This week global equity markets edged lower over the week. The U.S. markets touched record highs and pulled back due to political uncertainty and weakness in blue chip stocks. Multiple investment proposals between AI companies and OpenAI-AMD AI chips deal elevated AI related equities. Nvidia CEO Jensen Huang indicated the growing demand for AI chips and applications. China further tightened rare earth exports. In a surprising turn of events EU has proposed increasing the tariffs on imported steel and reducing the quota for tariff-free steel imports.

In global geopolitics, the US government shutdown continued this week as political negotiations failed to progress on funding the government. A split in Japan’s ruling coalition has reduced the likelihood of Sanae Takaichi becoming Japan’s first female prime minister. The junior partner in the coalition Komeito split from the LDP citing a political funding scandal. Political uncertainty persisted in France even as President Emmanuel Macron sought to appoint a new prime minister to handle an imbalanced government budget. The ceasefire commenced in Gaza after Israel approved the framework for the first phase of the Gaza peace deal initiated by President Trump and Israeli troops withdrew from parts of Gaza.

Global Updates
  • The MSCI All Country World Index edged lower this week, reflecting the volatility in U.S. markets and the political instability in the U.S., Asia and Europe. The continuing political uncertainty in France and Japan weakened the Yen and the Euro and influenced investors’ sentiments. A quick end of the government shutdown in the U.S. is not yet visible. 
  • Ferrari stock lagged after the company lowered its EV target for 2030 sports car lineup to 20% EVs against the earlier projection of 40% EV sales. 
  • The European Union’s announcement of higher tariffs on imported steel and limiting the tariff free quota for steel imports, weighed on U.K.’s steel industry and boosted EU producers of steel. 
  • The SoftBank Group plans to acquire Swiss engineering firm ABB’s robotics division for $5.4 billion.  
  • British chip designer Graphcore, owned by SoftBank, plans to invest $1.3 billion in a new research hub in India.
  • HSBC has proposed the privatization of Hang Seng on Thursday as a wholly owned subsidiary of HSBC Asia Pacific. HSBC is already a controlling shareholder with a 63% stake in the bank.
  • Novo Nordisk announced plans to acquire U.S. biotech firm Akero Therapeutics for $4.7 billion.
  • SK Hynix and Samsung Electronics stocks rallied on AI enthusiasm. Both companies stand to benefit from OpenAI’s plans to acquire a 10% stake in Advanced Micro Devices.
  • Gold crossed the $4,000/oz mark for the first time this week driven by safe haven demand. 
  • Crude oil prices experienced some volatility this week resulting in a drop in crude oil futures.  The upward pressure from higher U.S. demand and continuing Russia sanctions was offset by the possibility of tensions easing in the Middle East and OPEC+ countries’ plans to increase supplies.
U.S. Equity
  • The S&P 500 and Nasdaq indices fluctuated over the week touching record highs and then pulling back. On the other hand, the Dow Jones index edged lower over the week due to weakness in blue chip stocks. But the downside was restricted by the gains in Nvidia. The continuing government shutdown also finally started weighing down on investor sentiments.  
  • A Federal Reserve Bank of New York report projected higher near term inflation and increased expectations of higher unemployment.
  • Oracle’s stock price declined earlier in the week after reports suggested that the profitability of its cloud business is weaker than expected and the business plan to rent out Nvidia’s  AI chips would not be profitable due to the cost of Nvidia chips and aggressive rental pricing planned. However, Oracle stock recovered over the week.
  • Nvidia’s stock rallied after CEO Jensen Huang pointed out the growing demand for its AI chips driven by the exponential growth in AI usage and research. He also pointed out the need for building up the energy infrastructure which would be indispensable for the growing AI usage. 
  • The economic impacts of the government shutdown have started to emerge. The IRS announced its plans to furlough at least half of its workforce. U.S. flights were also delayed due to a shortage in the availability of air traffic control. 
  • Delta Airlines raised its end of year outlook due to higher airfares and the resurgent demand for premium travel. The company raised its expected fourth-quarter earnings to the $1.6-1.9 range with a 4% growth in revenue. Delta posted 11% higher third quarter profit of $1.42 billion.
  • Costco stock rallied after the big-box retailer reported 8% higher net sales of $26.58 billion for the five week period ended October 5th. 
  • The mobile app monetization company AppLovin’s stock rallied after a brief dip due to a report suggesting the SEC was investigating the company. 
  • U.S. rare earth company MP materials’ stock gained after China tightened export controls for rare earth materials ahead of the meeting of President Trump and President Xi. The company has signed a partnership agreement with the Department of Defense.    
  • Nuclear technology producer Oklo’s stock rallied in anticipation of strong AI driven demand for nuclear energy. 
  • The White House’s announcement reversing the Biden era halt on the Ambler Road project in Alaska drove up the stock price for Canadian mining firm Trilogy Metals. The U.S. government will also be acquiring a 10% stake in the company.
  • IBM announced a collaboration with Anthropic to integrate its Claude LLM with its enterprise software.
  • Tesla’s lower-priced Model 3 and Y models, priced slightly below $40,000, dampened investors’ anticipation of cheaper models.
Fixed Income
  • The Bloomberg U.S. Aggregate Bond Index fell over the week.
  • The U.S. 10-year Treasury yield rose to 4.148% and the yield on the 2-year note edged up to 3.599% over the week. 
  • The U.S. Dollar Index recovered this week to appreciate to 99.29 buoyed by the weakness in the Yen and the Euro.

HCM-030624-063.GWS