • The U.S. 10-year Treasury yield fell to 3.85% and the yield on the 2-year note edged down to 3.99% over the week.
  • The U.S. Dollar Index continued to decline 101.37 this week as the markets brace for the much-awaited result of the FOMC’s annual meeting in Jackson Hole.
Sources

HCM-030624-063.GWS

August 16, 2024

Global markets recovered and another batch of strong economic data

World markets witnessed a turnaround last week following the release of positive economic and corporate data. Retail sales rose in the UK and US. Jobless claims declined in the US labor market. Unemployment rate remained steady in Canada. PPI and CPI data from the US indicated slowing inflation in the US. Technology stocks led the market recovery. Walmart, Cisco Systems, Sam’s Club, Nvidia and Paramount stock surged, leading the recovery. Japanese Prime Minister Fumio Kishida will be stepping down in September and his political successor has not yet been declared.

Global Updates
  • The MSCI All Country World Index surged as investor confidence recovered, driven by positive price and employment data. Retail sales growth in the US and UK also buoyed market sentiments. European investors anticipate at least two more rate cuts by the ECB this year.
  • Newly released U.S. Producer Price Index data indicated inflation in producer prices in July at 0.1% was lower than expected, which has increased market expectations of a 25 basis points rate cut in September. University of Michigan consumer sentiment data released last week depicted increasing consumer confidence recovering after five months of declining trend.
  • The European Central Bank is expected to cut policy rates six times, by 25 basis points every quarter, with the deposit rate settling at 2.25% by December 2025
  • The unemployment rate in Canada remained steady at 6.4% in July. The full-time employment rate rose, while labor participation rate fell
  • The U.K. inflation rate of 2.2% for July was lower than expected. UK retail sales increased by 0.5% as inflation eased.
  • Energy shares have dropped after OPEC projected lower energy demand in 2024-2025, due to a looming economic crisis in China.
  • Chinese government efforts to increase consumer spending boosted retail sales 2.7% year to year in July. The property sector persisted in crisis mode with home prices dropping by 4.9% in July. Unemployment rate edged up 5.2% and industrial output slowed 5.1% in the same period.
U.S. Equity
  • The S&P 500, Dow Jones index and Nasdaq indices indicate strong recovery in U.S. equity markets after positive unemployment, retail and price data elevated investor confidence. Technology stocks lead the market recovery. 
  • US retail spending grew by 1% last month, allayed investor apprehensions of an economic slowdown. The rising sales was led by motor vehicles, electronics, groceries, etc. 
  • The US labor department reported that the year-on-year US inflation rate declined to 2.9% for the fourth consecutive month in July. The Consumer Price Index rose 0.2% month-on-month in line with expectations. 
  • The number of people claiming jobless benefits fell for the second consecutive week, by 7,000 to 227,000 last week undermining expectations. 
  • The U.S. government has negotiated lower prices for the top 10 selling prescription drugs under the Medicare program. The negotiated prices are estimated to save $1.5 billion in out-of-pocket expenses $6 billion expense overall in the first year.
  • The stock of Ulta, an American chain of cosmetic stores, rose during last week after filings released showed that Berkshire acquired 690,106 shares of the company in the second quarter of 2024.
  • Starbucks has appointed the former Chipotle CEO Brian Niccol as its new CEO.
  • Mars is acquiring Kellanova in a $36 billion deal, the largest buyout deal of 2024. 
  • Home Depot, the world’s largest home improvement retailer, cut its annual sales outlook due to weak consumer spending. Home Depot also declared a $2.25 dividend for the second-quarter. 
  • Canada’s Bank of Nova Scotia has agreed to acquire a 15% stake in American bank KeyCorp for $2.8 billion. The bank has emerged as the only Canadian bank with a presence in the NAFTA countries.
  • Cybersecurity company Kiteworks attracted $456 million investment from Technology investors Insight Partners and Sixth Street Partners with the expectations of higher demand for data protection from businesses and government agencies.
  • Natron Energy, a startup developing high tech batteries, is planning to invest $1.4 billion in a manufacturing plant in North Carolina.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index rose sharply last week recovering after release of positive price and retail sales data.
  • The U.S. 10-year Treasury yield fell to 3.90% and the yield on the 2-year note rose to 4.08% over the week.
  • The U.S. Dollar Index dropped sharply to 102.9 under pressure from cooler-than-expected US inflation data. 
  • The yield on the US 10-year Treasury note dropped and recovered after release of an encouraging retail sales and jobless claims data.
Sources

