Daily Synopsis of the New York market close
Date Issued – 1st October 2024
Preview
As Q4 unfolds, global markets are facing heightened volatility driven by a combination of factors, from labor strikes in the U.S. to geopolitical tensions in Asia, alongside significant shifts in energy markets and technology sectors. Presenting both challenges and opportunities for discerning investors.
U.S. Port Strike: Significant Disruption to Global Supply Chains
At midnight on October 1, 2024, the International Longshoremen’s Association (ILA) officially initiated a strike across 36 major U.S. ports, stretching from Texas to Maine. This historic labor action, the first of its kind in nearly five decades, has already caused widespread disruption to global supply chains. With more than 45,000 dockworkers walking off the job, industries across the spectrum—from consumer goods and electronics to manufacturing and automotive—are scrambling to adjust.
The strike stems from a breakdown in negotiations between the ILA and the U.S. Maritime Alliance (USMX), with key sticking points including demands for wage increases that exceed the 32% previously granted to West Coast dockworkers and strong resistance to further automation of port operations. The ILA argues that automation threatens job security and will erode worker protections unless reined in.
This strike comes at a particularly critical time as the U.S. heads into its peak holiday shopping season. Many retailers were building up inventory in anticipation of higher demand, but the strike threatens to delay shipments of goods ranging from apparel to consumer electronics. With more than half of U.S. ports now paralyzed, this bottleneck could exacerbate inflationary pressures in an already volatile economy.
Impact on Key Sectors
- Logistics and Transport: Companies offering alternative transportation solutions such as air freight, rail, and inland shipping are likely to experience a surge in demand. Investors should consider increasing exposure to firms in these industries, as they stand to benefit from this sudden disruption.
- Consumer Goods and Retail: Companies reliant on just-in-time inventory models, particularly in the consumer goods and technology hardware sectors, will likely experience significant volatility. Expect delayed shipments, reduced inventory levels, and potential price hikes in the near term.
- Inflation Hedge: As shipping costs rise and product shortages emerge, inflationary pressures may increase. Reassessing positions in inflation-protected securities or commodities that benefit from inflationary trends could be a wise strategy.
China’s Economic and Geopolitical Pressures: The South China Sea and Economic Weakness
In the Asia-Pacific region, tensions have escalated dramatically over the last 24 hours as China launched extensive naval drills in the South China Sea. These drills are seen as a direct response to joint military exercises by the U.S., Japan, and the Philippines, highlighting the growing geopolitical rivalry between China and the West.
The South China Sea is a critical trade corridor through which an estimated one-third of global shipping passes. Any prolonged disruption in this area could lead to significant supply chain delays, particularly for energy resources and semiconductors, where global markets are already experiencing shortages. In response, China has continued to assert its territorial claims, heightening the risk of a potential conflict in the region.
At the same time, China’s domestic economy is facing mounting challenges. Recent data points to continued weakness in its property market, sluggish industrial output, and soft consumer demand. Beijing has responded with a series of economic stimulus measures, but so far, these have failed to provide the desired boost. This economic slowdown, combined with growing external pressures, raises concerns about China’s ability to maintain growth in the near term.
Key Considerations for Investors
- Geopolitical Risk: Investors with significant exposure to Asia, particularly in sectors like energy, technology, and shipping, should closely monitor developments in the South China Sea. Any disruption in this key maritime route could have a profound impact on global supply chains, especially for semiconductors and energy resources.
- China’s Economic Outlook: While China’s longer-term growth prospects in areas like renewable energy and technology innovation remain compelling, the near-term outlook is clouded by economic weakness. Investors may want to reassess their exposure to China’s real estate and industrial sectors and consider shifting allocations to regions such as India or Southeast Asia, which offer more favorable growth dynamics at present.
- Defensive Sectors: As geopolitical tensions rise, defense contractors, cybersecurity firms, and companies involved in critical infrastructure may see heightened demand for their services, presenting potential upside in a volatile environment.
European Energy Crisis: Bracing for a Tough Winter
As winter approaches, Europe is once again facing an energy crunch. The ongoing impact of the reduced flow of Russian natural gas into the region has left many European nations scrambling to secure alternative energy supplies. Although renewables are gaining ground, the transition to a fully decarbonized energy system is slow, and natural gas remains critical to meet short-term energy demands.
Germany, France, and Italy are among the most vulnerable to energy shortages, and energy prices are expected to rise significantly as colder weather sets in. This, in turn, will impact energy-intensive industries like manufacturing, chemicals, and transportation, where high energy costs could squeeze profit margins.
Impact on Key Sectors
- Energy Sector: Renewable energy stocks, energy storage solutions, and LNG infrastructure companies are positioned to benefit from the current energy transition. European governments are pushing for faster adoption of renewables, and companies involved in solar, wind, and energy storage could see long-term growth opportunities.
- Commodities and Inflation Hedge: Rising energy costs in Europe may lead to a knock-on effect on commodity prices, including oil, natural gas, and industrial metals. Investors looking for a hedge against rising inflation and energy shortages should consider diversifying into energy commodities and commodity-focused ETFs.
- Green Energy Transition: The European Union continues to push for a green energy future, and sectors aligned with the decarbonization agenda—including electric vehicles (EVs), energy-efficient technologies, and clean energy infrastructure—are expected to see accelerated investment. This creates long-term opportunities in sustainability-focused companies.
Technology Sector: AI and Semiconductors Dominate the Spotlight
Despite broader market volatility, the global technology sector continues to shine. Driven by the rapid advancement of artificial intelligence (AI), cloud computing, and semiconductor technologies, tech companies are once again leading the charge. Demand for AI-related products and services is booming across multiple industries, from healthcare and finance to logistics and autonomous vehicles.
Major semiconductor manufacturers are reporting robust earnings, as the need for more powerful AI chips drives record sales. Companies involved in developing next-generation AI models, quantum computing, and advanced semiconductor materials are expected to see continued growth well into 2025.
However, regulatory risks remain a key consideration for tech investors. Both the U.S. and European Union are increasingly scrutinizing big tech companies, and the introduction of new regulations could slow growth for some of the sector’s largest players.
Key Considerations for Investors
- AI and Semiconductors: Investors should consider increasing exposure to companies at the forefront of AI innovation, including those involved in developing AI chips, machine learning models, and cloud infrastructure. Semiconductor companies with strong fundamentals are particularly well-positioned to benefit from rising demand for AI applications.
- Tech Regulations: Stay alert to potential regulatory shifts in the U.S. and Europe. While the growth potential for AI and tech remains high, new regulations could introduce unforeseen hurdles for major players, particularly in areas like data privacy and anti-monopoly actions.
