Notable market news this past week (04-Feb-24)
Here is the Skeptivest roundup of the latest market headlines for the week
🇮🇳 India’s 2024 Budget Key Highlights
India walking the fiscal consolidation line:
- Forecast: The fiscal deficit for the year through March 2025 is projected at 5.1% of GDP, significantly lower than the revised gap of 5.8% for the current year. This figure surpassed economists' expectations of 5.3%.
- Current year: A fiscal deficit of 5.8% of GDP for FY24, lower than the budget estimate of 5.9% of GDP - this is despite FY24 being a pre-election year, and despite nominal GDP growth coming in lower than budgeted.
Sharp fall in borrowings: The government aims to borrow 14.13t rupees ($170b) in the next fiscal year, lower than the Bloomberg survey estimate of 15.2t rupees. Lower borrowing numbers led to a rally in bonds, with the yield on the benchmark 10-year debt falling.
Capex remain strong despite aim to lower fiscal deficit: Following a 28% year-on-year surge in FY24, it is anticipated that capital expenditure (capex) will experience another increase of 17% in FY25. While some may raise concerns about a slowed growth rate, it is noteworthy that the rate continues to surpass nominal GDP growth, escalating from 3.2% of GDP in FY24 to 3.4% in FY25.
Other notable themes:
- An INR1tr research and innovation fund, providing long-term financing and refinancing facility has been announced. Details will follow later
- The government has presented initiatives to construct 20m rural houses within the next 5 years and introduce a scheme targeting the 'deserving' segment of the middle class, facilitating the purchase or construction of their own homes. This is expected to sustain a robust level of construction activity.
- Over the past few years, the government had been increasing import tariffs on various goods. This budget, the government opted to temporarily halt this practice and even slashed import tariffs on some goods a few days prior to the budget.
Outlook: The budget reflects India's commitment to fiscal consolidation while balancing capital expenditure and addressing key economic concerns. Bond investors are particularly optimistic about the lower borrowing figures, which may signal a shift in the central bank's approach to monetary policy.
☕️ Quick fire happenings to note
🌏 Global macro
- US added 353k jobs in Jan 2024, unemployment rate at 3.7%, highlighting a robust economy: This robust job growth exceeded expectations, with hiring accelerating from December, which itself saw stronger-than-expected employment gains. Private education, health services, professional and business services, and retail trade were among the industries driving job growth. Additionally, the leisure and hospitality industry marked its 36th consecutive month of job gains. Wage gains also surged, increasing by 0.6% for the month and 4.5% year-over-year, contributing to improved consumer sentiment and economic resilience.
- BoE holds rate at 5.25%, following ECB's footsteps last week: Despite holding borrowing costs at 5.25%, the BoE signaled readiness to consider rate reductions amid a backdrop of headline inflation at 4%, down from its peak of over 11% in 2022. Governor Andrew Bailey noted positive developments in inflation but emphasized the necessity of further evidence to support rate cuts, particularly regarding service price inflation and energy prices' impact. While some market participants anticipate rate cuts, others believe the BoE will maintain its current stance until clearer evidence of sustained inflation reduction emerges.
- US Treasury is gearing up for massive bond auctions, highlighting widening US fiscal deficit: With an announcement of increased auction sizes, notably a $70b five-year bond sale in April, the largest ever for debt with a maturity of two years or more. This move comes amidst a widening gap between government spending and tax revenue, leading to a fiscal deficit of $1.7t by the end of 2023. To bridge this gap, the Treasury has intensified quarterly bond sales, with the upcoming quarter marking the third consecutive boost in auction sizes. Although the Federal Reserve's interest rate hikes have inflated debt interest costs, the Fed's recent decision to maintain rates between 5.25% and 5.5% suggests a cautious approach to rate cuts, contingent on inflation falling to its 2% target. Despite market optimism for rate cuts, it's unlikely they will commence at the next Fed meeting in March. The confluence of these factors, including the Fed's stance and upcoming elections, has led to speculation about potential shakeups in the government debt market.
🏦 Individual stocks/companies
- UPS cuts 12k jobs as part of cost cutting efforts: This move aims to achieve cost savings exceeding $1b as UPS restructures its operations. Additionally, UPS is exploring the sale of its underperforming trucking brokerage business, Coyote due to a downturn in freight demand. Despite the company's efforts to mitigate the impact of labour cost increases, UPS faces challenges stemming from lower shipping volumes as consumers transition back to physical stores and inflationary pressures. This reflects a strategic shift with a focus on margin protection rather than pursuing volume growth.
- Geespace launches 11 satellites into low-Earth orbit: Chinese carmaker Geely's subsidiary, Geespace, launches 11 satellites into low-Earth orbit, marking a significant move in China's space program and competition with SpaceX. Geespace aims to create a satellite network for potential integration with driverless cars and Geely vehicles, as well as consumer electronics. This endeavor reflects China's broader ambitions in space technology, with Geely's founder owning stakes in major automakers and Geespace planning global satellite services beyond China's competitive auto market.