HCM-030624-063.GWS

August 9, 2024

Global Markets plummet with fears of a US recession, small caps continue to ride the market rotation wave

In a disappointing week for world markets, equities and bond yields declined due to recession fears in the US economy, interest rate hike by Bank of Japan and unwinding of carry trades in Japanese Yen. The recession fears were indicated by poor employment data. The markets marginally recovered by end of the week on positive unemployment claims data. BOJ officials also reassured the markets that further rate hikes will be implemented when markets are stable. Federal Reserve officials also indicated rate cuts could be implemented in September.

Global Updates
  • The MSCI All Country World Index plunged sharply this week after adverse economic reports, rising yen and unwinding of currency carry trades in Yen and Yuan. 
  • Poor employment numbers pushed a fear of recession in US markets for the global investors. Unemployment claims data reassured markets with 233,000 claims last week, down from the 250,000 claims in the previous week. Subsequently U.S., European and Asian markets recovered after the release of positive jobless claims data averted recession fears.
  • The Caixin China General Services PMI rose to 52.1 in July 2024 from 51.2 in Jue exceeding the market forecasts of 51.4. The expansion of service sector is accompanied by rise in employment, new orders and export sales.
  • WTI crude futures dragged to $73 per barrel due to fear of recession in the US and increasing geopolitical tensions in the Middle East.
  • Higher interest rates in Japan following rate hikes by Bank of Japan led to sharp rally in Yen, hurting the Carry trade in Yen and reducing expected profits of Japan’s export oriented industries. This combined with apprehensions of a recession in US markets led to the Nikkei 225 and Topix Index fell sharply this week.
  • Barclays strategists suggested that European technology stocks are currently undervalued and offer a buying opportunity.
U.S. Equity
  • The S&P 500, Dow Jones and Nasdaq indices plunged this week after the release of higher-than-expected unemployment numbers stoked fears of an impending recession. The markets slightly recovered due to the release of positive unemployment claims data. Nvidia, AMD and other chip stocks rebounded later in the week.
  • The Nasdaq is accelerating the delisting of penny stocks, companies with shares trading below $1 per share, after the exchange was criticized for permitting risky companies to continue being listed using ‘reverse stock splits.’
  • Drugmaker Eli Lilly’s stocks soared following raised annual earnings outlook and strong second quarter earnings
  • Warner Brothers, Discovery and Disney’s stocks fell with decreasing subscribers for their cable services. The decrease has been attributed to lower incomes and disruption by streaming services like Netflix and Amazon Prime.
  • Exxon Mobil shares rose due to higher-than-expected second quarter profits of $9.2 billion. The higher profits of $2.14 per share were the outcome of rising oil prices and increasing sales volumes.
  • FTX Trading and Alameda Research have been ordered to pay $12.7 billion to fraud victims by the New York courts approving the order by the Commodity Futures Trading Commission.
  • U.S. government is investing $2.2 billion in revamping the national power grid and adding production capacity of 13 gigawatts to support industrial needs.
  • Charles River Laboratories, major outsourcer for pharmaceutical companies, has indicated decreased spending in R&D spending by pharma majors. This follows massive layoffs and cost cuttings by Pfizer, Bristol-Myers Squibb, Bayer and Novartis.
  • Voice generative artificial intelligence provider SoundHound AI’s stocks surged in a cool market. This followed its $80 million acquisition of the AI software firm Amelia.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index dropped sharply this week recovering marginally after release of jobless claims data.
  • The U.S. 10-year Treasury yield rose to 3.97% and the yield on the 2-year note rose to 4.02% over the week.
  • The U.S. Dollar Index dropped sharply to 103.16 this week.
Global Updates