- Diversification: Balancing exposure to both high-growth tech stocks and more stable sectors—such as utilities, consumer staples, and healthcare—could help mitigate the volatility that often accompanies periods of rapid technological innovation.
Closing Thoughts: Positioning for Resilience and Growth
In conclusion, the global investment landscape is increasingly complex, marked by labor disruptions, geopolitical tensions, and shifting economic fundamentals. Navigating these challenges requires a careful balance of short-term tactical moves and long-term strategic positioning.
The U.S. port strike and supply chain disruptions present near-term risks but also open up opportunities in logistics and alternative transport sectors. China’s economic slowdown and South China Sea tensions require a reassessment of exposures to the region, with a potential focus on diversifying into other emerging markets. Europe’s energy crisis underscores the need to explore renewable energy investments and commodities as inflation hedges, while the tech sector continues to offer compelling growth opportunities driven by AI and semiconductor advancements.
As always, we are here to help you navigate these complex markets and ensure your portfolios are positioned for resilience and growth in these dynamic times. If you have any questions or would like to discuss portfolio adjustments, please don’t hesitate to reach out.
Upcoming Dates to Watch
- October 10: U.S. Federal Reserve releases meeting minutes, potentially offering insights into future interest rate policies.
- October 20: EU summit on energy, where key decisions regarding long-term energy security strategies will be made.
- Q4 2024: China’s quarterly GDP figures are released, providing a clearer picture of the country’s economic trajectory.
Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $400 million AUM and over 1000 Clients.
Disclaimer: This post provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.
Daily Synopsis of the New York market close
Date Issued – 30th September 2024
Chinese stocks surged by 6% as manufacturing contraction slowed, while Japan’s Nikkei tumbled over 4%
China’s markets rallied on Monday with a remarkable 6% gain as manufacturing data showed signs of resilience, while Japan’s Nikkei 225 plunged over 4% amidst political uncertainty. Investors closely examined the latest economic indicators from both nations.
China’s official manufacturing PMI for September stood at 49.8, slightly above the 49.5 forecast by Reuters’ economists. Though still in contraction territory for the fifth consecutive month, the data offered a glimmer of hope, leading to a 6.22% rise in the CSI 300, with property stocks soaring by 7.4%. Similarly, Hong Kong’s Hang Seng index surged 3.34%, led by a strong performance from consumer sectors, and the Hang Seng Mainland Properties Index skyrocketed by 8%.
On the other hand, Japan’s Nikkei 225 suffered a significant drop of 4.64%, triggered by a combination of weak economic data and the political aftermath of last Friday’s ruling Liberal Democratic Party election. Real estate stocks led the decline, and Isetan Mitsukoshi Holdings, a major department store operator, saw its shares plummet by 11%. The Topix index followed suit, dropping 3.3%. Compounding the losses, Japan’s industrial production for August dropped 4.9% year-on-year, far exceeding the previous month’s 0.4% decline. On a month-to-month basis, the drop was even sharper, at 3.3%.
Adding to Japan’s woes, the yen weakened further by 0.13%, trading at 142.38 against the U.S. dollar. Meanwhile, retail sales grew by 2.8% year-on-year in August, slightly beating the 2.3% forecast, but not enough to uplift market sentiment following Shigeru Ishiba’s election victory, positioning him as the next Prime Minister to succeed Fumio Kishida.
Elsewhere in Asia-Pacific, Australia’s S&P/ASX 200 rose 0.72%, reaching an all-time high of 8,246.2. South Korea’s Kospi and Kosdaq indexes saw declines of 1.13% and 1.21% respectively.
In the U.S., stocks showed mixed results on Friday. The Dow Jones Industrial Average edged up 0.33% to close at a record high of 42,313.00, driven by positive inflation data. The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, matched expectations with a 0.1% monthly rise, translating to an annualized increase of 2.2%, slightly below the forecast of 2.3%. Meanwhile, the S&P 500 slipped 0.13%, and the Nasdaq Composite lost 0.39% as traders digested the latest developments in the inflation fight.
This week’s market moves highlight the balancing act investors face as they navigate the complex interplay between inflation trends, political changes, and fluctuating economic indicators across key global markets.
BYD Initiates Recall of 97,000 Best-Selling EVs Over Steering Component Defect, Regulator Reports
SHANGHAI – Chinese automaker BYD is recalling nearly 97,000 electric vehicles (EVs) due to a defect in the steering control unit that poses potential fire risks, according to a statement released by the State Administration for Market Regulation (SAMR) on Sunday.
The recall affects BYD’s popular Dolphin and Yuan Plus models, which were manufactured in China between November 2022 and December 2023. These two models have been top sellers for the company, collectively representing 26% of BYD’s 3 million vehicle sales in 2023, based on data from the China Association of Automobile Manufacturers. While BYD has yet to comment on the recall, the company has informed regulators that dealers will be responsible for implementing a physical fix to resolve the issue. The SAMR statement did not clarify whether any of the affected vehicles were exported to international markets.
This recall is a rare move for BYD, which has rapidly ascended to become the world’s largest seller of electric and plug-in hybrid vehicles. Prior to this, the company recalled a small batch of Tang plug-in hybrids in 2022 due to a battery pack defect that also raised fire safety concerns. As BYD continues its global expansion, this recall highlights the importance of quality control in the fast-growing electric vehicle industry, where safety and reliability remain paramount.
French Government Mulls New Taxes on Large Corporations to Tackle Deficit, Le Monde Reports
The French government is considering imposing new taxes on large corporations to address the country’s growing budget deficit, according to a report by Le Monde. The finance ministry is reportedly weighing an 8.5% temporary tax on companies generating more than €1 billion ($1.1 billion) in revenue, along with an 8% tax on stock buybacks based on the reduction in capital value. Personal income taxes would remain stable, while public spending is expected to be cut, the report says. These measures come as Prime Minister Michel Barnier, appointed by President Emmanuel Macron earlier this month, prepares to unveil his economic priorities in a key speech to parliament on Tuesday. The 2025 budget, set to be presented around October 9, will likely include these new proposals aimed at curbing the fiscal shortfall, which has exceeded 6% of GDP this year.
The potential tax hikes, however, face opposition from within Macron’s own camp. Over the weekend, 27 lawmakers from his party voiced their concerns in La Tribune, warning that new levies on corporations could contradict the president’s pro-business stance, which has long advocated against increasing taxes on companies and affluent households. A spokesperson for the finance ministry declined to comment on the specifics of the report, while Barnier’s office did not immediately respond to inquiries. Still, the urgency for action is mounting as France faces the risk of losing its standing as one of Europe’s most stable bond markets.
