Notable market news this past week (22-Oct-23)
Here is the Skeptivest roundup of the latest market headlines for the week
🇨🇳 Assurance over China's GDP growth targets
Consumption rebound powers China's 2023 GDP growth: Robust consumer spending led Q3 GDP to surge by 4.9% YoY, surpassing expectations. The jobless rate hit a new low since 2021, with declining household savings indicating increased consumer confidence amid a tightening labor market. The robust economic expansion during the July to Sep quarter is expected to enable Beijing to achieve its annual target of approximately 5%, a goal that officials expressed high confidence in on Wed.
Property remains the key concern: Real estate remains troubled, with major cities experiencing the sharpest decline in new home prices in nearly a year in September. The property sector saw a substantial 2.7% contraction in Q3, marking the largest quarterly drop in 2023. Country Garden, which was once China's largest builder in terms of contracted sales, has indicated that it is poised for its first ever default this week, highlighting the ongoing challenges in the country's property sector.
Pessimism still high, foreign Funds are still leaving China: American and European fund managers are divesting from major players in China's technology industry, adding to the growing global departure from Chinese stocks. In the current month, money managers have collectively sold a net total of $1.6b worth of Chinese shares, following outflows of $3.5b in September.
🏛️ Updates on the Israel-Hamas War
Escalating tensions: Hezbollah, the Iranian-backed Lebanese militia, initiated strikes on Israeli sites. Additionally, US outposts in Syria and Iraq faced attacks. A US destroyer intercepted missiles and drones reportedly launched by Iran-backed Yemen's Houthi rebels, aiming toward Israel. Israeli Defense Minister Yoav Gallant outlined a three-stage military plan on Friday. However, the primary Israeli troop advance might face further delays due to pressure from U.S. and European governments, who aim to facilitate secret negotiations to secure the release of numerous Hamas-held hostages.
Biden Urges Support for Israel and Ukraine: Biden urged Americans to back funding for Israel and Ukraine, underscoring the threat posed by Hamas and Russian President Putin to U.S. democracy. His address, which lasted about 15mins, came ahead of a formal White House request to Congress for approx $100b in resources for Israel, Ukraine, Taiwan, and the U.S. southern border. Biden emphasized the importance of supporting Ukraine and Israel for America's national security.
Global efforts to de-escalate war
- Cairo Summit for Peace: Top officials from over a dozen nations meet in Cairo to explore strategies for reducing tensions in the Israel-Hamas conflict. Representatives from countries including Jordan, France, Germany, Russia, China, the UK, US, Qatar and South Africa are attending the one-day meeting on Saturday, together with UN and EU officials. Nevertheless, the absence of any representative from the Israeli side, and any senior US official, has dampened expectations for what the summit can achieve.
- Saudi Arabia and UAE meet: Saudi Arabia and the United Arab Emirates convened in Riyadh on Friday, marking their first public meeting in over three years. This gesture suggests that the two major regional powers are making an attempt to set aside their differences and jointly address the potential of the Israel-Hamas conflict evolving into a broader regional crisis.
Implications on markets:
- Stocks tanked before the weekend: Stocks declined as investors reacted to the prospect of an escalation in the Middle East conflict over the weekend, causing an increase in oil and gold prices. Meanwhile, Treasury prices advanced as higher yields, which were at multiyear highs, attracted buyers. Europe’s Stoxx 600 Index slumped 0.6% to a seven-month low, while Asian stocks headed for their biggest weekly drop in two months.
- Other catalysts over the week: (i) Iran's foreign minister's call for an oil embargo against Israel, (ii) Deadly explosion at the Gaza hospital right before Biden's trip to Israel were also key catalysts moving the markets
💸 Goldman Sachs' narrowing profits amid consumer pivot
Narrowing profits: Goldman Sachs reported a 33% profit decline in its most recent quarter - marking the eighth straight quarter of declining profit for Goldman. This comes as the bank continues to withdraw from consumer banking and incurs losses of over $200m in its property investments
Discontent over troubled consumer business
- The WSJ revealed on Monday that discontent has been expressed by at least one executive, along with many employees, regarding the joint bank account products introduced by Goldman in partnership with Apple in April. Some other executives have also urged a quick exit from the credit card collaboration with the tech giant. However, discussions with American Express to sell that business, as reported by the WSJ, have not yielded results yet.