HCM-030624-063.GWS

August 2, 2024

Global markets plummet and small caps ride the market rotation

In a disappointing week for global markets, equities declined with weak second quarter earnings announcements of multiple companies. European manufacturing data showed continuing contraction and US manufacturing and employment data also disappointed. Bank of England cut policy rates by 25 basis points and Bank of Japan raised rates by 25 bps. Fed Chair Jerome Powell indicated it is highly likely the Fed will cut interest rates at their meeting in September.

Global Updates
  • The MSCI All Country World Index dropped sharply this week with release of poor manufacturing data in Europe and U.S.A, and resurgence of geopolitical tensions in the Middle East.  Data released this week indicated softening employment and weakening manufacturing and construction sectors.
  • Fed Chair Jerome Powell announced the Fed’s decision to keep interest rates the same during its latest meeting. He also alluded to the possibility of interest rates cuts as soon as September if the U.S. economy follows its expected path.
  • Inflation unexpectedly heated up in the Eurozone this month, presenting a fresh challenge to policymakers. Consumer prices were 2.6% higher on year in July, picking up pace from 2.5% in June
  • The HCOB final Purchasing Managers’ Index (PMI) for German manufacturing fell to 43.2 in July from 43.5 in June, above a preliminary flash estimate of 42.6. HCOB France final purchasing managers index (PMI) for the manufacturing sector, compiled by S&P Global, slid to 44.0 points in July from 45.4 in June.
  • The Bank of Japan on Wednesday raised its benchmark interest rate for the first  and cited concerns about the historically weak yen, leading to a jump in the Japanese currency. Gov. Kazuo Ueda embraced the view that a rate increase could help growth by pushing up the yen and reassuring consumers who have had to pay more for imported goods.
  • U.K. central bank lowered its benchmark lending rate for the first time since 2020 by 25 bps to 5% on Thursday. The FTSE 100 edged higher.
  • The S&P Global UK Manufacturing PMI was revised higher to 52.1 in July 2024, from a preliminary of 51.8 and compared to 50.9 in June. This marked the sharpest expansion in the manufacturing sector since July 2022.
U.S. Equity
  • The S&P 500 ended the week marginally higher and the Dow Jones index rose this week with large falls in technology stocks being marginally outweighed by growth in selected large cap stocks based on second quarter earnings. Small stock caps continued to outperform large cap technology stocks. The Nasdaq dropped drastically as the market broadly underperformed.
  • U.S. labor costs increased moderately in the second quarter as private sector wages grew at the slowest pace in 3-1/2 years, more evidence that inflation was firmly on a downward trend and could help facilitate an interest rate cut in September.
  • MSCI reported a 13% increase in foreclosed commercial properties by banks and lenders in the second quarter amounting to $20.5 billion, the highest in 10 years. It is considered as an indicator that the commercial lending sector is approaching the bottom of the downturn cycle.
  • U.S. home insurers suffered their worst underwriting loss this century in 2023, as a toxic mix of natural disasters, inflation and population growth in at-risk areas put a vital financial market under acute pressure, according to rating agency AM Best. Insurers providing policies to homeowners were hit with a $15.2 billion net underwriting loss last year.
  • Intel stock plunged after it reported a loss of $1.6 billion in the recently ended quarter. Intel plans to lay-off 18,000 employees and cut $20 billion in expenses. Intel also announced suspension of its dividend in the coming quarters.
  • Billionaire investor Bill Ackman scrapped the launch of Pershing Square USA, days before the fund was slated to begin trading on the NYSE, having seen at least one prominent pledged investor back out and undergoing a fresh bout of regulatory scrutiny.
  • Fast food giant McDonald’s reported a drop in sales in the second quarter after 3 consecutive years of sales growth. Economists consider it indicative of changes in the spending patterns of low-income consumers.
  • Amazon shares slipped as revenue outlook disappointed investors due to increased investment on AI and cloud-computing infrastructure. Total sales rose 10% year-to-year to $148 billion and $13.5 billion in profits in Q2 2024.
  • Boeing named aerospace industry veteran Kelly Ortberg as its CEO to turn around the planemaker beset by legal and regulatory problems after a quarter in which it lost more than $1 billion.
  • Spirit Airlines is taking extraordinary measures to attract passengers and stem increasing losses. The budget airline will be furloughing 240 pilots, downgrading 100 captains and suspending the recruitment of pilots and flight attendants to reduce training expenses and cut costs.
  • 3M has picked the Otis Worldwide finance chief Anurag Maheshwari as CFO to replace the outgoing CFO Monish Patolawala
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index rose marginally this week.
  • The U.S. 10-year Treasury yield fell to 3.94% and the yield on the 2-year note fell to 4.12% over the week.
  • The U.S. Dollar Index dropped marginally to 104.07 this week.
  • U.S. treasury yields and the dollar slid after weaker-than-expected ISM U.S. manufacturing data led to risk off moves in the global markets.
Sources