The political landscape remains tense, following Macron’s snap elections in June, which resulted in a fragmented National Assembly composed of three sharply divided blocs. The president’s loss of a relative majority has left the government in a precarious position. Barnier, appointed after months of indecision, faces the possibility of a no-confidence vote, particularly as far-right leader Marine Le Pen weighs joining forces with the left-wing opposition to challenge his government. In light of these political challenges, the government may introduce a rectification finance bill later this year to fast-track the proposed taxes. According to Le Monde, this could involve a temporary 8.5% surcharge on corporate profits, effectively raising the tax rate on large firms to 33.5%, a level not seen since Macron’s tax cuts. The measure could generate an estimated €8 billion.
Additionally, the proposed 8% tax on stock buybacks would apply to companies with revenues exceeding €1 billion, potentially yielding €200 million annually. Further revenue-generating measures being considered include increasing environmental taxes, such as the ecological bonus-malus levy on vehicles and a tax on heavy vehicles, as well as introducing higher rates on furnished housing rentals. With France’s budget deficit ballooning and political pressure intensifying, Barnier’s upcoming speech and the 2025 budget bill will play a crucial role in shaping the country’s fiscal future amidst economic and political turbulence.
Fed Chair Powell to Address Economic Risks as Economists Highlight Concerns Over Policy Mistakes, Election Uncertainty
NASHVILLE, Tennessee – As Federal Reserve Chair Jerome Powell prepares to address the National Association for Business Economics (NABE) on Monday, economists are increasingly concerned that a potential misstep by the central bank in managing interest rates could undercut the U.S. economy in the year ahead. According to a new NABE survey of 32 professional forecasters, 39% see a “monetary policy mistake” as the greatest downside risk to the U.S. economy over the next 12 months. This concern outweighs other risks such as the upcoming U.S. presidential election, cited by 23% of respondents, and geopolitical conflicts in Ukraine and the Middle East, which also garnered 23% of concerns. The survey underscores the intense focus on the Federal Reserve’s policy decisions as it navigates the delicate balance between bringing inflation down to its 2% target and avoiding a significant rise in unemployment.
Powell is expected to speak at 12:55 p.m. CDT (1755 GMT) in Nashville, where he will likely address the Fed’s recent decision to reduce its benchmark interest rate by half a percentage point in September. Markets are keenly watching for hints on future rate cuts, with the Fed expected to lower rates again, potentially by a quarter or half percentage point, at its November 6-7 policy meeting. The Fed’s handling of inflation has been closely scrutinized, as the central bank attempts to engineer a “soft landing” for the economy. Despite inflation peaking above 7% in 2022, it has since fallen to 2.2% without triggering a recession or significant rise in unemployment. While the jobless rate has ticked up slightly from historic lows of 3.4% last year to 4.2%, it remains well below long-term averages.
However, concerns persist over whether the Fed will be able to strike the right balance between controlling inflation and maintaining economic growth. Opinions among economists are divided on whether the current interest rate policy is appropriate, with 65% of respondents stating the recent rate cut came “just in time.” Yet, only a third believe the current rate is “just right.” Another third argue the rate should be lower than 4.75%, while 30% think it should be 5% or higher.
The NABE survey also highlighted broader concerns about economic risks in the coming year. While a majority (55%) believe the economy is more likely to perform worse than expected, U.S. GDP growth is still forecasted to slow from 2.6% this year to 1.8% in 2024. Unemployment is expected to rise modestly to 4.4%, with inflation predicted to settle at 2.1%. In addition to monetary policy risks, the upcoming U.S. presidential election adds another layer of uncertainty. The NABE panel was divided over which election outcome posed the greater threat to the economy. A Republican sweep of the White House and Congress was seen as a downside risk by 13% of respondents, while 10% felt the same about a Democratic sweep. Conversely, 7% of respondents viewed a unified government under either party in a positive light.
The political landscape’s impact on the economy is further complicated by the possibility of divided government, which 17% of respondents viewed as a negative risk, while 13% saw it as a potential upside. As Powell takes the stage, his comments are expected to shed light on how the Fed plans to navigate these intertwined economic and political challenges as 2024 approaches.
Oil Prices Climb Amid Middle East Tensions as Israel Intensifies Strikes
SINGAPORE – Oil prices continued to rise on Monday as escalating conflict in the Middle East stoked concerns about potential supply disruptions from key oil-producing regions. Following increased Israeli attacks on Iranian-backed forces, market fears over the stability of the region have intensified, pushing prices higher.
Brent crude futures for November delivery rose by 51 cents, or 0.71%, to $72.49 per barrel as of 0330 GMT, just ahead of the contract’s expiration. The more actively traded December contract climbed 50 cents, or 0.7%, to $72.04. U.S. West Texas Intermediate (WTI) crude also gained, adding 43 cents, or 0.63%, to reach $68.61 per barrel. Despite last week’s declines—when Brent dropped by around 3% and WTI by 5%—Monday’s gains were driven by fears that an expanding conflict in the Middle East could affect oil supply. Israel’s recent attacks on Hezbollah and Houthi groups, both backed by Iran, a significant OPEC member, have raised concerns about potential disruptions to global oil production.
Analysts, including Priyanka Sachdeva from Phillip Nova, noted that while market supply surpluses remain a concern, the possibility of an escalating Middle East crisis is causing broader market anxiety. Any disruption from this key production hub could have significant consequences for global oil markets. Israel’s bombing of Houthi targets in Yemen over the weekend, as well as its killing of Hezbollah leader Sayyed Hassan Nasrallah in Lebanon, mark a serious escalation in the regional conflict. Meanwhile, the U.S. has bolstered its military presence in the Middle East, with Defense Secretary Lloyd Austin authorizing reinforcements in response to potential threats from Iran and its proxies.
Market experts, such as Tony Sycamore from IG, expect oil prices to remain volatile as geopolitical tensions continue. He noted that the upcoming expiration of OPEC+’s voluntary supply cuts on December 1 may push WTI prices toward their 2021 lows in the $61 to $62 per barrel range. In addition to Middle East tensions, oil markets are also keeping an eye on the Federal Reserve’s policy direction. Investors are awaiting comments from Federal Reserve Chair Jerome Powell, along with insights from several other Fed policymakers this week, to gauge the pace of monetary easing. Economic data on job openings, private hiring, and key manufacturing and services surveys will also be critical in shaping market sentiment.
