Notable market news this past week (26-Nov-23)
Here is the Skeptivest roundup of the latest market headlines for the week
🏛️ President-elect Javier Milei's surprise victory opens a new and uncertain chapter for Argentina
A surprise victory, uncertainty over policies lingers with political fragmentation: Javier Milei, a rightwing libertarian, was elected president of Argentina for a four-year term after a close race. He won 56% of the valid votes in the election’s second round on 19-Nov, beating Sergio Massa, from the incumbent left-leaning ruling coalition. This scenario implies political fragmentation - Milei's party will take office with relatively low levels of support in Congress and from other political actor.
Huge challenge ahead for Javier Milei: As inflation is projected to surpass 180% by the end of the year, coupled with diminishing economic activity and a lack of international reserves at the central bank, the escalating risk of the economy spiraling out of control is evident. In fact, Argentina's economy came to a standstill following the devaluation of the official peso rate in August, highlighting the challenge that President-elect Javier Milei will face upon assuming office next month.
Some of Milei's radical proposals have drawn warnings and are key sources of uncertainty:
- Plan to shut down the central bank: Javier Milei said on Friday that the closure of the country's central bank, a signature campaign pledge, was a "non-negotiable matter". Milei has also previously said that the central bank has "no reason to exist".
- Plan to dollarize the economy: Milei's pick for the post of Minister of Economy will be important for investors as it will signal whether the dollarization plan will remain a priority. Dollarization will require time and significant setup costs, including devaluation (drive even more USD demand, adding further downward pressure on the ARS) and a spike in inflation.
Striking a more moderate tone on China since winning: After calling the Chinese government an “assassin” during an August interview with Bloomberg News and saying he wouldn’t keep relations with Brazil or countries led by “communists” if elected, Milei conveyed his best wishes to the Chinese people through a social media post on Wednesday. This was a response to a congratulatory letter from President Xi Jinping.
🧪 Italy bans lab-grown meat, in a pioneering move
Ban of lab-grown meat: In a pioneering move, Italy has become the first country to prohibit the production, sale, and import of lab-grown meat, aiming to safeguard the nation from the social and economic risks associated with synthetic food.
Only 2 countries have approved cultivated meat for human consumption: As of now, only 2 countries, Singapore and the United States, have granted approval for the consumption of cultivated meat. Consequently, Italy's ban is seen more as a symbolic gesture than a substantial regulatory measure. Detractors of the ban contend that lab-grown meat is natural as it is derived from non-genetically modified animal cells. Advocates from animal welfare and environmental groups often support lab-grown meat due to its absence of slaughter, though there is ongoing debate about its climate impact.
A struggling industry: Only Upside Foods and Eat Just have received approval to sell lab-grown meat in the US, but their ability to scale to mainstream markets remains uncertain. Despite a significant $3b investment in cultured-meat companies, challenges persist, with Bill Gates-backed Upside reportedly facing difficulties in mass-producing its signature whole cuts. Meanwhile, Eat Just is entangled in a $100m+ lawsuit filed by suppliers alleging delayed payments.
☕️ Quick fire happenings to note
🌏 Global macro
- Goldman Sachs predicts first annual gain for China stocks in 4 years (2024) : Goldman Sachs forecasts a 12% increase for MSCI China and a 15% rise for CSI 300, supported by an expected earnings growth of around 10% and "moderate" valuation gains. Watch GS strategist discuss China's equity outlook here.
- US consumers exercise caution, awaiting deeper discounts in Black Friday sales: Black Friday sales reveal US consumers exercising caution, anticipating more significant discounts, potentially leading to a restrained holiday shopping season and subdued early-year earnings for retailers. The current spending patterns contrast with the pandemic-induced splurges of the past few years. Salesforce expects online US sales to grow 1% in Nov and Dec vs a year earlier, which would be the slowest growth in at least 5 years.