HCM-030624-063.GWS

July 26, 2024

Global Markets See-Saw: Tech Earnings Shock, Economic Data Offers Hope

In a disappointing week for global markets, equities declined with weak second quarter earnings announcements of some of the biggest names in technology. The correction caused the worst daily wipeout since October 2022. The week started on a troubled note with severely underwhelming earnings reports from a number of large companies. Over in Europe, manufacturing data showed continuing contraction, with Germany and France being the biggest losers. However, towards the end of the week, positive US GDP data and falling inflation buoyed the falling equity markets. In geopolitics, Russia attacked Ukrainian energy facilities in two regions between the capital Kyiv and the Russian border with drones, leaving tens of thousands of people without power.

Global Updates
  • The MSCI All Country World Index dropped sharply during the week with ‘Magnificent Seven’ stocks enduring the brunt of the fall after announcing highly underwhelming second quarter earnings. Towards the end of the week, the markets did recover slightly owing to falling inflation in the US.
  • The manufacturing PMI in Europe dropped to 45.6 in July from 45.8 in June. This was the 16th month of contraction in European manufacturing. Manufacturing in Germany and France contracted the most, which led to a domino effect with a reduction in employment, orders for supplies and raw materials. 
  • The People’s Bank of China lowered its key policy rate and benchmark lending rates by 10 basis points. The one-year Loan Prime Rate was reduced from 3.45% to 3.35% and five-year LPR from 3.95% to 3.85%. After this, five of China’s major state-owned banks cut deposit rates to cushion a hit to their already record low margins.
  • Oil prices declined for a third consecutive week, pressured by muted demand in China and expectations of a Gaza ceasefire deal that could ease Middle East tensions and accompanying supply concerns.
  • Japan’s factory activity contracted slightly in July as new orders fell, and firms remained under pressure from higher prices. However, the expansion in the service sector helped overall activity in Japan’s private sector return to growth in July.
  • Ukraine announced a deal to restructure its debt of $20 billion with a creditors group. The deal ensures $11.4 billion cash flow till 2027 for defense and public expenditure.
  • The prolonged weakness in metal prices, especially in copper, continued as weakness of import demand from China continued to influence global price levels.
  • Spotify’s stocks rose owing to higher than expected profits of €1.11 billion and revenue of €3.81 billion. Deutsche Bank’s share price dropped following the announcement of its first quarterly loss in four years.
U.S. Equity
  • All the major large cap indices fell during the week. Small cap technology stocks outperformed large cap technology stocks. However, towards the end of the week, the Dow Jones Average Index marginally recovered owing to solid U.S. GDP data.
  • The CBOE Volatility Index rose to the highest level since April, after poor second quarter results of technology leaders Tesla, Alphabet and others sparked a sell-off.
  • U.S. prices rose moderately in June, underscoring an improving inflation environment that potentially positions the Federal Reserve to begin cutting interest rates in September. The personal consumption expenditures price index nudged up 0.1% last month after being unchanged in May.
  • The U.S. GDP grew at an annualized rate of 2.8% during the second quarter of 2024, exceeding estimated growth of 2% and rising from 1.4% in the first quarter. Consumer spending also rose driven by consumption of goods and vehicles, while consumption of services lagged. 
  • In the US labor market, jobless claims for the week ended 20th July fell to 235,000 indicating a softening of the labor market. 
  • Tesla stocks tumbled during the week, as the company’s profits and net revenue fell in the second quarter. The company’s net income fell to $1.5 billion from $2.7 billion over a year. 
  • Woodside Energy announced plans to acquire Tellurian for $900 million. Tellurian’s LNG development in Louisiana will complement Woodside’s majority holdings in the Shenzi oil-and-gas field.
  • Leading global investment firm KKR has entered an agreement to purchase wealth management firm Janney Montgomery Scott from The Penn Mutual Life Insurance Company to enter the retail investment business.
  • Shares of U.S. carmakers Ford and Stellantis plummeted during the week owing to poor second quarter results caused by rising inventories and warranty repair costs.  
  • Google’s negotiations to acquire the cybersecurity startup Wiz for $23 billion has failed.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index remained in line this week. 
  • The U.S. 10-year Treasury yield rose to 4.246% and the yield on the 2-year note reset to 4.431% over the week.
  • The U.S. Dollar Index rose marginally to 104.37 this week. 
  • 2-year bond yields fell to five-month lows with investors moving to short-term U.S. government debt following a risk-off sentiment in the global stock markets.
Sources