According to Phillip Nova’s Sachdeva, the response of global demand to easing interest rates, alongside China’s ability to drive demand after its recent stimulus measures, will be crucial in determining oil market dynamics going forward. As geopolitical and economic factors converge, oil prices are likely to be influenced by a combination of supply risks and demand recovery, setting the stage for continued market uncertainty.
Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $400 million AUM and over 1000 Clients.
Disclaimer: This post provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.
Daily Synopsis of the New York market close
Date Issued – 27th September 2024
We May Finally Be Emerging From Our Economic Slump
It’s hard to feel good about the economy when your personal finances are strained. So, I won’t tell you everything is perfect. But for the first time in years, there are some encouraging economic shifts on the horizon despite the lingering headache of high housing costs. As Matt Phillips from Sherwood pointed out recently, the era of “meh-to-bad vibes” seems to be fading, thanks to two key factors: falling gas prices and a surging stock market. Now, gas prices and the stock market don’t directly reflect the overall health of the economy. But they’re what economists call psychologically important indicators. We may not all be watching employment data or tracking global oil production, but we do notice when the stock market makes headlines or when the cost to fill up our cars drops.
It’s basic vibenomics: stocks up + gas down = better vibes.
Currently, the average price of a gallon of gas in the U.S. is around $3.21, and some analysts expect it to fall below $3 by the end of October. That’s good news for drivers, and even better news for politicians, as presidential approval ratings tend to tick up when fuel is cheaper regardless of the president’s lack of direct control over oil prices. Meanwhile, U.S. stocks hit record highs last week after the Federal Reserve’s rate cut, and all three major indexes are on track for a positive September—historically the worst month for Wall Street. After two years of battling inflation and high interest rates, things are beginning to normalize. The Fed, confident that inflation is finally under control, slashed interest rates for the first time in four years, and signaled more cuts are coming. This makes borrowing easier for businesses and reduces the financial strain on consumers, like when paying off credit cards. Unemployment remains low at around 4%, and wage growth has been outpacing inflation for the past 18 months. These trends bode well for the consumer-driven economy.
The Housing Crisis: A Persistent Challenge
The term “vibecession,” popularized in 2022, captured the widespread feeling that the economy wasn’t as strong as it appeared on paper. Jobs were abundant, and GDP was growing, but the sting of high prices and steep interest rates left people feeling disheartened. According to Brendan Duke, a senior director for economic policy at the Center for American Progress, interest rates play a huge role in shaping our economic mood. “People have been saying for the past year that it would take time for the falling inflation and interest rates to resonate with the public. I think that moment is finally here,” he explained. But there’s one sector that continues to put a damper on the good news: housing. There’s no sugarcoating it—shelter costs are sky-high. Renters are struggling, and potential homebuyers face steep prices, limited inventory, and high mortgage rates. While the Fed’s rate cuts could help ease the so-called “lock-in” effect keeping sellers on the sidelines, the housing crisis is a thorny problem that goes beyond the Fed’s influence.
Mortgage rates have been coming down and could soon dip below 6%, but that might only exacerbate the supply crunch as more buyers flood the market. Some estimates suggest we need as many as 7 million new housing units to stabilize the market. While both Vice President Kamala Harris and former President Donald Trump have proposed solutions to increase the housing supply, it’s a process that will take years. The housing shortage has pushed prices to record levels. In August, the median existing-home sales price was $416,700—down slightly from June’s record high of $426,900. This problem, rooted in the 2008 financial crisis, has been festering for over a decade.
“There are economic trends, like falling interest rates, and there are policy solutions, like investing in housing supply, that can help,” Duke said. “But housing is going to remain a persistent challenge because we’ve been digging this hole for so long. And it’s not just a U.S. issue—countries like Canada, Australia, and New Zealand are grappling with the exact same problem.” So while there’s hope that the worst of our economic funk is behind us, we’ll need more than good vibes to tackle the housing crisis.
China Stocks Surge to Best Week Since 2008, Yen Slumps on Japan Leadership Speculation
Chinese stocks have surged, marking their best week since 2008, propelling Asian markets to 2.5-year highs. This rally was fueled by Beijing’s massive stimulus package aimed at reviving the country’s slowing economy, while a sharp drop in oil prices is signaling a potential boost to global disinflation. Meanwhile, the Japanese yen slid 1% to a three-week low as markets speculated on the outcome of Japan’s leadership contest. Sanae Takaichi, the Economic Security Minister and a vocal critic of interest rate hikes, is a frontrunner in the Liberal Democratic Party’s race. If she wins, it could cement Japan’s dovish monetary stance.
China’s Market Rebound and Stimulus Package
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5%, reaching its highest level since February 2022, and is on track for a 5.3% gain this week. This surge is driven largely by Chinese stocks, with China’s blue-chip index jumping 3.5% and posting a weekly rise of 14.6%, the most since November 2008. Hong Kong’s Hang Seng Index also saw an impressive 11.2% gain, its best weekly performance since 2009. Economists are crediting Beijing’s renewed focus on large-scale economic stimulus as a key factor behind the market’s rebound. Ting Lu, chief China economist at Nomura, noted that Beijing’s “bazooka” approach, rather than piecemeal measures, signals serious intent to address the economy’s deep-rooted issues, particularly within the property sector, which remains in its fourth year of contraction.
In a move to bolster liquidity, the People’s Bank of China cut the reserve requirement ratio for banks by 50 basis points on Friday, while also reducing its 7-day and 14-day reverse repo rates by 20 basis points. Additionally, China is reportedly planning to issue special sovereign bonds worth 2 trillion yuan ($284.43 billion) as part of the fresh stimulus.
The stimulus measures have also benefited commodity markets, with iron ore prices climbing back above $100 per metric ton and copper surpassing $10,000 per ton. Gold hit a new record, and silver reached its highest level in 12 years.
Oil Prices Fall Amid Saudi Arabia Output Plans
On the downside, oil prices dropped sharply amid reports that Saudi Arabia is preparing to increase production and move away from its unofficial target of $100 per barrel for crude. Brent crude futures fell 0.4% to $71.31 per barrel and are down 4.2% for the week, a welcome trend for global disinflation and consumer spending, as central banks continue cutting interest rates.
Yen Skids as Leadership Speculation Mounts
In Japan, markets are reacting to the leadership contest within the ruling Liberal Democratic Party. Economic Security Minister Sanae Takaichi, who opposes rate hikes, and former Defense Minister Shigeru Ishiba emerged as frontrunners after the first round of voting. Markets are betting that Takaichi could win, and her dovish stance is weighing on the yen. The yen fell 1% to 146.23 against the dollar, while Japan’s Nikkei Index rallied 1.8%, up 5% for the week on the weaker yen. Charu Chanana, head of currency strategy at Saxo, warned that while near-term risks favor a weaker yen, long-term dynamics, particularly narrowing yield differentials driven by the U.S. Federal Reserve, could benefit the Japanese currency.
