Notable market news this past week (01-Oct-23)
Here is the Skeptivest roundup of the latest market headlines for the week
🏢 On the narrowly averted US government shutdown
Narrowly averted a disruptive and costly shutdown: In a eleventh-hour agreement on Saturday, Congress averted a shutdown by approving a stop-gap spending bill that will keep the government running for another 45 days. However, political negotiations will resume, and the nation may confront the possibility of another shutdown once the funding expires.
Why are government shutdowns so frequent in the US?: America's federal system of government allows different branches of government to be controlled by different parties. This means that budget impasse can happen and when funding bills are unable to be passed by Congress, no budget = no spending. Elsewhere in the world, such shutdowns are practically impossible. For example, the parliamentary system used by most European democracies ensures that the executive and legislature are controlled by the same party or coalition.
Cost of a US government shutdown...: If no funding legislation was enacted, federal agencies would have stopped all non-essential work and would not send paychecks as long as the shutdown would last. During the last shutdown, which went 5 weeks, the US economy lost $3b, according to the Congressional Budget Office.
...With implications cutting across: (i) Financial markets: Reducing the SEC's department staff to about 7%, meaning companies that haven't filed to IPO will have to wait (ii) Travel: All hiring and training of TSA staffers will stop, hampering the travel industry's pandemic recovery. National parks will likely stay open, but without bathrooms. (iii) Government contractors: Millions of federal contractors likely won’t recoup the estimated $1.9 billion they stand to lose every day the government is closed.
Wavering confidence on the US: Analysts from Moody's (the only remaining major credit grader to assign the US a top rating) wrote in a report Monday ahead of the potential government shutdown that while “debt service payments would not be impacted and a short-lived shutdown would be unlikely to disrupt the economy, it would underscore the weakness of US institutional and governance strength relative to other Aaa-rated sovereigns,”.
Implications on the markets: US stock futures and Asian equities both rose after a deal was reached on the weekend to avoid a American government shutdown. Treasuries fell. “Financial markets were bracing for a shutdown, so there’s an element of relief, but it’s only a temporary lifting of one of the clouds hanging over the markets now,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management. It appears that the market will quickly shift its attention to a roundtable the Fed Chair will be participating in later on 2-Oct.
☕️ Quick fire happenings to note
🌏 Global macro
- Jamie Dimon says India optimism is "completely justified": At the India Investor Summit, Jamie Dimon, Chairman and CEO of JPMorgan Chase, conveyed an optimistic outlook of India. India has recently gained significant prominence especially as Western countries seek to diversify away from China. The NIFTY 50 (Indian stock market benchmark) is up 15% over the last year.
- Oil rally: WTI briefly moved above $95-a-barrel on Wednesday in its biggest gain since early May. This came as a result of Russia and Saudi Arabia announcing that they will extend production cuts through the end of 2023. Furthermore, oil demand has remained resilient despite concerns about a global economic slowdown. Hedge funds are piling in on the oil rally, speculating that global demand is running ahead of supply by boosting their bullish bets on WTI crude to the highest since Feb-22. Probably a good time to look at stocks which are oil beneficiaries.
- China's Golden Week, a test of consumer confidence: The extended holiday period is expected to serve as a litmus test for gauging the confidence of the country's 1.4 billion consumers in terms of their willingness to travel and expend funds. This trial holds significance for the world's second-largest economy, which, despite exhibiting signs of stabilization, encounters challenges in achieving its growth target of approximately 5% for the year.
- Bonds take a beating: Selloff in US debt has seen the $39 billion iShares 20+ Year Treasury Bond ETF — the biggest long-dated bond ETF — slump 48% from its 2020 high. Also, increase in interest rates is prompting some corporate borrowers to reconsider their plans, leading at least three companies to withdraw from issuing new US investment-grade dollar bonds on Monday.
- Hedge fund bet against stocks: Fast money investors increased their bearish wagers to drive down their net leverage — a gauge of risk appetite that measures long versus short positions — by 4.2 percentage points to 50.1%, according to Goldman Sachs’s prime brokerage.
🏦 Individual stocks
- Amazon spends big on generative AI ambitions: Amazon has announced its intention to invest up to $4b in Anthropic, securing a vital partnership as part of its ambition to establish a significant presence in generative AI.
- US FTC sues Amazon for monopoly: The FTC and 17 states accused Amazon of engaging in a course of conduct to exclude rivals in online marketplace services and stifle competition. The company is also accused of illegally forcing sellers on its platform to use its logistics and delivery services in exchange for prominent placement and of punishing merchants who offer lower prices on competing sites.
- First of Alibaba's breakup: In March, Alibaba said it will undergo a historic overhaul and split its structure into 6 business units, the majority of which will be able to raise outside funds and go public. On Tuesday, Alibaba has disclosed its intention to list its logistics unit, Cainiao, on the HKEX - potentially making it among the first of Alibaba's 6 spinoffs to go public. Following the spinoff, Alibaba will retain ownership of over 50% of Cainiao's shares.
- Evergrande's Chairman placed under police control: Hui Ka Yan, the billionaire chairman of China Evergrande was taken away by Chinese police earlier in September and is currently being monitored at a designated location. Evergrande has halted trading and confirmed in a HKEX filing that authorities have told the company that Hui has been subjected to “mandatory measures,” due to “suspicion of illegal crimes.” China property is looking increasingly gloomy - and its ripple effects may be unfairly impacting REITs across Asia Pacific like Hong Kong and Singapore.
🇸🇬 Singapore related
- 6-month Singapore T-Bill yields surprisingly jumped to 4.07%: Sharp increase from the 3.73% in the previous auction on 14-Sep-23. This jump is attributable to (i) fall in demand of T-bills as total applications for the latest T-bill was S$9.3b, down from S$11.2b in the previous auction. (ii) Slightly higher yields submitted from competitive bids, likely because of the Fed signaling a prolonged hawkish stance. Look out for the upcoming 1-year T-bill auction on 19-Oct.
- Singapore is buying Japan: Knight Frank reports that Singapore, attracted by the yen's depreciation and increasing demand in logistics and hospitality industries, emerged as the largest investor in Japan's real estate sector this year. Inflows from the city-state total almost $3 billion so far in 2023, followed by investors from the US, Canada, and the UAE.
- DPM Wong outline strategies for addressing inequality and mobility: Addressing the Economic Society of Singapore Annual Dinner at the Fairmont Hotel on Tuesday night, he emphasized that the nation's endeavors to foster a more inclusive society should extend beyond financial redistribution and governmental measures. It should also encompass community engagement, including the promotion of a more robust philanthropic culture. Concrete plans in place include (i) stepping up investment in adult and mid-career workers training via enhancing SkillsFuture system, (ii) narrowing wage gap between ITE and Poly/Uni graduates through helping ITE graduates upgrade skills over time and (iii) concerted effort via ComLink to provide more holistic and family-centric support to families with young kids living in rental flats.