HCM-030624-063.GWS

July 19, 2024

A correction in technology, growing fund inflows and the first sighting of a soft landing

In a reversal of fortunes, global equity markets slipped after technology stocks had a difficult week, wiping out more than $900 billion in market cap as investors moved money out of the technology sector to those that have languished in 2024. Across the ocean, in Europe, the European Central bank has reaffirmed its stance on sticking to its plan of announcing rate cuts as per the trajectory of inflation in the region and not making any hasty changes. In the US, as the expectation of rate cuts by the Federal Reserve grew and the labor market continued to weaken, the price of Gold touched an all-time high. As many of the financial giants of the world posted strong earnings during the second quarter of 2024, the growing expectation is to bet on a Trump presidency from 2025 onwards.

Global Updates
  • The MSCI All Country World Index fell this week, as technology stocks tumbled worldwide; shedding about $900 billion in market value and European stocks reacted to a fall in commodity prices. 
  • Republican presidential candidate Donald Trump announced JD Vance as his vice presidential candidate. In another development, a Democratic party committee will meet to discuss a virtual voting process to decide whether President Joe Biden will continue as the Democratic candidate.
  • The European Central Bank announced that its next strategy assessment would not involve some key issues, including a discussion on the bank’s numerical inflation target or the publication of interest rate forecasts. ECB President Christine Lagarde announced that it would be more of an internal review.
  • Optimism of rate cuts by the Federal Reserve pushed up gold prices, as it hit an all-time high during the week and slowed down the strengthening dollar. Dovish statements by Federal Reserve officials and a continuously weakening labor market support the speculation of an early rate cut. 
  • According to the International Monetary Fund, the Canadian economy seems to have achieved a soft landing. Canada’s economy has been posting growth this year and the rate of inflation has consistently stayed in the bank’s target range of 1% to 3%, albeit hovering at the upper end.
  • A global technology outage occurred on Friday as the latest update by Crowdstrike affected Microsoft operating systems around the globe. The outage affected stock markets, airports, critical services and many other industries across the globe.
U.S. Equity
  • The S&P 500 and Nasdaq indices fell this week with a drop in technology stocks, led by the drop in ‘Magnificent Seven’ shares. The Dow Jones index, however, rose with the Industrials sector data boosting investor confidence levels.
  • President Biden proposed a national rent-control plan to cap rents in the weak American housing market with high mortgages and high rents. The populist policy is expected to adversely hit the property/housing market.
  • The PHLX Semiconductor Index fell 7% due to the emerging report that the Biden government is contemplating imposing harsh restrictions on non-American companies manufacturing chips in China, like ASML, Tokyo Electron, etc. Donald Trump exacerbated the situation by suggesting a levy on Taiwan for its defense by the United States.
  • Blackstone stock continued to rise regardless of the lower second quarter earnings. The company has dedicated $19.1 billion in new investments buoyed by the possibility of early rate cuts. Blackstone has also increased investments in private equities to $34 billion, the highest in two years.