Treasury Yields Hold Steady
Treasury yields remained stable in Asia, having risen overnight on stronger-than-expected U.S. weekly jobless claims data. Markets are now pricing in a 51% chance of a half-point interest rate cut by the Fed in November, slightly down from 57% earlier. Investors are closely watching the upcoming release of the core personal consumption expenditures (PCE) price index, the Fed’s preferred measure of inflation, which is expected to show a small monthly increase of 0.2%. For the week, two-year Treasury yields were up 6 basis points at 3.63%, while 10-year yields rose by 7 basis points to 3.79%.
France’s New Government May Be Fragile, But Don’t Write It Off Just Yet
A Government Under Siege
Despite its precarious standing—despised by the left and propped up by the far-right—Prime Minister Michel Barnier’s minority government could have more staying power than initially expected, according to lawmakers and analysts. The French political landscape has been anything but stable in recent months, but Barnier’s administration might endure longer than many predict. The far-right National Rally (RN), led by Marine Le Pen, holds the power to dismantle the government. Yet, it seems in no hurry to act, wary of inheriting a political mess that could jeopardize its 2027 presidential ambitions. Additionally, the RN faces a looming corruption trial, further complicating its calculus.
Barnier’s Strategy
Barnier has worked to neutralize the far-right’s influence by appointing ministers who align with RN’s hardline views on immigration and crime. This tactical move leaves Le Pen’s party with fewer issues to criticize, softening their stance. On the left, resentment still lingers after their legislative victory in the summer, only to see their prime ministerial candidate passed over. They continue to threaten no-confidence motions but lack the numbers to turn those threats into action. Amidst this tension, a fragile stability has emerged in France’s volatile political landscape. “The French don’t like chaos,” said Laurent Jacobelli, RN spokesperson, hinting that pragmatism now governs RN’s actions.
A Calculated Approach from the Far-Right
Pouria Amirshahi, a Green party lawmaker, agrees that the RN has no immediate interest in toppling Barnier’s government, preferring to quietly prepare for future leadership. Meanwhile, Le Pen’s upcoming trial, which could see her party mired in corruption charges, serves as a distraction from the upheaval she claims to seek but doesn’t truly want.
A Corruption Trial Looms
Marine Le Pen and 26 members of her party face trial for allegedly embezzling European Parliament funds. If convicted, Le Pen could face up to 10 years in prison and a €1 million fine, along with disqualification from office. The trial, set to last seven weeks, adds another layer of uncertainty to France’s political drama. Despite the trial, RN remains confident. “This trial will be discussed when we’d prefer to focus on the future of France, but we are ready,” Jacobelli said, underscoring the party’s resolve.
The First Big Test: The 2025 Budget
The 2025 budget bill, due by mid-October, will serve as the first real challenge for Barnier’s administration. With a pressing need for spending cuts and tax increases to reduce France’s deficit, new Finance Minister Antoine Armand faces a politically toxic task. Yet, despite the difficulties, experts believe RN is unlikely to block the budget. Christopher Dembik, an economist at Swiss bank Pictet, argues that the far-right’s strategy now hinges on respectability, positioning themselves as a pragmatic partner rather than disruptors.
A Balancing Act
Barnier’s delicate balancing act between the far-right and his right-wing team was underscored recently when Finance Minister Armand initially excluded the RN from budget talks, only for Barnier to intervene and smooth over the issue with Le Pen. Adding to the strain, right-wing interior minister Bruno Retailleau has pledged to toughen immigration laws after the far-right seized on the tragic murder of a young woman by an illegal immigrant.
A Fragile Alliance
This growing alignment with RN values has unsettled some centrists within Barnier’s government, who worry about the prime minister’s appeasement of their ideological adversary. Erwan Balanant, a pro-European centrist lawmaker, expressed frustration at the government’s deference to the far-right, calling it “shocking.” While President Macron, weakened after the election, remains in the background, the day-to-day maneuvering is left to Barnier and his unlikely coalition of allies and rivals.
Conclusion
Though it’s unclear how long Barnier’s government can last, the need for progress—starting with the budget—drives the fragile coalition forward. “We must move ahead, despite everything,” Balanant said, capturing the mood of a government walking a fine line between survival and collapse.
Intel and U.S. Set to Finalize $8.5 Billion Chip Funding by Year-End, FT Reports
Intel is on the verge of securing $8.5 billion in direct funding from the U.S. government, a crucial step in the company’s efforts to boost domestic semiconductor production. According to a report by the Financial Times, citing sources close to the discussions, the deal is expected to be finalized before the end of 2024, though no guarantees have been made. This significant funding package comes as part of a broader push by the Biden administration to strengthen the U.S. semiconductor supply chain, an industry deemed vital for national security and economic competitiveness. Earlier this year, Intel was awarded nearly $20 billion in grants and loans, intended to enhance its domestic chip-making capabilities.
The $8.5 billion funding is part of this package and will help Intel build two new factories in Arizona, as well as modernize an existing facility. The overall agreement also includes up to $11 billion in loans, underscoring the scale of the U.S. government’s commitment to revitalizing Intel’s position in the global chip market. While talks have advanced, any potential acquisition or restructuring of Intel, particularly following reports of interest from Qualcomm, could disrupt the funding agreement. Qualcomm had reportedly approached Intel to explore a possible acquisition as Intel faces challenges reclaiming its position as a chip manufacturing leader. Once dominant in the semiconductor space, Intel has ceded ground to rivals like Taiwan Semiconductor Manufacturing Co. (TSMC), particularly in the generative AI chip market, which is now dominated by Nvidia and AMD. Despite these setbacks, Intel’s partnership with the U.S. government signals a pivotal opportunity for the company to regain its footing and revitalize its manufacturing capabilities. As both Intel and the U.S. Department of Commerce have yet to comment on the discussions, the semiconductor industry and investors are closely watching developments as Intel seeks to reassert its relevance in a rapidly changing technological landscape.