- Truce in Israel/Hamas: The initial ceasefire since the recent conflict between Israel and Hamas commenced last month took effect on Friday morning. This agreement resulted from intricate and sensitive negotiations facilitated by Qatar, the US, and Egypt. The cessation of hostilities is planned to endure for four days. As part of the deal, the Iran-backed militant group Hamas is expected to release 50 of the nearly 240 hostages taken from Israel, while Israel will release 150 imprisoned Palestinians and permit additional aid to enter Gaza.
- Tough times for bankers in Hong Kong: With deal-making/capital raising reaching record lows (e.g. Hong Kong IPO volume is down 85% from 10-year average), bankers are chasing smaller and smaller transactions. Layoffs are not uncommon among international banks (e.g. UBS, JP Morgan) and even service providers (e.g. lawyers) are feeling the trickle-down effect. Diminished sentiments on China's economic outlook is casting a shadow over Hong Kong's financial sector.
- US and China work to expand air travel, signaling progress: Efforts are underway by US and Chinese officials to resume additional passenger flights between the world's 2 largest economies. This development marks further progress following agreements made last week between Joe Biden and Xi Jinping in California. Chief of the Civil Aviation Administration of China, Song Zhiyong, engaged in discussions with US ambassador Nicholas Burns on Tuesday in Beijing.
- Public spending in Germany out on hold following court ruling: This week, Berlin implemented a halt on nearly all new federal spending commitments for the remaining 40 days of the year, following a court decision deeming the government's spending plans unconstitutional. This adds complexity to the deepening budget crisis affecting not only Germany but the entirety of Europe
🏦 Individual stocks/companies
- Binance plead guilty: Binance, along with CEO Changpeng Zhao (CZ),has admitted guilt to charges of anti-money laundering and violations of US sanctions. This acknowledgment is part of a comprehensive settlement with US authorities, enabling the exchange to continue operations but requiring payment of $4.3b in penalties. This included Binance being used by, according to the Treasury Department, a “range of illicit actors” which included Hamas, Al Qaeda, Palestinian Islamic Jihad and the Islamic State of Iraq and Syria. CZ is now stepping down, with former MAS and SGX executive, Richard Teng taking over.
- Drama at OpenAI: CEO and Co-founder Sam Altman was fired then rehired as CEO within 5 days (with support from investor, Microsoft). A new board is being formed now. Apparently, the drama started because there were misalignment in philosophical views on how to safely develop Artificial Intelligence.
- Singtel's Optus outage: Singtel revealed the resignation of the CEO of its Australian subsidiary, Optus, following a nationwide outage that deprived approximately 10m Australians of phone and internet connectivity for a 12-hour period.
- Barclays is cutting cost: Barclays is working on plans to reduce costs by as much as £1b ($1.3b) over several years, which could involve slashing as many as 2k jobs, according to Reuters. This comes as Citigroup is conducting a massive restructuring as part of "Project Bora Bora".
- Lukewarm response to Nvdia's quarterly earnings: Investors in Nvidia responded with a lukewarm reception to its recent quarterly report, surpassing the expectations of average analysts but falling short of meeting the higher anticipations of shareholders heavily invested in the artificial intelligence boom
- Carlyle's win in China: The Carlyle Group has consented to sell its complete stake in McDonald's China operation to the hamburger chain operator for approximately $1.8b. This marks one of the investment giant's most successful exits from the Asian nation, yielding a return of 6.7x.
🇸🇬 Singapore related
- Singapore's 3Q GDP growth beats expectations: Singapore's 3Q GDP grew 1.1% yoy, beating analyst expectations. Economists polled by Reuters had expected GDP growth of 0.7%, the same as advance estimates by the government. After the release of the results, the Ministry of Trade and Industry adjusted its Singapore GDP growth projection for 2023 to approximately 1%, revising it from the earlier forecast of 0.5% to 1.5%.
- Singapore 10 year government bond yield falls: This week, the yield on the 10-year Singapore government bond dropped to 2.93%, marking a decline from its October peak of nearly 3.5%. This month's Singapore Savings Bond issuance is offering 3.4% return locked in for 10 years - marking a great deal to consider.