  • New York’s office space company SL Green’s stocks rose this week with positive second quarter outcomes. The increase in FFO to $1.6 per share over the quarter in a tight properties market impressed investors.
  • The average interest rate on the popular US 30-year fixed-rate mortgage fell to its lowest level since mid-March. The 30-year fixed-rate mortgage averaged 6.77% during the week ending July 18, the lowest level since mid-March, down from 6.89% in the prior week.
  • The weekly flows of equities during the week ended 12th of July 2024, was the fifth largest of all time and fixed income inflow was the eighth largest of all time.
  • Capital One will commit $265 billion over five years to lending, philanthropy and investment if its takeover of Discover Financial Services goes through, as it aims to appease critics and win over regulators.
  • Morgan Stanley’s second-quarter profit beat expectations, driven by a surge in investment banking and trading revenues that overcame muted results in wealth management. Institutional securities revenue grew 23% in the quarter to $7 billion, buoyed by investment banking revenue, which soared 51% to $1.62 billion.
  • Goldman Sachs’ profits more than doubled in the second quarter and beat analysts’ estimates on strong debt underwriting and fixed-income trading, but slipped from a bumper first quarter when earnings were the highest since 2021. Earnings rose to $3.04 billion, or $8.62 per share, for the three months ended June 30th, about 3% higher than analysts’ average expectation of $8.34 per share.
U.S. Fixed Income
  • The Bloomberg US Aggregate Bond Index marginally rose this week. 
  • The US 10-year Treasury yield rose to 4.209% and the yield on the 2-year note reset to 4.485% over the week. The bond yields fell early this week owing to expectations of early rate cuts and recovered with the ECB keeping rates unchanged. 
  • The U. Dollar Index rose to 104.29 this week. 
  • Early in the week, the Dollar trended down with optimism fanned by comments from officials of the Fed. The dollar recovered later this week with the release of manufacturing data showing a surge in new orders in the US Mid-Atlantic region.
  • Foreign holdings of US Treasuries rose to a record high in May, exceeding the previous record in March. Holdings of US Treasuries rose to $8.129 trillion in May from a revised $8.04 trillion in April.
Sources

HCM-030624-063.GWS

July 12, 2024

Inflation rate plummets, Powell goes to Capitol Hill and new government in UK

In a slow week, global capital markets rose gently to positive news from Europe and the US. The labor department data on US inflation and employment buoyed stock markets worldwide. Federal Reserve Chairman Jerome Powell’s comments on Capitol Hill gave a fillip to investor confidence globally. The stock indices in the US, India and Japan reached new highs. The Euro, Pound, Yen and Yuan appreciated against the Dollar. The Treasury yields sharply declined with the release of inflation data, raising optimism for a rate cut in investors. On the geo-political front, NATO members have announced fresh support for Ukraine at their summit in Washington. Air defense systems are a part of the military support package. Canadian Tory leader Pierre Poilievre continues to widen his lead over Justin Trudeau. Politicians and media continue to await an announcement from Joe Biden’s camp on his withdrawal from the Presidential race.