- Last week, the bank sold off GreenSky — an installment-lending platform it acquired less than 2 years ago — at less than half the price it valued the unit at when it bought it for $2.24b
To focus on more reliable, core investment banking business
- Q3 trading revenue remained flat at $6.3 billion, defying expectations of a drop. Investment banking revenue exceeded expectations, and equities business grew by 8% YoY.
- Despite a 30% drop in total IPO deal value this year, Goldman has taken a prominent role in leading or co-leading all significant public market debuts this fall. Likewise, although M&A deal value has decreased by around 30%, Goldman has secured a role at Exxon's $60b acquisition of Pioneer Natural Resources, the largest deal of 2023.
☕️ Quick fire happenings to note
🌏 Global macro
- The Fed hints at holding interest rates: Fed Chair Jerome Powell indicated that the US central bank is leaning towards maintaining current interest rates in its upcoming meeting. However, he also kept the option open for a potential rate hike if policymakers observe sustained signs of strong economic growth. These remarks align with market predictions that the Fed is likely to forgo a rate increase during its meetings on 31-Oct and 1-Nov.
- US recession increasingly unlikely, according to WSJ Survey: The most recent quarterly survey of business and academic economists by the WSJ, published last Sunday, indicates that the likelihood of a recession in the next year stands at only 48%. This marks the first time since the summer of 2022 that the survey has assigned a probability of less than 50% to a recession.
- Attractive entry for US Treasury: Morgan Stanley Investment Management suggests that if 10-year US Treasury yields reach 5% or higher, it's an attractive entry point for investors. US 10-year yields have surged over 30bps this week, reaching 4.98% on Thursday, the highest since Jul-07. Vishal Khanduja, a money manager and co-head of the broad markets fixed-income team in Boston, advises considering these levels for portfolio duration.
- Tightening curbs to keep advanced chips out of China: The Biden administration is tightening chip export restrictions to prevent China from accessing advanced technology with military applications, like AI. This includes imposing stricter checks on Chinese companies trying to route shipments through other nations and adding Chinese chip design firms to a trade restriction list. This move follows concerns about Huawei's Mate 60 Pro smartphone chip supporting 5G. Nvida, which has been selling a weakened version of its flagship processor to Chinese firms suffered its worst stock decline in >2 months after the latest regulations were unveiled.
- China's Belt and Road Initiative: A decade after its launch, Xi Jinping's ambitious infrastructure project, designed to connect Asia, Africa, and Europe, faces diplomatic challenges at the European border. The absence of European leaders at the recent Belt and Road Forum in Beijing highlights growing skepticism among Western democracies about this initiative, once called the "project of the century" by Xi. While the project has drawn $1 trillion, according to estimates, China’s overall activity in participating countries is down about 40% from its 2018 peak as the its own economy slows.
- PE firms face worst year for exiting investments in a decade: In the first 9 months of the year, buyout firms raised $584b, falling short of last year's figure by over $100bn and considerably less than the 2021 record of $1.4tn when interest rates were low, and US stocks were strong. EQT Group, one of Europe’s largest buyout firms, this week said it was making plans to hold private stock sales for its portfolio companies given the struggles of the IPO market. GIC also warned in July that a golden age for the buyout industry had ended.
🏦 Individual stocks
- Credit Suisse-UBS layoffs: Following the merger between UBS and Credit Suisse, UBS is preparing for a new round of workforce reductions at Credit Suisse, with the focus now shifting to approximately 10% of non-core staff, primarily in functions such as compliance, risk management, and marketing. UBS told its employees the cut will start 6 Nov.
- Tesla moderates its stance: Elon Musk is revising his outlook for Tesla following the company's third-quarter results falling below profit and sales estimates. He likened the situation to a great ship facing challenges even during a storm. Following the earnings report, Musk frequently expressed concerns about how elevated interest rates and ongoing conflicts are impacting consumer sentiment and spending capability.
- CVC prepares for IPO amidst challenging times: CVC Capital Partners is gearing up for a significant IPO, set to be Europe's largest this year and one of the region's biggest by a buyout firm. This move coincides with a challenging period for the listings market, impacted by the underperformance of recent IPOs like Arm and Birkenstock.
🇸🇬 Singapore related
- Singapore Savings Bonds looking attractive: At 3.32% yield, it might be a good time to lock in a decent interest rate for the next 10 years. Apply by 26-Oct.
