August 27, 2023

Notable market news this past week (27-Aug-23)

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

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🇺🇸 Takeaways from Fed Chair Jerome Powell's Jackson Hole speech

“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” - Jerome Powell, Fed chair

Reiterating a hawkish tone: Once more, the Fed Chair restated his unwavering commitment to reestablishing price stability in the US. He's willing to raise interest rates further to reach the 2% target if necessary.

Echoed by other central bank chiefs: Other central bank leaders echoed Powell's cautious outlook, noting that the COVID-19-induced inflation and its aftermath haven't been completely overcome. South Africa's central bank governor, Lesetja Kganyago, succinctly expressed this by stating, "The task is unfinished." European Central Bank President Christine Lagarde also emphasized that the ECB will establish and maintain necessary high borrowing costs for as long as required.

Bond yields rose: Rising worries about prolonged high interest rates led to an increase in US bond yields. The 2-year yield for US government bonds, sensitive to shifts in Fed interest rate choices, surged to reach 5.09%.

Markets incorrectly rallied ahead of Jackson Hole symposium: Markets not only wanted to buy the dip for the month but also were willing to gamble on a dovish Fed.

“The broader suite of data has proven to the market to be much more resilient than anticipated — that’s opening up the door to the Fed holding policy rates higher for longer,” - Meghan Swiber, US rates strategist for BofA Global Research

Strong economic data and markets despite rising rates: Despite continued talks about a looming recession, strong economic data (low unemployment, strong business investment and resilient consumer spending) alongside a generally rallying stock market persists.

Implication for investors is to focus on cash flow: Warren Buffett once remarked that he wouldn't alter his actions, not even if the Fed chair disclosed the FOMC's plans for the upcoming meeting. Looking at companies with a track record of resilient cash flow, which can easily service increased interest payments is important in the current environment.

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🌿 BlackRock CEO Larry Fink aims to distance from ESG

"I don't use the word ESG any more, because it's been entirely weaponised ... by the far left and weaponised by the far right," - Larry Fink, BlackRock CEO

Decrease in ESG initiative support: BlackRock supported only 26 environmental-social-governance (ESG) proposals in the year leading up to June, marking a continued decrease in ESG initiative support as indicated in their latest investment stewardship voting report.

Gradual shift, recognizing not all ESG initiatives benefit shareholders: This shift has been gradual, with BlackRock's ESG support falling from almost half of global shareholder ESG initiatives in 2021 to 7% over the past 12 months. These changes are in part due to political considerations and skepticism about the long-term shareholder value generated by certain initiatives.

Scrutinizing ESG proposals: BlackRock has scrutinized recent shareholder ESG proposals from the companies it invests in, deeming some as excessive, economically unsubstantiated, or redundant. Notably, the firm supported a measure in the prior year that required Amazon to report its plastic packaging usage. However, this year, BlackRock voted against a similar proposal since Amazon had already initiated plastic usage reports.

Ceasing use of term "ESG": Larry Fink recently disclosed that while BlackRock remains committed to addressing carbon emissions and workplace discrimination, he has ceased using the term ESG due to its polarizing nature, often subject to ideological weaponization from both ends of the political spectrum.

☕️ Quick fire happenings to note

• Huawei's shadow chip manufacturing network: The semiconductor industry association warned that Huawei is building a collection of secret semiconductor fabrication facilities across China that would let the blacklisted company skirt US sanctions and further the nation's technology ambitions. Huawei moved into chip manufacturing last year and is receiving c.$30b in government funding.
• Dutch chip tool export controls take effect: Dutch export controls on advanced semiconductor equipment kick in, following similar moves by the US and Japan. ASML, the foremost chip tool manufacturer globally, is now required to obtain licenses for exporting its cutting-edge equipment. Although not explicitly stated, this is perceived as another setback for China's technological aspirations.
• China cut rates: Chinese banks made a smaller-than-expected cut to their benchmark lending rate on Monday and avoided trimming the reference rate for mortgages, despite the central bank putting pressure on lenders to boost loans. ‍
• Japan sending treated radioactive water from Fukushima into the ocean: Japanese officials say it’s a necessary step to decommission the plant and has filtered out all the radioactive elements except tritum, which they have diluted instead. Seafood workers. Seafood workers fear this action will damage their reputation and livelihoods. Japan's largest seafood importers, South Korea and China, have already prohibited Fukushima fish imports.
• Putin demands control of capital outflow: Putin mentioned during a televised meeting with officials on Tuesday that the government and Bank of Russia "need to work, among other things, to limit unproductive, speculative demand in the economy, control capital outflow, and monitor the behavior of other financial market participants".
• Heineken sold its Russian business for €1: Heineken has divested its Russian operations for €1 to a Russian conglomerate, incurring a cost of €300m for its exit. The move comes after criticism for its delayed withdrawal following Russia's actions in Ukraine.
• Shein and Forever21 partner to expand reach: Fashion retailer Shein partnered with SPARC Group, a JV between Forever 21 owner Authentic Brands and mall REIT Simon Property Group, giving Shein a ⅓ stake in SPARC and making SPARC a minority shareholder in Shein. Once the deal goes through, the companies hope to sell Forevcer 21 clothes via Shein and will test out selling Shein clothes at Forever 21 stores and accepting returns there. ‍
• OnlyFans owner got $338m in dividend as profitability soar: Profit in the last FY rose 24% to $403.7m and is testament that the creator economy is here to stay (at least for the adult segment).