Global Updates
  • The MSCI All Country World Index edged upwards this week. 
  • US inflation dropped to 3% year-on-year in June from 3.3% in May. The declining inflation was enabled by falling energy prices in the US, combined with Jerome Powell’s testimony on Capitol Hill.  The markets are now pricing in a rate cut in September. Following this, the Japanese Yen, Euro and Pound appreciated against the Dollar, as long Dollar currency trades have become less attractive.
  • European equity markets surged higher, with the Stoxx 600 touching one month high, buoyed by falling inflation in the UK, US and EU. 
  • The French elections have ended in a hung parliament with the coalition of left-wing parties defeating Marine Le Pen’s and Emmanuel Macron’s parties. However, they were unable to win a simple majority in the elections.
  • The UK’s new labor government cheered as official data showed a 0.4% month-on-month growth in the country’s GDP. Prime Minister Keir Starmer reiterated his commitment to increase defense spending to 2.5% of GDP to ensure military preparedness.
  • China was a mixed picture during the last week. China’s CPI inflation in June was 0.2% year-on-year undermining expectations. PPI fell 0.8% in a low demand environment. Simultaneously, the country’s outbound shipments surged 8.6% in June year-on-year from 7.6% in May. Chinese imports declined by 2.3% with lackluster domestic demand at the same time.
  • The OPEC+ has reported almost perfect compliance with the supply cuts for June. Global demand for crude is expected to continue to exceed its supply as the product cuts are extended to 2025.
  • French software maker Dassault Systems lowered its annual revenue guidance with lower than expected second quarter revenue of $1.62 billion.
  • British energy titans British Petroleum and Shell have indicated the possibility of booking a $2 billion reduction in their second quarter earnings. 
  • Taiwan Semiconductor Manufacturing Company (TSMC) stock has surged as the ‘AI Boost’ in the second quarter helped its revenue to surpass estimates. TSMC market cap briefly crossed the $1 trillion mark this week. Morgan Stanley had raised its outlook on the stock earlier this week, based on strong demand.
  • German Shipping company Hapag-Lloyd lifted its earnings view for the year after a strong first half performance on the basis of increased freight rates and global demand.
U.S. Equity
  • The S&P 500 and Nasdaq indices touched new highs this week with the S&P crossing 5,600 and Nasdaq crossing 18,500. The Dow Jones index also continued its upward trajectory. 
  • Federal Reserve Chairman Jerome Powell testified on the state of the US economy on Capitol Hill and remained reticent on the possibility of a rate cut, but reiterated the importance of achieving growth without inflation. Powell also indicated that cooling labor markets have limited the potential for wage driven inflation. Investors inferred that the Fed has pivoted on its ‘higher for longer’ policy as the economy is no longer overheated.
  • Amazon faces possible scrutiny from UK’s Groceries Code Adjudicator for mistreatment of grocery suppliers and non-compliance with its code of conduct. Amazon’s compliance score dipped 10% to a score of 47% this year. 
  • Apple has regained the position of the world’s most valuable company. 
  • Microsoft and Apple have relinquished their observer seats on the OpenAI board. Both companies face possible scrutiny by antitrust watchdogs in the EU and US. 
  • HSBC is restructuring its investment banking division to resemble Citigroup and Morgan Stanley. 
  • Delta reported a 29% fall in second quarter profits, pressured by higher fuel cost and discounted bookings to attract passengers.
  • PepsiCo’s sales in North America plunged 4% in the second quarter after two years of price hikes. This indicates a troublesome drop in consumer spending for low cost consumer goods.
  • Boeing has agreed to plead guilty to the fatal 737 MAX crashes. 
  • After a long period of negotiations, the Paramount Global and Skydance Media complicated merger agreement has gone through. The Redstone family will completely sell its stake in Paramount to Skydance Media as part of the agreement.
  • Oklahoma energy company Devon Energy, has acquired Grayson Mill Energy for $5 billion.
U.S. Fixed Income
  • The Bloomberg US Aggregate Bond Index marginally rose this week. The bond markets have been lukewarm this week with political changes occurring in the developed world. 
  • The US 10-year Treasury yield fell to 4.215% and the yield on the 2-year note reset to 4.52% over the week. 
  • The US Dollar Index fell to 104.37 this week after Fed chair Jerome Powell’s testimony in front of the Congress.
Sources

HCM-030624-063.GWS

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