June 18, 2023

Notable market news this past week (18-Jun-23)

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

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🇺🇸 US Fed pause (not stop) interest rate hikes

BofA strategist Michael Hartnett says that he sees the US stock rally being followed by a "big collapse"

Pause in rate hike: The Fed has shelved its 15-month rate-hiking campaign for now. Benchmark rate remains at 5-5.25%

Future hikes still likely: The Fed made it clear that it's a pause, not stop, It took extra measures to ensure widespread awareness that it might increase interest rates in the future, as it anticipates that inflation will continue to pose a challenge

Inconsistency: Former Treasury Secretary Lawrence Summers expressed confusion regarding the actions taken by the Fed this week. He finds it contradictory that the Fed paused this week while also indicating a plan to implement two rate hikes and raise the growth forecast by the year's end. Summers described the meeting as driven by internal political dynamics within the Fed

Implications: S&P500 closed at 4.4k, close to March-22's levels (when the Fed just kicked off the hiking cycle)

Bonds: Since the Fed is unlikely to cut rates this year, government bond yields remain high. (i) Fixed income options like Singapore T-bills remain attractive in the near-term. (ii) Gaining more exposure to bonds in the medium term could be interesting, in anticipation of inevitable rate cuts (which will lead to price increase of such bonds)

Equities: US market has been rallying. However, there are still many indications of a medium-term recession (e.g. yield curve inversion), which could potentially wipe away gains seen so far. BofA strategist Michael Hartnett says that he sees the US stock rally being followed by a "big collapse"

Banks: With expectations that we are close to peak interest rates, bank stocks are also seen to have fallen

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📱TikTok investments in Southeast Asia

A major threat to local e-commerce marketplace incumbents, which has little consumer loyalty and whose funds are drying up‍‍

SEA focus: Over the next 3-5 years, TikTok plans to make substantial investments totaling billions of dollars in Southeast Asia

E-commerce: Betting on emerging markets like Indonesia to spur growth for its e-commerce arm. It aims to reach merchandise sales of up to $20b this year, more than 4x its current size

Major threat for local incumbents like Shopee/Tokopedia: which are still facing cash burn issues. Consumer loyalty is also questionable for such business models. TikTok has yet to IPO, and may have access to large amounts of capital that could wipe out a large chunk of market share. Read more about our take on Sea's Shopee here.

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☕️ Quick fire happenings to note

• Chinese stimulus expectations: Chinese officials have held at least 6 meetings with business leaders and economists in recent weeks to seek advice on stimulating the economy, restoring confidence in the private sector, and revitalizing the real estate industry. The urgent tone of these meetings was noted by sources. This could explain the recent rally in Chinese equities; Seems like fresh stimulus announcements are likely‍
• Potential UPS strikes: The Teamsters union, which represents 340k UPS workers, conducted a vote where members overwhelmingly authorized a potential strike if the management fails to reach a new contract agreement with them before 31-Jul
• ‍New Zealand recession: Officially fallen into recession after 2nd consecutive quarter contraction. Results of record pace interest rate hikes to combat inflation. Interestingly, this comes 4 months before elections.
• ‍Reddit's new revenue stream: Devised a new strategy to boost revenue by raising the prices for API access, which refers to the tools utilized by third-party developers to access Reddit data and create apps that are compatible and integrated with Reddit. We've also saw something similar at Twitter, and could see this happening in other similar platforms too if deemed successful.

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