February 18, 2024

Notable market news this past week (18-Feb-24)

Here is the Skeptivest roundup of the latest market headlines for the week

‍

📉 The specter of recession looms

Japan and UK recession: Japan and the UK — two of the top six economies in the world — both revealed on Thursday that they had retreated into “technical recessions”: two consecutive quarters of year-over-year GDP contraction.

• Japan's recession: In Japan, Q4 GDP fell 0.4% on an annualized basis after a 3.3% decline in last year's Q3. While it's an improvement, analysts are pessimistic for this quarter given weak demand from trading partners like China, sluggish domestic consumption and production halts at a Toyota division.
• UK's recession: UK government revealed that the country's Q4 GDP fell 1.4% for its second quarterly decline in a row, as consumer spending fell over the 2H 2023.

Other Asian growth engines not doing too well either:

• China: China experienced a growth rate of 5.2% in 2023, which, while still respectable, marks a significant decline of nearly 50% from the double-digit growth rates it achieved in previous decades. There are also significant doubts over accuracy of the data.
• South Korea: South Korea recently introduced a $57b aid package with state and commercial banks, aimed at stimulating investment in high-tech industries and alleviating high borrowing expenses. This initiative coincides with reports that South Korea's annual economic growth in 2023 fell behind Japan's for the first time in 25 years.
  

US economic still going strong: Despite inflation, American consumers have persisted in spending, which has caught many economists off guard. This suggests that the pandemic strategy of providing loans to sustain businesses and incentivizing individuals to bolster their savings might not have been as misguided as initially thought.

‍

🏛️ US interest rate cuts likely to be delayed

January's hot CPI: In January, the US Consumer Price Index (CPI) saw a 3.1% increase compared to the previous year, surpassing the market's projected 2.9% rise and indicating a swifter pace of price growth. Main cause of the uptick was shelter costs.

Investors adjusting rate cut expectations: The unexpectedly high inflation in the US caused investors to adjust their expectations regarding the likelihood of a soon-to-be rate cut by the Fed. According to the CME Fedwatch Tool, the probability of the Fed keeping rates steady in May has climbed to 62% from 39% just a week prior.

No rush to cut: Federal Reserve Bank of Atlanta President Raphael Bostic asserts that there is no urgency to decrease interest rates in the US, given the current robustness of the country's labor market and economy. ‍

Implications: US treasury bond yields rose alongside other government bonds. Banks share prices also rose with less concerns over falling net interest margins.

‍

☕️ Quick fire happenings to note

🌏 Global macro

• China pick up over Chinese New Year: A rebound in travel during the Chinese New Year holiday indicates a potential recovery in consumer spending amid an economy grappling with low confidence and deflation. Rail trips surged by 61% in the holiday's first six days, marking the highest figure recorded in Bloomberg News data over the past five years.
• Bright spots in Chinese equities: Despite the very gloomy outlook on Chinese equities presently, analysts says that there are bright spots - China's chip stocks, such as Naura Technology Group and Hygon Information Technology. The reasoning is simple: US efforts to curb access to cutting-edge semiconductor tech will supercharge the development of China’s chip industry as a matter of survival.
• MSCI cutting >60 stocks from China index: The index provider is removing 66 companies from its MSCI China Index in its latest quarterly review, the highest in at least two years. This change also affects the MSCI All Country World Index. Among the stocks to be cut are property developers Gemdale and Greentown China Holdings, as well as China Southern Airlines and Ping An Healthcare and Technology. These removals compound risks for China's market, as index-tracking funds must now eliminate these stocks from their portfolios.
• S&P500 hits 5,000 points for the first time: It's a symbolic milestone that signifies investors' enthusiasm for a US economy that has persistently grown despite the rise in interest rates, defying expectations. The rally was largely powered by just seven huge tech stocks, the "Magnificent Seven". These companies, which include Meta, Microsoft, and Nvidia, account for 29% of the total weighting of the index.
• Crypto comeback: The world's leading cryptocurrency exceeded $1 trillion in value on Wednesday, marking the first time since 2021. The recent approval of spot bitcoin ETFs by the SEC has been a significant factor, with crypto funds attracting nearly $10 billion in deposits, as reported by CryptoQuant. Additionally, anticipation of the upcoming halving, a feature in bitcoin that halves the rate of new coin circulation to regulate supply, has also contributed to this milestone.
• Indonesia's Presidential Elections: Defense Minister Prabowo Subianto is leading Indonesia's presidential election. This marks Prabowo's third bid for the presidency. Unofficial results show him with around 58% of the votes, while his rivals Anies Baswedan and Ganjar Pranowo have 25% and 17%, respectively. Notably, Prabowo, once feared as a top aide to the late Indonesian leader Suharto in the 1990s, now benefits from implicit support from the popular incumbent Joko Widodo, which is seen as crucial for his potential victory.
• ‍Job cuts: Morgan Stanley intends to trim several hundred jobs in its wealth-management sector, affecting less than 1% of its 40,000-strong workforce. Meanwhile, Cisco is set to cut around 5% of its employees following a decline in corporate tech spending that led to stagnant sales growth.
  

🏦 Individual stocks/companies

• Apple's AI tool: Apple is close to finalizing an AI tool for developers, set to rival Microsoft's GitHub Copilot. This tool facilitates faster code creation and is expected to be available to third parties as early as this year, according to sources familiar with the matter.
• Lyft - world's most profitable typo: Lyft announced that margins would expand 500bps when they meant 50bps. This caused shares to soar 67% in after-hours trading. Nevertheless, earnings were still solid otherwise. Net losses narrowed to just $0.09/share on surprisingly high revenue of $1.22b.
• Shake Shack rally: Shake Shack delivered a surprise profit of $0.02/share while the Street was expecting a breakeven quarter. 80 new locations and improving restaurant-level margins both contributed to this and, given the strong guidance, is expected to continue in Q1 and 2024.
• All time record profits for Crocs: The shoemaker earned all-time record profits last year. HeyDude revenue declined in Q4, partially due to seasonality. Still, Crocs delivered $2.58/share on US$960m vs. estimates for $2.37/share on US$958m.
• Uber's share buyback following first profitable year: Uber Technologies has unveiled its inaugural share buyback program, aiming to repurchase up to US$7b of company shares after achieving its first profitable year. CFO Prashanth Mahendra-Rajah describes the authorization of the share buyback as a "vote of confidence in the company's robust financial performance."
  

🇸🇬 Singapore related

• Budget 2024 highlights: (i) S$1.9b GST Assurance Package to alleviate higher cost of living, (ii) S$1.3b Enterprise Support package to support businesses, (iii) Refundable Investment Credit to attract foreign investments, (iv) SkillsFuture Level-Up Programme for Singaporeans 40 years old and above, (v) Housing support for young families in vouchers for young couples to rent flats while waiting for BTO flats, (vi) CPF tweaks, (vii) Personal income tax rebate and property tax changes. Read more here.

‍