Notable market news this past week (10-Dec-23)
Here is the Skeptivest roundup of the latest market headlines for the week
🛢️ OPEC+ Oil production cuts and market response
Extension of Oil Production Cuts: Saudi Energy Minister Prince Abdulaziz bin Salman stated that the OPEC+ oil production cuts, which are more than 2m barrels a day, can "absolutely" continue past the first quarter of 2024 if necessary. The decision to withdraw these supply reductions will be based on market conditions and will be implemented through a "phased-in approach."
Crude Prices Remain Low: Despite the announcement of the production cuts, crude prices have stayed below the level seen before the OPEC+ meeting. Brent crude was trading near $78 a barrel in London, indicating that the market has not gained renewed momentum. This is partly due to skepticism about whether the promised supply reductions will fully materialize.
Russia's Role in the Agreement: A significant aspect of the OPEC+ agreement is Russia's contribution, which comes from export curbs rather than outright production cuts. Prince Abdulaziz acknowledged the difficulty Russia faces in cutting production during winter but expressed confidence in Russia's commitment to the agreement, emphasizing the trust between Riyadh and Moscow.
🌐 Google opens access to Gemini in race to catch up with OpenAI
Context: Following ChatGPT taking the world by storm earlier this year, Google, recognizing the sudden threat posed by the Microsoft-backed platform to its longstanding search dominance, introduced its own Bard chatbot in February, resulting in somewhat embarrassing outcomes. (e.g. A demonstration for investors unintentionally showcasing a blunder)
Google launches Gemini to catch up to ChatGPT: Google asserts that Gemini distinguishes itself as a truly multimodal system, having undergone training on images, video, audio, and text. This diverse training equips it to effectively process information in various formats. Gemini also aims for seamless integration into Google's suite of apps and services, albeit with continued challenges in AI-generated inaccuracies.
Gemini leads to stock price rally: A day after Google (parent company Alphabet) released Gemini, stock price soared 5.3%, adding roughly $80b in market cap.
🇨🇳 Credit fears in China
Risk of credit rating downgrade: Moody’s Investors Service put China’s bonds at risk of a ratings downgrade on Tuesday, as rising debt concerns saw it cut its outlook on the nation’s bonds to negative from stable. The agency last cut China’s credit rating in 2017.
Other credit agencies' views: S&P and Fitch have assigned an A+ rating to China, with both indicating a stable outlook for the country's rating. Like Moody's, Fitch's James McCormack mentioned to Bloomberg earlier in the summer that if China expands its balance sheet to bolster the economy, a reconsideration of the rating could be on the table.
China's Finance Ministry shoots back: In response to Moody's, China's Finance Ministry retorted that the economy demonstrated high resilience and substantial potential. State media criticized the ratings firm, alleging a misunderstanding of China's economic situation. Additionally, the central bank increased its efforts to support the currency and maintain stability.
☕️ Quick fire happenings to note
🌏 Global macro
- Rising gold prices: Gold recently reached an intraday record of $2,135.39 an ounce, driven partly by its status as a safe-haven asset. The increase was initially sparked by the start of the Israel-Hamas conflict and continued with expectations of monetary loosening by the Federal Reserve in early 2024.
- Modi's electoral wins boosting India's investment appeal: India’s Prime Minister Narendra Modi’s recent victories in key state elections are expected to enhance India's attractiveness to foreign investors, potentially leading to increased inflows into Indian equities. The wins are seen as reinforcing the stability and continuity of policy in India, the world's fastest-growing major economy.
- China's November trade data showed an unexpected contraction: China’s imports contracted by 0.6%, suggesting further economic challenges ahead. Exports saw a marginal increase of 0.5%, but overall, the trade figures indicate that the economy hasn't reached a recovery point yet. The trade surplus stood at $68.39b. These results raise concerns about domestic demand and the effectiveness of current stimulus measures. With the anticipated year-end trade boost failing to materialize due to global demand weaknesses, there may be increasing calls for additional economic stimulus.
- Crude oil prices have dropped to their lowest since June: US West Texas Intermediate falling below $70 a barrel and Brent crude below $75. Factors contributing to the decline include concerns of an oversupplied market and reduced trading volumes. Despite a US report showing a decline in crude stockpiles, the market's slump continued, largely ignoring the data. OPEC+ announced deeper output cuts, but skepticism about compliance among members persists, and even comments from Russia about further measures have not reassured traders.
- US labour market showed unexpected strength in November: Payrolls rose by nearly 200k and the unemployment rate dipped to 3.7%, indicating a potentially more cautious approach from the Federal Reserve on early rate cuts next year. The solid job growth and rising wages highlight the labor market's robust health and might influence upcoming Fed decisions on interest rates.
- Japanese yen strengthened significantly: The surge in the yen's value was fuelled by traders closing out short positions and triggered stop-loss trades. This movement reflects a shift in expectations towards a policy change from the Bank of Japan as early as this month, diverging from the softer stance on interest rates seen in the US.
- Contentious topic at COP28: Reducing or phasing out the reliance on fossil fuels, a crucial aspect of any initiative to mitigate global warming, emerged as the most contentious issue during the United Nations' COP28 climate discussions. Over 100 countries are advocating for an agreement to gradually eliminate the use of coal, oil, and gas. However, leading oil-producing nations, such as Saudi Arabia, strongly oppose the inclusion of any language supporting such measures.
🏦 Individual stocks/companies
- Spotify to layoff 17% of employees: CEO Daniel Ek cited a significant economic slowdown and increased capital costs as key factors driving the decision and is implementing a 17% reduction in its workforce, equating to approximately 1.5k job cuts. This is the largest workforce reduction by the company this year.
- Ericsson secures major contract: AT&T Inc. has chosen Ericsson AB for a significant network modernization project in the U.S., potentially worth nearly $14b over five years. This decision represents a considerable win for Ericsson, already managing about two-thirds of AT&T's U.S. network, over its competitor Nokia.
- NIO to layoff 10% of employees: Chinese electric-vehicle maker, is planning to reduce its workforce by 10% and may spin off non-core businesses. This move comes as the company faces challenges in meeting its sales targets and continues to operate at a loss. The decision reflects the intense competition and market pressures within China's EV industry, where larger players like BYD Co. and Tesla Inc. are dominant forces.
- McDonald's ambitious global expansion: McDonald's Corp. aims to expand its global footprint to 50k locations by 2027, marking its fastest expansion phase. This strategy includes a mix of traditional and new-format restaurants, such as delivery and drive-thru only models. The expansion is expected to boost systemwide sales, projected to reach $130b this year. Additionally, McDonald's plans to grow its loyalty program members to 250m and further increase sales through this channel.
- Genting Singapore surges: Reached 6-month high as Singapore and China announced establishing a 30-day mutual visa exemption agreement.
🇸🇬 Singapore related
- Singapore's AI Workforce Goal: Singapore aims to triple its artificial intelligence workforce to 15k by combining local training and overseas hiring, as part of its national AI strategy update, focusing on responsible and trusted AI ecosystem development.
- T-bills and Singapore Savings Bond: Latest 6-month T-bill fell to 3.74% while SSB dropped to 3.07% - in line with market sentiments, expecting rate cuts in the near-term.
- SGX's first de-SPAC: 17LIVE, a leading live-streaming platform in Japan and Taiwan, listed on the SGX following a business combination by Singapore’s first SPAC, Vertex Technology Acquisition Corporation.
