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July 5, 2024

New record highs in the U.S., France’s instability and a new order of power in the UK

Global capital markets rose marginally this week as the market gained confidence in a rate cut with the release of weaker jobs and services data. On the back of this news, stock indices in US, India and Japan reached new highs. Treasury yields in the U.S. declined with greater optimism of a change in stance by Jerome Powell and the Federal Reserve in light of the new data. On the political front, the UK’s Labour party swept the elections and promised a national renewal. The new Prime Minister-elect Keir Starmer announced plans for sweeping changes to unlock the true economic potential of the country. In mainland Europe, France’s political environment remained volatile as tactical withdrawals by candidates in French elections has reduced the possibility of absolute majority for Marine Le Pen’s party. In the U.S., President Joe Biden’s numbers continue to fall after increasing speculation about his mental state affected polls and voter sentiment.

Global Updates
  • The MSCI All Country World Index edged upwards this week. American, European and Asian stock indices rose this week driven by optimism regarding a change in monetary policy stance of the US following the release of weak labor market data in the country. European markets also gained following a landslide victory for the Labour party in UK elections. 
  • MSCI Europe made small gains on the possibility of a rate cut as the leading parties in the French election have pledged to increase government spending in a high budget deficit environment which has prompted disciplinary actions from the EU. France’s trade deficit increased to the largest trade gap of €8 billion and industrial output fell 2.1% in May 2024. 
  • US census data revealed 0.1% drop in construction expenditure in May. Factory orders in May fell to $583 billion by 0.5%. US ISM services PMI dropped to 48.8 in June showing contraction in the services sector activity. Private sector employment in June rose by 150,000, primarily in the leisure and hospitality sectors. 
  • US commercial crude oil inventories unexpectedly declined to 448.5 million barrels by 12.2 million, 4% below its 5-year average. 
  • With a win by the Labour party in UK elections, the FTSE 100 crossed the 8,250 mark, gaining 1.3% this week. Markets are optimistic, as Prime Minister-elect Keir Starmer laid emphasis to economic stability and fiscal prudence. 
  • Japan’s Tankan quarterly corporate survey showed the Japanese economy is hurting with depreciating Yen, rising labor and high raw material costs, and shrinking GDP. The business sentiment in the service sector has declined to +33 outweighing the rising sentiment in manufacturing to +13.
  • The shares of top Chinese real estate companies rose after the sales value of major Chinese property developers rose 36.3% MoM from May. China’s Caixin services PMI dropped to 51.2 in May showing continuous contraction in its service sector for the seventh month.
U.S. Equity
  • The S&P 500, Nasdaq & Dow Jones continued their upward trajectory this week. The S&P 500 and Nasdaq had crossed the 5,500 and 18,100 marks respectively.
  • Minutes of the U.S. Fed’s June meeting showed a diversity of opinions regarding readiness to implement rate cuts as labor markets weaken with other policymakers keen to wait for the downward trajectory of inflation to solidify.
  • A federal appeals court reinstated a $10 billion antitrust lawsuit against 10 banks, including Bank of America for overcharging small bondholders.
  • The U.S. Treasury Department implemented policy to ensure reporting of user transactions by cryptocurrency platforms to the IRS to control tax evasion.
  • Tesla’s stock climbed by this week on better-than-expected quarterly sales of 444 thousand cars, a 4.8% year-on-year fall from 2023.  
  • Boeing proposed acquisition of the fuselage maker Spirit Aerosystems at a 13% premium. The repurchase of its 2005 spinoff is speculated to reduce outsourcing inefficiencies.
  • Amazon and owners of Saks Fifth Avenue have jointly negotiated and closed a $2.65 billion deal to purchase the luxury retailer Neiman Marcus, setting up a behemoth for luxury shopping.
  • With gold crossing $2,340/ounce, the World Gold Council speculated that rate cuts in developed markets would create investment flows to gold as a hedge for bubbling risk and political uncertainties, geopolitical conflicts.
  • J2 Ventures raised a $150 million investment pool to finance startups in technology and healthcare to serve government and civilian clients.
  • Arkhouse Management and Brigade Capital raised their bid for struggling department store chain Macy’s by $300 million after their initial bid was declined. 
  • Blackrock formalized the acquisition of British data provider Pregin for $3.22 billion, within this year.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index marginally rose this week.
  • The U.S. 10-year Treasury yield fell to 4.344% and the yield on the 2-year note reset to 4.68% over a short trading week. 
  • The U.S. Dollar Index fell to 104.97 over the week.
Sources

HCM-030624-063.GWS

June 28, 2024

An underwhelming presidential debate, Europe’s uphill struggle and a slowdown in Tech

