Notable market news this past week (02-Feb-25)
Here is the Skeptivest roundup of the latest market headlines for the week
🇺🇸 US to commence tariffs on Mexico, Canada, & China
Trump tariffs on Canada, Mexico, China: President Trump followed through on his promise to impose sweeping tariffs on Canada, Mexico and China. 25% tariff on imports from Canada and Mexico (10% tariff on Canadian energy); 10% additional duty on Chinese products, effective 4 February. It is notable that the tariffs announced were not implemented immediately – perhaps indicating that there is yet a bit of time and room for negotiation.
Tariffs will cause higher inflation, and possible rate hikes to combat inflationary pressure: Crude oil is the No. 1 product the US imports from Canada, accounting for 60% of US oil imports. Northern reliance is heavier in Midwestern states, where gas station prices could spike by as much as 70 cents per gallon, a petroleum industry expert told ABC. The auto industry is also at risk, given that nearly half of US vehicle imports come from Canada and Mexico, with parts often crossing borders multiple times before final assembly. Meanwhile, US consumers could face higher grocery bills, as Mexico supplies $38.5 billion in agricultural products and 90% of avocados consumed in the US.
Retaliation from all three countries: Canada plans matching tariffs on up to $155 billion in US goods, while Mexico and China have also vowed retaliation. Beijing condemned the tariffs as a WTO violation and pledged countermeasures, further intensifying the standoff.
🇮🇳 India budget - Balancing tax cuts, capex, and fiscal discipline
Income tax relief to boost consumption: The hallmark of the budget was raising the tax-free income limit to INR 1.2m (from INR 0.7m), benefiting 10m individuals. All of this will likely cost the government INR1trn of revenue foregone.
Capex remains at 3.1%, but more diversification: Capex remains at 3.1% of GDP (INR 11.2trn, +10% y-o-y) despite tax cuts. The focus is shifting from roads (+1.5% y-o-y) and railways (0% y-o-y) to urban infrastructure (+20%), housing (+62%), and state loans (INR 1.7tr for FY26), with flexibility for additional allocations.
Fiscal discipline amid growth pressure: The government lowered its FY25 fiscal deficit target to 4.8% of GDP (vs. 4.9% budgeted) despite slower nominal GDP growth (9.7% y-o-y vs. 10.5% budgeted), aided by election-led capex delays (INR 10.2trn vs. INR 11.1trn budgeted). FY26’s target stands at 4.4%, reinforcing fiscal consolidation. The general government deficit fell to 7.3% of GDP (from 7.6%), with a long-term goal of reducing central government debt to 50% ±1% of GDP by FY31 (from 57.1% in FY25).
☕️ Quick fire happenings to note
🌏 Global macro
- Investors remain confident despite AI fears surrounding Deepseek: Dip buyers in ETFs, undeterred by AI-related concerns, poured $4.3 billion into the QQQ ETF tracking the Nasdaq 100, even as tech stocks dropped nearly 3% on Monday. Leveraged funds like SOXL and NVDL saw significant inflows, with retail investors continuing to back Nvidia despite a sharp drop in its stock. While 88% of investors believe the DeepSeek AI model will have minimal impact on US tech giants, confidence in US economic expansion remains strong, as seen in retail interest in financials and consumer-discretionary ETFs.
- US consumer confidence hits four-month low amid economic worries: US consumer confidence fell to a four-month low in January, driven by concerns over the labor market and broader economic conditions. While inflation eases and employment remains strong, jobseekers report longer search times, and wage growth expectations decline. These economic realities are fueling doubts, especially as fears grow over Trump’s tariff threats potentially worsening the situation.
- European stocks starting the year as outperformers: The Stoxx Europe 600 rose 6.6% in January, boosted by strong earnings and optimism over US tariff relief. With European stocks trading at lower valuations than the US, investors are shifting focus to banks and potential economic growth, despite concerns over political instability.
- ECB cut rates again amid economic stall: The European Central Bank lowered the deposit rate by 0.25% to 2.75%, marking its fifth cut since June as the region’s economy falters and inflation nears the 2% target. While maintaining a “restrictive” stance, the ECB may ease this description in March.
- Bank of Canada cuts rates: The Bank of Canada reduced interest rates by 0.25% but withheld guidance on future changes due to uncertainty over US tariff threats.
🏦 Individual stocks/companies
- Deepseek got its chips from Singapore?: US officials are investigating whether Chinese AI startup DeepSeek bypassed export restrictions by acquiring advanced Nvidia chips through third parties in Singapore.
- IBM (+14.9% past 5 days) rallies despite weak earnings: IBM shares surged despite weak earnings, as modest beats on sales (+1% y-o-y) and EPS (-13% y-o-y) overshadowed the lackluster results. Investors focused on strong software growth and a 40% jump in its generative AI business.
- UPS (-14.59% past 5 days) drops the ball: UPS struck a deal slashing Amazon volumes by 50%, overshadowing Q4 results and triggering a sell-off. Sales missed estimates (+1.5% y-o-y to $25.3bn), with EPS ($2.75) beating expectations but failing to matter as revised guidance reflected the Amazon hit.
- Starbucks (+9.39% past 5 days) rallies with easy beat due to low expectations: Starbucks posted $0.69 EPS on $9.4bn revenue, beating estimates despite flat sales and a 4% comp sales drop. U.S. foot traffic fell 8%, but a 40% cut in discounts helped lift revenue. Shares rose as results weren’t as bad as feared.
- Tesla, a bet on the future?: Toyota secured its fifth consecutive year as the world’s top carmaker, selling 10.8 million vehicles in 2024, driven by strong hybrid demand (4.2 million units). Meanwhile, Tesla missed earnings expectations, with auto revenue down 8% in Q4 and net income plunging 53% for the year, as affordability pressures weighed on margins. Despite its struggles, Tesla’s $1.1 trillion market cap lead over Toyota remains, fueled by its positioning as a post-combustion automaker and its hype around robotaxis and humanoid robots. Investors bought into Musk’s futuristic vision, sending Tesla shares up 3.5%, despite JPMorgan analysts questioning the optimism.
- X partners with Visa on digital payments: Elon Musk's X announced a deal with Visa to launch its digital wallet and payments service, "X Money," allowing users to link debit cards and bank accounts to send money, similar to Venmo or Zelle. The service is expected to launch in Q1, with potential for more financial partnerships.
🇸🇬 Singapore related
- Malaysia looking at LRT or tram-bus system for RTS Link to ease congestion in JB: The Malaysian government is looking to build a light rail transit (LRT) or a tram-bus network in Johor Bahru and its surrounding districts, in a move to ease congestion once the Johor Bahru-Singapore Rapid Transit System (RTS) Link from Woodlands is completed. This will also improve the Johor state capital’s public transport links for its residents, visitors and workers.