Many Wall Street Executives Are Worried About Trump but Wary of Harris
Wall Street executives are expressing mixed feelings about the upcoming U.S. presidential election, grappling with concerns about both Donald Trump and Kamala Harris. Although some prominent figures like Bill Ackman and John Paulson have declared their support, many others remain undecided. Trump, who has implemented Wall Street-friendly policies in the past, is viewed with caution due to his unpredictability and potential to introduce economic instability. His plans to cut taxes and regulations appeal to some executives, but concerns over his proposed tariffs, which could increase inflation, and his role in the Jan. 6 Capitol riot have made others wary. Some also fear that his administration may undermine the rule of law and Federal Reserve independence.
Meanwhile, Harris, who only entered the race in late July after President Biden stepped aside, remains a largely unknown quantity for Wall Street. Executives are concerned about her potential to continue Biden’s regulatory agenda, particularly her history of being tough on banks as a prosecutor. Although many believe Harris could provide stability, they worry that her policies might increase corporate taxes, which could hurt stock prices. Data from OpenSecrets reveals that donors from the securities and investment sectors have contributed more to the Biden-Harris campaign ($8.7 million) than to Trump ($3 million) as of late August. However, Harris remains under scrutiny, with many executives hoping she will choose more moderate figures for key economic roles if elected.
While Trump backers like Paulson argue that his policies could reduce the deficit through tariffs, Harris supporters like Mark Cuban emphasize the importance of deficit reduction and note that stocks have historically performed well even under higher taxes. However, concerns linger about both candidates’ ability to deliver on their promises. Many on Wall Street view a Harris presidency with a Republican-controlled Senate as the most favorable outcome, offering a balance between economic stability and limited tax hikes.
Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $400 million AUM and over 1000 Clients.
Disclaimer: This post provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.
Daily Synopsis of the New York market close
Date Issued – 26th September 2024
Futures Higher, Powell to Speak, Micron’s Outlook – What’s Moving Markets
Futures Rise as Investors Eye Powell’s Comments and Inflation Data
U.S. stock futures are trending upward, with markets focusing on upcoming remarks from Federal Reserve Chair Jerome Powell and the release of key inflation data later this week. By 03:29 ET (07:29 GMT), Dow futures had climbed by 160 points (0.4%), S&P 500 futures rose by 43 points (0.7%), and Nasdaq 100 futures surged by 274 points (1.4%). This follows a mixed trading session on Wednesday, where the S&P 500 dipped 0.2%, the Dow lost 0.7%, and the Nasdaq Composite eked out a modest 0.04% gain. Despite recent volatility, all major indices are on track for monthly gains, driven by the Fed’s recent 50-basis point rate cut.
Powell to Address Markets Amid Ongoing Policy Adjustments
Federal Reserve Chair Jerome Powell is set to deliver pre-recorded remarks at the U.S. Treasury Market Conference in New York on Thursday. Following the Fed’s aggressive rate cut last week, Powell described the move as a “recalibration” aimed at supporting the labor market while bringing inflation down to the 2% target. His comments will be closely watched by investors, especially as other Fed officials have expressed differing views on the size of the rate cut. Some, like Fed Governor Michelle Bowman, have voiced concerns over persistent inflation risks.
Micron Surges on Strong AI-Driven Demand
Micron Technology shares soared in after-hours trading, following the company’s better-than-expected guidance for the current quarter. The memory chipmaker, buoyed by rising demand for chips in AI applications, forecasted adjusted earnings of $1.74 per share on revenue of $8.7 billion, surpassing Wall Street estimates. This performance reflects the company’s strong position in the high-bandwidth memory chip market, essential for powering AI-driven graphics processing units. Micron’s CEO Sanjay Mehrotra highlighted continued strength in demand from data center customers, reinforcing a positive outlook for the firm.
OpenAI Explores For-Profit Restructure Amid $6 Billion Fundraising Plan
OpenAI is reportedly considering restructuring into a for-profit entity, a move aimed at attracting more investors. This comes as the company seeks to raise over $6 billion in capital, with key backers like Microsoft and Apple expected to participate. CEO Sam Altman is poised to receive equity under the new structure, marking a significant shift from the company’s original non-profit roots. Valued at an estimated $150 billion, OpenAI has become one of Silicon Valley’s most valuable companies. Several top executives, including the chief technology officer, have resigned amid these developments.
Oil Prices Drop on Saudi Output Plans and Libyan Supply Prospects
Oil prices took a sharp decline on Thursday after reports indicated that Saudi Arabia is abandoning its $100 per barrel price target, with plans to ramp up production. By 03:30 ET, Brent crude fell 2.4% to $71.14 per barrel, while U.S. crude futures (WTI) slid 2.8% to $67.72. Additionally, the potential return of 1 million barrels per day from Libya, following a political agreement, further weighed on prices. The market largely overlooked data showing larger-than-expected declines in U.S. oil inventories, focusing instead on the potential increase in global supply.
New York Mayor Eric Adams Indicted on Federal Charges, Vows to Fight
Charges and Federal Investigation
New York City Mayor Eric Adams is facing a federal indictment after a long-running corruption investigation, making him the first sitting mayor in the city’s history to face criminal charges. Despite the allegations, Adams declared his innocence in a video statement on Wednesday, vowing to fight the charges and continue leading the city. “If I’m charged, I know I’m innocent. I will request an immediate trial so New Yorkers can hear the truth,” Adams stated, adding, “You elected me to lead this city, and lead it I will.”
The exact charges have not yet been made public, but the indictment is expected to be unsealed on Thursday. It remains unclear whether Adams will be arrested or voluntarily surrender to authorities. Multiple reports suggest that a federal grand jury indicted the mayor, though no official comments have been made by the U.S. Attorney’s office in Manhattan. The investigation has entangled several city officials, with top resignations following a search of Adams’ electronic devices by the FBI in November 2023. Media reports have linked the case to potential illegal donations to Adams’ 2021 mayoral campaign, including funds from foreign sources such as the Turkish government, Israel, China, and other countries.
Political Repercussions and Calls for Resignation
The indictment has sparked a wave of political reactions, with some Democratic leaders urging Adams to step down. Public Advocate Jumaane Williams would assume the role of mayor if Adams were forced out of office. Comptroller Brad Lander, one of Adams’ likely challengers in the 2025 mayoral race, called for the mayor’s resignation, stating that New York needs focused leadership. U.S. Representative Alexandria Ocasio-Cortez also called for Adams to step down, saying it would be “for the good of the city.” Despite these pressures, Adams has remained defiant, promising to continue his duties while defending his innocence.
