Notable market news this past week (24-Mar-24)
Here is the Skeptivest roundup of the latest market headlines for the week
🇯🇵 Japan ends the world’s last negative interest rate policy
Bank of Japan removed its major unconventional monetary policy measures all at once:
- The policy rate will be returned to the uncollateralized overnight call rate, with a target of 0-0.1% (a 7-2 majority vote). This matched market expectations and put a halt to the BOJ's eight years of negative interest rates. It is the first interest rate hike since 2007, as inflation had exceeded the central bank's 2% target in over a year while the largest companies in the country had agreed to raise salaries by 5.28%, the biggest wage hike in over three decades.
- The BOJ also terminated Yield Curve Control (YCC), but will continue to purchase Japanese Government Bonds (JGBs) with "broadly" the same amount as before, and make a "nimble' response to prevent a rapid rise in long-term interest rates (an 8-1 majority vote).
- The BOJ also ended all risk asset purchase programs, discontinuing purchases of ETF and J-REITs. Further, the BOJ will slowly reduce the pace of corporate bond buying before fully stopping it in about a year. These were decided with a unanimous vote.
Market reactions and expectations: Broadly, there was no major moves in the market. As Ryutaro of BNP Paribas put it: "There was no surprise. Having confirmed solid annual labour talks outcome, there was no reason for the BOJ to wait any further to make policy changes". Read more about market reactions here. Economists are bringing forward the timing of additional hikes, with the expectation of two further hikes in July and December.
📱 US Justice Department files antitrust lawsuit against Apple
DoJ goes after Apple: On 21 March, the US Justice Department (DoJ) announced it was suing Apple to “protect competition and innovation for consumers, developers, publishers, content creators and device manufacturers”. DoJ estimates that Apple’s 70% market share of smartphones in the US leads to:
- High prices for consumers;
- Restricts developers’ capacity to negotiate or take down fees by selling through alternative app stores,
- Block super apps, or cloud gaming apps;
- Restricts the interoperability of its messaging and digital wallet functionalities
The EU has been targeting Apple too:
- EU precedent that forced changes to Apple's App Store: To adhere to the European Union's Digital Markets Act (DMA), which became effective on March 7, 2024, Apple has revealed alterations to its App Store within EU nations. For example, Apple needs to allow users to download apps from alternate app marketplaces outside of Apple's ecosystem.
- EU fines apple: Earlier this month, the European Union imposed a EUR1.8 billion fine on Apple (European Commission, March 4, 2024) for its misuse of market dominance in the distribution of music-streaming apps. This involved preventing music app developers from directing users to more affordable payment methods outside of the App Store.
Risk to Apple's business: Apple's economic moat lies in its deep integration of hardware, software and services - creating an ecosystem with high stickiness. Should the DoJ substantiate its case, it is anticipated that it could prompt Apple to alter its operational practices, mirroring the changes observed in Europe. This can be very significant given that Americas account for ~42% of Apple's revenue with the App Store having a much higher gross margin vs hardware (71% vs 37%).
☕️ Quick fire happenings to note
🌏 Global macro
- Fed sees three rate cuts in 2024: The Fed left the benchmark overnight interest rate unchanged in the 5.25%-5.50% range and held onto their outlook for three cuts in borrowing costs this year. Powell mentioned the timing of those reductions still depends on officials becoming more secure that inflation will continue to decline towards the Fed's 2% target even as the economy continues to outperform expectations.
- Switzerland surprises with rate cuts: Swiss National Bank unexpectedly cut its key interest rate by 25bps ahead of its global peers to 1.5%. CHF tumbled after the decision, dropping 1.2% against the dollar. Swiss inflation has been significantly weaker than anticipated, and the franc’s persistent strength, supported the case for a cut. The SNB now predicts inflation will average at 1.4% this year, 1.2% in 2025 and 1.1% in 2026.
- BoE keeps interest rates at 5.25%: BoE kept rates at a 16-year high of 5.25%, signalling that the BoE is edging toward easing policy later this year. It is the first time since September 2021 that BoE supported hold instead of a hike. The BoE decision comes after growing evidence of the labour market loosening and price pressures cooling in recent weeks. Data showed inflation stepping down to a 2.5 year low of 3.4% in February, with services inflation cooling to 6.1% in line with BoE’s forecasts.
- Australia signals it’s done hiking rates: The Reserve Bank held its cash rate at 4.35% for a third straight meeting and scrapped any references to any possible further hikes. RBA is on data-dependent mode and will only begin lowering rates once its confident inflation is on track to move sustainably back to the 2-3% target.
- Putin wins Russian elections: Russian President, Vladimir Putin extends his nearly quarter-century rule into a fifth term with his landslide victory of 87.3%, allowing him to step up his war in Ukraine and conflict with the West. Russia’s wartime economy has largely weathered the shock of unprecedented international sanctions, thanks to a continuing flow of energy revenues and a massive injection of government spending to support the defence industry and shield domestic businesses. Trade with China is booming as Russia reorients its economy away from markets in Europe.
- Indonesia's Prabowo Subianto wins presidency with 1st-round majority: Coming at no surprise, Prabowo Subianto has been elected president of the world's third-biggest democracy, beating two rivals who have vowed to file legal complaints about the vote. Prabowo had already declared victory last month after unofficial counts pointed a victory.
🏦 Individual stocks/companies
- Reddit IPO: The much-awaited initial public offering (IPO) of Reddit, the social media company, witnessed shares surge 48% above their $34 IPO price. Investors embraced its vision of capitalizing on the advancement of artificial intelligence. Reddit's journey to listing, spanning over two years, mirrors the market's fluctuations, commencing with its initial confidential filing in 2021. Its debut arrives amidst a period of record highs in US stock markets. If the stock continues to do well, it may spark other IPOs in the very dry IPO scene.
- Nvidia unveils new chip: The Blackwell chips, which are made up of 208b transistors, will have an improved ability to link with other chips and a faster way of crunching AI-related data. The announcement of new chips was widely anticipated, and Nvidia’s stock was up 79% this year through Monday’s close.
- Unilever separates its ice cream business: Unilever’s new CEO as part of his wider plan to drive growth and boost profits at Unilever, decides to separate its ice cream arm, remove layers of middle management and cut 7,500 jobs. Rival Nestle previously separated its ice cream business (Froneri) by setting up a joint venture with private equity firm PAI Partners.
- Evergrande’s $78b fraud: China Evergrande Group’s alleged $78b revenue overstatement dwarfs that of Luckin Coffee and Enron, dealing a blow to the reputation of its former auditor PwC and the country’s financial oversight. It fuels concern about how widespread such accounting issues are, PwC has also resigned as auditor for other Chinese developers including Sunac China Holdings Ltd. and Shimao Group Holdings Ltd.
🇸🇬 Singapore related
- SG bikes exits the market: Local bicycle-sharing operator SG Bike is exiting the market after 7 years. Its user accounts will be transferred to Anywheel, effectively making Anywheel the largest player, operating a fleet of 30,000 bicycles. With SG Bike’s exit, it will be one of the only two remaining bike-sharing operators in Singapore. The other is a Chinese firm HelloRide which operate up to 10,000 bicycles.