Global capital markets had a mixed week with release of price and jobs data in U.S. and Europe. Decreasing unemployment in USA had positive impact on markets, while stocks of AI related companies dipped after many weeks of unstoppable gains. In macro news, U.S. monthly inflation remained unchanged in May, as a modest increase in the cost of services was offset by the largest drop in goods prices in six months. In addition, sales of new U.S. single-family homes dropped to a six-month low in May as a jump in mortgage rates weighed on demand, offering more evidence that the housing market recovery was faltering. Brent crude futures had a good week with higher expected demand in the coming months. In Europe, the release of the most recent economic data in France, Spain, Italy and Germany painted a mixed picture for investors and the stock market fell marginally because of it, as well as the worrying environment of political uncertainty in many of the countries in the region. Yield on the U.S. 10-year and 5-year bonds continued to rise.

Global Updates
  • The MSCI All Country World Index edged slightly upwards this week with the news of cooling inflation in the U.S.
  • US PCE data indicated softening inflation in May. Core PCE inflation slowed to 0.1% in May from 0.3% in April, the lowest in six months. Wages and salaries have grown by 0.4% in the same period. 
  • U.S. jobless claims fell for the second week to 233,000, indicating a gradual softening in a weak U.S. labor market. U.S. manufacturing data has shown positive new orders and delivery times for manufacturing, with a higher PMI of 51.7.
  • European equities declined over the week as political uncertainty and a slowing European economy affected sentiment. The big three French banks Societe Generale, BNP Paribas, and Credit Agricole fell 10-14% during the week. The inflation rate in June eased to 2.1% in France and 3.4% in Spain while holding steady in Italy at 0.8%. German unemployment rose to 6% in June.  
  • As the election in the UK took center stage, the Bank of England dealt a blow to the incumbent government, announcing that high borrowing costs and financing costs have negatively impacted the highly leveraged private equity sector. It recommended increased transparency and improved risk management practices to resolve the problem. 
  • Brent crude futures for August trended up by 0.63% to $86.93 per barrel on the expectation of cooling U.S. inflation and the U.S. Federal Reserve cutting rates soon. 
  • Japan’s 30-year bonds touched a 13-year high yield of 2.29%, as the yen crossed a 38 year low against the U.S. Dollar and investors speculated that the Bank of Japan would soon adopt a hawkish policy.
  • German carmaker Volkswagen’s shares fell 2% as investors reacted adversely to its $5 billion investment in the U.S. EV carmaker Rivian, while Rivian’s shares rose 37%, with market capitalization of $3 billion.
U.S. Equity
  • The S&P 500 & Nasdaq trended higher this week. Investor confidence continues to be strong with cooling inflation and resilient growth in the U.S. economy, as the looming Presidential election dominated the news in anticipation of the first debate between President Joe Biden and Donald Trump. 
  • AI related stocks including Nvidia, Qualcomm, Broadcom, etc. declined during the week. Financials, energy, and utilities benefitted from the saturation of AI-tech stocks pricing out investors. Stronger fuel demand expectations benefitted energy related companies. 
  • The U.S. Supreme Court has placed restrictions on the Securities and Exchange Commission’s ability to impose penalties using in-house tribunals as it violated the right to a jury trial. 
  • The E.U. penalized Apple for illegal practices in its app store. The penalty may exceed 10% of Apple’s global revenues, which may amount to $40 billion in fines.
  • Atlanta Federal Reserve president Raphael Bostic said with narrowing inflation in federal funds, a rate cut is likely in the fourth quarter of this year. 
  • Gold has risen 5% in this quarter and 14% year-to-date, pushed by the demand for an interest free commodity with the possibility of rate cuts by central banks.
  • FedEx stock gained during the week on the assurance to investors of a strong 2025 outlook and the planned buyback in the third quarter.
  • General Mills stock fell 4% and the company lowered its guidance for the coming quarter after its fiscal fourth-quarter earnings were less than estimated.
  • J.D. Power and GlobalData speculated that the outage from the cyber-attack on CDK retail software could possibly decrease car sales in June by up to 7.2%. Delayed sales are expected to rollover to July.
  • Boeing is facing a lawsuit for violating the 2021 settlement for the crashes of its 737 Maxes.
U.S. Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index marginally declined this week as the markets awaited the U.S. presidential debate.
  • The U.S. 10-year Treasury yield rose to 4.31% and the yield on the 2-year note reset to 4.73% over the week. During the week, the U.S. 10-year Treasury yield fell below 4.28% following the release of news that U.S. inflation was cooling.
  • The U.S. Dollar Index rose to a 10-day high this week touching 105.9.
Sources

HCM-030624-063.GWS

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.
  •  
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

HCM-030624-063.GWS

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

HCM-030624-063.GWS

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

HCM-030624-063.GWS

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

HCM-030624-063.GWS

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

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