Campaign Finance Allegations and International Links
The U.S. Attorney’s investigation reportedly centers on illegal campaign contributions, with a focus on whether Adams’ 2021 campaign accepted foreign money through a straw-donor scheme involving a Brooklyn construction company. The probe is also looking into Adams’ interactions with various countries, including Israel, Qatar, and South Korea. While Adams has consistently denied any wrongdoing, his legal team has conducted its own investigation, claiming to have found no evidence of illegal activity. They have shared their findings with federal prosecutors, expressing confidence in the mayor’s defense.
City in Political Turmoil
The indictment adds to ongoing political upheaval in New York. Several high-profile resignations have shaken the administration in recent weeks, including Police Commissioner Edward Caban and the city’s chief legal adviser. Public Schools Chancellor David Banks also announced his retirement, further complicating the city’s leadership at a critical time. As Adams faces federal charges, the political landscape in New York City is likely to become even more turbulent, raising questions about the future of his administration and the city’s governance moving forward.
Klarna Partners with Adyen to Bring Buy Now, Pay Later to Physical Retail Stores
Introduction
Swedish fintech Klarna has announced a significant partnership with Dutch payments firm Adyen to introduce its popular Buy Now, Pay Later (BNPL) service to brick-and-mortar retail locations. This collaboration expands Klarna’s reach beyond online shopping, allowing consumers to use BNPL at physical checkout terminals.
Key Details of the Partnership
- Klarna’s BNPL service will be integrated into more than 450,000 Adyen payment terminals globally.
- The service will launch first in Europe, North America, and Australia, with plans for further expansion.
- Klarna’s BNPL service lets consumers spread payments over interest-free installments, a model primarily associated with e-commerce until now.
Strategic Importance
This move highlights Klarna’s growing focus on physical retail as BNPL companies aim to broaden their market beyond online transactions. Klarna’s Chief Commercial Officer, David Sykes, emphasized the company’s goal to make flexible payments available “at any checkout, anywhere.” Similarly, Adyen’s Head of EMEA, Alexa von Bismarck, pointed to the importance of offering consumers payment flexibility at physical retail points.
Background
Klarna has previously collaborated with Adyen on e-commerce payments, but this new deal strengthens their partnership in physical retail. The announcement follows Klarna’s sale of its online checkout solution, a move that allows the firm to focus less on competing with payment gateways like Adyen, Stripe, and Checkout.com.
Klarna’s Growth and Challenges
Klarna is expanding its services ahead of a potential IPO in 2024, introducing products like Klarna Balance and cashback rewards to attract consumers. However, the BNPL sector faces criticism for encouraging overspending, leading regulators in markets like the U.K. to push for more stringent regulations on the payment method.
Conclusion
The Klarna-Adyen partnership represents a significant step for the BNPL industry, bringing flexible, interest-free payment options into physical stores while intensifying competition among fintechs to dominate the retail payments market.
H&M Shares Drop as Rising Costs and Weak Sales Squeeze Profitability
H&M Group (ST) shares declined by 7.6% on Thursday, trading at SEK 167.6 after the company reported a 2.8% year-on-year drop in gross profit to SEK 30.1 billion for the latest quarter. Net sales also fell by 3.1% to SEK 59 billion. Despite this, H&M managed to slightly improve its gross margin to 51.1%, up from 50.9% in the same period last year.
CEO Daniel Ervér attributed part of the weaker sales performance to unseasonably cold weather in June, which dampened consumer activity in key European markets. However, the company’s challenges extended beyond weather patterns. Operating profit plummeted by 26% to SEK 3.5 billion, driving the operating margin down to 5.9% from 7.8% last year.
The significant contraction in profitability was exacerbated by rising selling and administrative expenses, which increased by 1% to SEK 26.6 billion, and grew by 4% in local currencies. These mounting costs put additional strain on H&M’s margins. Analysts from RBC Capital Markets noted that SEK 550 million of these expenses were related to long-term marketing investments and costs associated with winding down the company’s Afound division.
The company’s after-tax profit dropped sharply, declining to SEK 2.3 billion from SEK 3.3 billion in Q3 2023. As a result, earnings per share fell 31% to SEK 1.44, down from SEK 2.04 in the same quarter last year. Cash flow from operating activities also weakened, coming in at SEK 8.2 billion, a significant drop from SEK 12.3 billion in the previous year.
Ervér pointed out that persistent external challenges, including elevated consumer living costs and global economic turbulence, negatively impacted both sales revenue and purchasing costs more than anticipated. H&M’s inventory levels rose 3% to SEK 41.7 billion, though management remains optimistic about future demand, describing the current stock composition as “well-positioned.”
Despite these setbacks, the company’s autumn collection has been well received, and management expects September 2024 sales to grow by 11% in local currencies compared to last year. However, looking ahead to the fourth quarter, analysts expect further pressure on H&M’s gross margin due to external factors and increased markdown costs. Marketing investments are also forecasted to rise slightly, further weighing on the company’s bottom line.
Gold (XAU) Daily Forecast: Can Gold Sustain Its Bullish Momentum Above $2,614?
Market Overview
Gold (XAU/USD) opened the week with strong upward momentum, nearing a high of $2,631 as investors flocked to safe-haven assets. The Federal Reserve’s surprise decision to cut interest rates by 50 basis points, combined with rising geopolitical tensions, has driven this rally. The weakening U.S. dollar, following the Fed’s aggressive monetary easing, has further bolstered gold prices, as investors increasingly turn to non-interest-bearing assets. Analysts had largely anticipated a more moderate rate cut, but with the Federal Open Market Committee (FOMC) signaling potential additional cuts before the year’s end, the appeal of gold continues to grow. Philadelphia Fed President Patrick Harker emphasized the Fed’s delicate balancing act between “hard” and “soft” economic data, while Fed Governor Michelle Bowman expressed concerns over inflation, advocating for a smaller cut. Meanwhile, Governor Christopher Waller, a supporter of the 50 bps cut, suggested that further action will depend on incoming economic data.
Economic Growth Outlook and Its Impact on Gold
Although interest rate cuts traditionally benefit gold, the Fed’s optimistic outlook for U.S. economic growth may limit future gains. The central bank forecasts steady annual growth of around 2.0% through 2027, hinting at a possible “soft landing” for the economy rather than a significant downturn. This positive growth outlook could reduce the need for safe-haven assets like gold, as investors may become more confident in the resilience of the U.S. economy.
Key Data to Watch: PMI and Market Sentiment
Traders are closely watching today’s release of the U.S. Purchasing Managers Index (PMI), as a stronger-than-expected reading could boost the dollar, potentially weighing on gold prices. Additionally, ongoing geopolitical developments, particularly rising tensions in the Middle East, may continue to support gold’s safe-haven appeal, providing a counterbalance to any positive economic data.