- First human brain implant: Elon Musk's Neuralink successfully implanted its first brain implant into a human patient, marking a major step towards allowing people to control computers with their minds. The patient is recovering well, and initial results are promising. Neuralink aims to assist individuals with traumatic injuries, enabling them to operate computers through their thoughts. Despite competition and the complexity of the task, Neuralink's achievement signifies significant progress in the field of brain-computer interfaces, though commercialisation is at least 10 years away.
- Proposed US ban causes Chinese biotech stocks to plunge: WuXi AppTec Co. and Wuxi Biologics Cayman Inc. stocks plummeted in response to proposed US legislation aiming to ban Chinese biotech companies from government contracts. The bipartisan bill, citing national security concerns, targets companies allegedly controlled by the Communist Party. Both stocks fell significantly, impacting Hong Kong's market index. With substantial revenue derived from US customers, the proposed ban could severely impact their business operations. The legislation reflects broader US-China tensions, yet its passage remains uncertain.
- Evergrande ordered to liquidate: Time has run out for Evergrande, China's second-largest property developer, as it faces orders to wind up its operations. Despite efforts to secure a time extension from Hong Kong's courts, Evergrande's plea was unsuccessful. However, uncertainty prevails regarding whether Mainland China will honour Hong Kong's court rulings, despite the existing insolvency recognition agreement. With Evergrande defaulting on a massive $330b in liabilities, concerns about its impact on global financial markets are minimal as we will likely see further stimulus from China’s government to revive its economy.
- Meta jumps 20% after earnings release: The stock rose 20% this week to close at an all-time high of $474.99 per share. The company reduced 22% of its headcount in 2023 and unveiled plans for a $50b stock buyback along with its first quarterly dividend is a sign that the company has spare cash for its future plans.
- Japanese bank Aozora tumbles 19%: Aozora suffered a significant setback due to its aggressive overseas expansion strategy, which left nearly a third of its lending outside Japan. The bank incurred substantial losses from bad loans in the US commercial real estate market, particularly in cities like Chicago and Los Angeles. Aozora shocked investors by setting aside 32b yen to cover bad loans and projecting an annual loss of 28b yen. This incident underscores the risks associated with overexposure to non-core markets and the importance of robust risk management strategies.
- NYCB plunges 46%: New York Community Bancorp's stock plunges by a record 46% due to concerns over commercial real estate loans, signalling potential industry-wide challenges. The bank, grappling with troubled loans and increased regulation post-acquisition of Signature Bank, faces a surge in loan-loss provisions of $552m and slashes its dividend. Despite efforts to bolster reserves, the bank reports a fourth-quarter loss and heightened investor uncertainty about its future stability and growth prospects.
🇸🇬 Singapore related
- YTL PowerSeraya to construct hydrogen turbine on Jurong Island: YTL PowerSeraya secures the contract to develop, own, and operate a new hydrogen turbine on Jurong Island, catering to Singapore's future electricity needs. The hydrogen-ready Combined Cycle Gas Turbine (CCGT), with a minimum capacity of 600 megawatts, aligns with Singapore's projected electricity demand growth and aims to ensure system reliability. The project, valued at S$800 million, underscores Singapore's commitment to diversify its power mix with low-carbon energy sources, including hydrogen. The turbine, expected to be operational by December 31, 2027, will bolster Singapore's energy security and environmental sustainability goals.
- Singapore sees a surge in retrenchments in 2023: MOM reports a sharp increase in retrenchments in Singapore, more than doubling from the previous year to 14,320 in 2023. Despite a decline in the fourth quarter, driven by fewer retrenchments in the wholesale trade sector, business reorganization due to global economic headwinds remains a significant factor. While total employment continued to rise, growth moderated significantly amidst weaker economic conditions, signalling cooling labour demand. MOM's forward-looking indicators suggest potential improvements in employment and wage growth, although downside risks in the global economy may lead to further retrenchments in 2024.
- MAS maintains monetary policy for third consecutive meeting: MAS has opted to keep its exchange rate-based monetary policy unchanged, aligning with market expectations and marking the third consecutive meeting without adjustments. MAS continues to uphold the prevailing rate of appreciation for its Singapore dollar nominal effective exchange rate (S$NEER) policy band, maintaining the width and centred level. Economic prospects are expected to improve in 2024, with GDP growth projected between 1 and 3 percent. While core inflation is anticipated to remain elevated in the earlier part of the year due to various factors including the GST increase, MAS expects it to gradually decline by the fourth quarter.
- Electrolux shuts Singapore office moving leadership to Bangkok: Electrolux announces the closure of its Singapore regional office, signalling a strategic shift to relocate its APAC and MEA commercial leadership team to Bangkok. The move underscores Electrolux's emphasis on proximity to key markets and resources, consolidating operations in hubs like Australia and Thailand. While specifics on employee layoffs remain undisclosed, Electrolux assures affected staff will receive comprehensive support. The decision, reflective of broader economic challenges, accompanies a significant net loss in 2023 attributed to inflation, interest rate hikes, and geopolitical tensions, prompting strategic realignments to navigate evolving market dynamics
