Your Weekly Digest of Market News and Analysis from the Editors
June 2, 2024
Notable market news this past week (02-June-24)
Here is the Skeptivest roundup of the latest market headlines for the week
🇺🇸 Despite resilience of the US economy for the past couple of years, there are signs that the cycle appears to be turning
Strength in the US economy: The US economy has been overheating since 2021 due to two main factors:
Robust consumer spending driven by the post-COVID rebound, supported by substantial savings, and
Significant job gains
Source: Citi
Waning consumer spending: However, there are now indications that consumer spending is waning. Credit card delinquency rates are, by some measures, the highest since 2007, and the portion of income allocated to interest expenses and rent has surged rapidly. Consumer spending will decline more sharply if labor markets weaken further.
Job security becoming a greater concern: Survey data from Citi already show that individuals are increasingly worried about job security and the potential difficulty of finding new employment.
📈 Increasing concentration risk in the US equity market
5 companies constitute 25% of the S&P500, highest since 60s: The 5 biggest US companies now command about a quarter of the S&P500. These are all tech companies – Microsoft, Nvidia, Apple, Amazon and Meta.
Signs of overvaluation: It can be an indication that these popular tickers are already very richly valued, and significant expectations are already baked into the stock price. Therefore, even if the earnings grow significantly, stock price may not proportionately increase. This might lead to investors seeking broader exposure across other sectors or geographies – and hence a correction.’
☕️ Quick fire happenings to note
🌏 Global macro
Japan spent $62b to prop up its currency last month: Japan spent a record ¥9.8t (~$62.2b) in the past month to prop up the yen after it fell to a 34-year low against the dollar. The yen is expected to remain under pressure given the large gap between interest rates in Japan and the US
Modi set for landslide victory in India: Prime Minister Narendra Modi’s party is set to win a decisive majority in India’s election for the third time in a row. The results are likely to boost Indian financial markets, which had been volatile in recent weeks
China raises a $48b investment fund for semiconductors: Its third round of a national semiconductor fund, spearheaded by state-owned National Integrated Circuit Industry Investment Fund. On the same front, South Korea also unveiled a $19b support package for its semiconductor industry amid increasing demand for advanced chips to power AI
Saudi Arabia pressure multinationals to have local offices: Tech giants including Amazon, Google and Microsoft are working to ramp up its presence in the Middle Eastern country amid pressure from the government which said will stop giving contracts to companies without a regional HQ in the country. Most global firms have traditionally managed their Middle East operations from Dubai. This new policy creates competition for foreign companies between Saudi Arabia and the UAE, with significant consequences for regional business dynamics and economic policies
Lack of interest from traders to use the CNY: Despite Beijing's efforts to promote the yuan internationally, a recent survey shows that reluctance among trading partners is the main barrier to its use in cross-border trade. About 47.7% of enterprises cited this as the primary obstacle in the first-quarter Cross-Border Yuan Insight report.
🏦 Individual stocks/companies
HP's (+29.52% past 1 month) still got it: AI hype have driven businesses to invest in new technology, boosting demand for products like HP's AI workstations for data analytics teams. Despite this, HP reported a year-over-year revenue decline to $12.8b but exceeded estimates. Additionally, earnings per share of $0.82 surpassed expectations and showed annual growth.
Salesforce (-14.33% past 1 month) tanks as it posted first revenue miss: Next quarter estimates were slightly lowered. However, the market views this as a buying opportunity due to the company's potential in AI.
Apple (+4.88% past 1 month) iPhone shipments in China up by 52%: Shipments of foreign-branded phones in China increased by 52% in April to 3.5m units from 2.3m units a year earlier. Sales may see a further boost in May as Apple launched an aggressive discounting campaign in China, offering discounts of up to 2,300 yuan ($318) on select iPhone models. Competition continues to intensify as Huawei overtook Apple in Q1 as the no. 2 smartphone vendor in China
Boeing lays out improvement plan: Boeing officials met with FAA to discuss the firm’s ongoing safety issues and was given 90 days to come up with a turnaround plan in Feb. The firm has since added 300 hours’ worth of training materials for employees and opening up more avenues for whistleblowing. CFO Brian West stated that the company expects to burn cash overall this year, with a second-quarter loss possibly exceeding $4b
Guzman y Gomez eyes $1.5b IPO in June: Australian fast-food chain Guzman y Gomez plans to go public on the Australian Securities Exchange on June 20. The company expects to raise $161m from the IPO
UBS completes Credit Suisse takeover: UBS completed the historic acquisition of its former rival Credit Suisse, marking a new chapter for the Swiss financial sector. The transition to a single US intermediate holding company is planned for June 7 while the merger of Credit Suisse and UBS are expected to happen in the third quarter of 2024
SATS (+12.25% past 1 month) is back to profitability: SATS achieved a net profit of S$56.4m for FY24, with a 4Q24 net profit of S$32.7m, marking a 3.8% increase over 3Q24. The company also resumed dividend payments, proposing a dividend of 1.5 cents per share. Check out our first deep dive on SATS here.
🇸🇬 Singapore related
Singapore tightens fair dealing rules: MAS broadened its fair dealing guidelines on May 30th to encompass all financial institutions and their entire range of products and services. The updated guidelines mandate institutions to consider customer needs and ensure management can show how their strategies promote fair dealing
