January 21, 2024

Notable market news this past week (21-Jan-24)

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

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🇪🇺 Europe’s Gas Prices Far Below Crisis Peaks

Gas Prices in Europe have Significantly Decreased: Prices have dropped to less than a tenth of their 2022 peak. Factors contributing to this decline include record gas reserves, assistance from renewable energy sources, and a relatively mild winter.

Post-Crisis Stability: Despite past energy challenges, Europe is experiencing a period of stability, with confidence that the worst of the energy crisis is behind. Benchmark European gas prices are currently trading at around €30 a megawatt-hour, representing a substantial decrease from peak levels in 2022.

Future Outlook: Europe is now relying more on renewables, leading to a reduced share for gas in the continent's power mix. Although gas prices have seemed to be stabilised, potential challenges include finding alternative fuel sources after the loss of Russian gas, potential disruptions in the Middle East, and uncertainties related to gas supply agreements.

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☕️ Quick fire happenings to note

🌏 Global macro

• Decline in outbound airline capacity from China: Standing at about 60% of 2019 outbound travel levels during the fourth quarter, has resulted in a $129b loss for global tourism. Chinese travellers, once the biggest spenders on overseas trips, have been staying close to home since the country reopened its borders a year ago. Factors contributing to the decline include slower economic growth, political friction, conflicts in various regions, and a safety-conscious Chinese public. President Xi Jinping's policy imperatives, emphasising local tourism, have also played a role.
• China's stock market faces $6.3t selloff: Chinese stocks, notably those in Hong Kong, are in a challenging phase, with the HSCEI down 11% in 2024. This extends a four-year losing streak, indicating a broader shift as both active and passive fund managers turn away. Over $6.3t has been lost since the 2021 peak. Challenges include a real estate slump, deflationary pressures, and geopolitical uncertainties. Despite attractive valuations, investor confidence remains low, and China’s efforts to reassure are met with doubts about the need for significant fiscal response.
• Red Sea chaos continues to disrupt oil shipping plans: Ongoing attacks by Houthi militants in the southern Red Sea are causing a potential weeks-long disruption to oil shipping. Recent airstrikes in Yemen by the US and UK have heightened chaos, leading shipowners to avoid the danger zone. Tankers, originally destined for Europe, are now being rerouted to Asia or taking a longer journey around Africa. Some ships carrying Iraqi crude are also opting for the detour. The situation has increased earnings for tankers involved, with rates surging from $35,000 to $60,000 a day. 
• Switzerland and India reach deal on Free Trade Agreement: After 16 years of negotiations, Switzerland and India have reached a consensus on a free-trade agreement. Swiss Economy Minister Guy Parmelin announced the agreement following a meeting with his Indian counterpart Piyush Goyal. The deal, once finalized, is expected to create job opportunities for the young population in India and secure employment in Switzerland.
  

🏦 Individual stocks/companies

• Societe Generale to cut hundreds of jobs in its home market: The Paris-based lender is expected to announce the redundancies across its domestic operations in the coming weeks, and more than 500 roles could be affected. CEO Krupa aims to cut expenses by €1.7b by 2026 and bring the firm's cost-to-income ratio below 60%. The strategy, announced in September, triggered a stock selloff at the time as profitability, growth and pay out targets set by Krupa’s predecessor Frederic Oudea were dropped.
• Ford cuts workforce making Electric F-150s on weak demand: Ford is reducing the number of workers making its F-150 Lightning truck due to weakening demand for EVs. About 1,400 employees will be impacted beginning April 1. Ford expects continued growth in global EV sales in 2024, though it will be less than anticipated. The company is also hiring nearly 900 new employees and adding 700 employees for a third shift at its Michigan Assembly plant to increase production of traditional gasoline-powered vehicles, including Bronco and Bronco Raptor SUVs, and Ranger and Ranger Raptor pickup trucks.
• xAI secures $500m toward $1b funding goal: Elon Musk's artificial intelligence company, xAI, has garnered $500m in commitments from investors toward its $1b funding goal. The company, discussing a valuation of $15b to $20b, is looking to finalize terms in the coming weeks. Musk launched xAI as an alternative to Open AI, developing the chatbot Grok using social media posts from X (formerly Twitter), which Musk also owns. Investors in X, including Larry Ellison, Sequoia Capital, and others, are getting priority in the funding round. Musk and investors are expected to complete the funding in the next couple of weeks.
• Fast fashion giant Shein faces regulatory scrutiny in China: Despite having never sold products in the country and relocating its global headquarters to Singapore, the China Securities Regulatory Commission (CSRC) insists on reviewing Shein under new rules for companies planning IPOs outside China. The review, which includes the Cyberspace Administration of China (CAC) assessing Shein's data handling, could potentially delay the IPO. The situation raises concerns for Chinese-founded firms seeking overseas IPOs as they navigate geopolitical tensions and regulatory challenges from the Chinese government.
• ICICI Bank's net interest margins shrank to 4.43%: Indicating a slowdown in India's banking sector, this follows a trend of Indian banks facing challenges in mobilising low-cost deposits to meet the high demand for credit. Despite the margin compression, ICICI Bank reported a 24% rise in net income to 102.7b rupees, beating estimates. Shares of HDFC Bank, a rival, also tumbled recently, as the bank reported falling net interest margins and weaker deposit growth. This signalling concerns for India’s banking sector as they chase market share in loans at the expense of margins with tight liquidity.
  

🇸🇬 Singapore related

• Singapore building ecosystems to attract investments: Singapore is focusing on developing ecosystems to foster collaboration between SME and MNCs, aiming to enhance innovation and competitiveness. The Jurong Innovation District (JID) is a key component of this strategy, serving as a one-stop advanced manufacturing hub. With around 100 participants in the advanced manufacturing value chain, including training providers and institutes of higher learning, the JID is set to expand further. The goal is to attract more Industry 4.0 activities and companies, creating about 95,000 new jobs in advanced manufacturing, innovation, and research when fully completed. 
• Singapore is set to install fast charging points for EVs in HDB neighbourhoods: Senior Minister of State for Sustainability and Environment, Amy Khor, announced the initiative at the launch of the first batch of fast charging points in HDB Hub in Toa Payoh Central and the Oasis Terraces in Punggol. The government aims to deploy fast chargers in more convenient locations, catering to high-mileage vehicles like taxis, private hire cars, and commercial fleets. The move is part of Singapore's strategy to encourage the adoption of electric vehicles and decarbonize the transport sector.
• Former Transport Minister Iswaran charged with corruption and obtaining valuables: Iswaran, who resigned from his positions in government, pleaded not guilty to 27 charges. The charges include allegations of corruptly receiving over S$166,000 worth of flights, hotel stays, and tickets to events in exchange for advancing the business interests of property tycoon Ong Beng Seng. The charges also involve obtaining valuable items in his capacity as a minister. A pre-trial conference has been set for March 1, 2024.

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