Short-Term Forecast
Gold remains firmly bullish above $2,614, with immediate resistance at $2,633.77. A break above this level could push prices higher, while a move below $2,614 may spark short-term selling.
Gold Price Forecast: Technical Analysis
Gold (XAU/USD) is currently trading at $2,631.09, up 0.33%, hovering near critical resistance. The pivot point is at $2,614.93, and as long as prices stay above this level, the bullish trend is likely to persist. Key resistance levels are seen at $2,633.77, with further targets at $2,653.45 and $2,668.63. On the downside, support is found at $2,600.31, followed by $2,588.50. The 50-day EMA at $2,574.62 continues to provide solid backing for the upward trend. A bullish engulfing candle formation suggests further buying pressure, potentially targeting the 161.8% Fibonacci extension level at $2,633.77. However, a break below $2,614.93 could lead to a sharper decline in gold prices.
Conclusion
As long as gold remains above the $2,614 level, the bullish momentum is expected to hold. However, investors should keep an eye on key economic data and geopolitical developments, which could influence market sentiment and trigger shifts in gold’s short-term trajectory.
Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $400 million AUM and over 1000 Clients.
Disclaimer: This post provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.
Daily Synopsis of the New York market close
Date Issued – 25th September 2024
Consumer Confidence Plummets to 2-Year Low as Paycheck-to-Paycheck Households Struggle
Consumer confidence has fallen to its lowest point in two years, as the financial strain on paycheck-to-paycheck households continues to grow. The latest reading from The Conference Board shows a sharp decline in the consumer confidence index, dropping to 98.7 this month from 105.6 in August, marking the largest decrease since August 2021. All five components of the index, covering economic outlook, inflation expectations, and job market conditions, saw deterioration. The steepest decline in confidence was seen among consumers aged 35 to 54, especially those earning under $50,000 annually, reflecting growing financial stress in lower-income segments. These consumers have become increasingly pessimistic about their financial prospects, with inflation expectations over the next 12 months rising to 5.2%.
The outlook on spending is mixed. While plans for major purchases such as smartphones or laptops have cooled, there has been a slight improvement in home and car purchasing intentions over the next six months. However, spending on goods is expected to see a slight uptick as consumers adapt to higher prices and interest rate cuts by the Federal Reserve. The jobs market has also dimmed expectations. Fewer consumers expect their incomes to rise, with only 18% anticipating wage increases, down from 18.6% in August. Meanwhile, 13% expect a decrease in their earnings, up from 11.7%. Concerns about job availability are also rising, with 18.3% of respondents expecting fewer jobs in the near future. Dana Peterson, chief economist at The Conference Board, emphasized the growing pessimism: “Consumers’ views of current business conditions have turned negative, and sentiment around the labor market has further softened. Expectations for future business conditions, labor markets, and income have become less positive.”
The expectations index, which tracks the consumer outlook for the next six months, dropped 4.6 points to 81.7, nearing the critical threshold of 80—a level typically associated with the onset of a recession. Should the index fall below 80, it would signal an increased risk of economic downturn. Demographically, confidence remains polarized. The 35-54 age group has emerged as the least confident, while younger consumers, under the age of 35, remain more optimistic. Income disparities are also evident: consumers earning less than $50,000 reported the largest drop in confidence, whereas those earning over $100,000 remain the most confident. Data from PYMNTS Intelligence paints a similarly grim picture. As of last month, 25% of paycheck-to-paycheck consumers were struggling to pay their bills, the highest figure since September 2021. Furthermore, 43% of consumers have altered their financial lifestyles over the past two years, with 27% reporting downward financial mobility. Millennials and lower-income households earning less than $50,000 annually have been hit hardest, with 34% of each group experiencing a decline in financial well-being. As inflation persists and economic uncertainty looms, the paycheck-to-paycheck segment of the population continues to bear the brunt of financial stress. With consumer confidence at a two-year low, the economic outlook for vulnerable households remains bleak.
China’s Economic Recovery Faces Hurdles Beyond Interest Rate Cuts
China’s economic slowdown requires more than just interest rate cuts to regain momentum, according to analysts. While the People’s Bank of China’s (PBOC) recent rate cuts, including reductions on existing mortgages, provided a short-term boost to the stock market, experts argue that a broader fiscal stimulus is necessary to address the root of China’s economic woes. The decision by the PBOC comes amid China’s longest deflationary streak since 1999, driven by weak domestic demand. Larry Hu, Chief China Economist at Macquarie, highlighted the need for fiscal spending on housing, supported by the PBOC’s balance sheet, to stimulate growth. “More fiscal support is required, especially in the housing market,” Hu remarked, noting that interest rate cuts alone may not be sufficient.
The bond market reflected skepticism about the sustainability of this recovery. Following the rate cut announcement, the yield on China’s 10-year government bonds briefly fell to a historic low of 2%, signaling cautious optimism but still lagging behind the U.S. 10-year Treasury yield at 3.74%. Edmund Goh, Head of China Fixed Income at abrdn, expressed the need for “major fiscal policy support” to push bond yields higher, anticipating that Beijing will need to step up stimulus efforts given the weak economic backdrop. The gap between U.S. and Chinese bond yields has widened significantly since April 2022, when the Federal Reserve began its aggressive rate hikes. This divergence is reflective of contrasting growth prospects between the world’s two largest economies. While U.S. yields have surged on the back of stronger economic performance, China’s yields have remained low, as growth prospects falter.
In the first half of 2024, China’s economy grew by 5%, but concerns are mounting that full-year growth could fall short of the government’s target. Industrial activity has decelerated, and retail sales have increased by just over 2% year-on-year in recent months, further amplifying the need for additional stimulus measures. China’s Ministry of Finance has so far adopted a conservative approach to fiscal stimulus. Despite an increase in the fiscal deficit to 3.8% in October 2023, the ministry reverted to a more modest target of 3% in March. According to CF40, a leading Chinese think tank, there remains a 1 trillion yuan shortfall in spending, which may force Beijing to increase the deficit and issue additional treasury bonds to fill the revenue gap. PBOC Governor Pan Gongsheng attributed the downward trend in bond yields partially to a slower pace of government bond issuance. He also cautioned against the risks of one-sided bets on rising bond prices. Analysts like Haizhong Chang, Executive Director at Fitch (China) Bohua Credit Ratings, agree that fiscal stimulus is essential for achieving meaningful economic growth, noting that high levels of corporate and household debt have diminished the effectiveness of monetary easing alone.
The U.S. Federal Reserve’s recent rate cuts have, however, provided some breathing room for Chinese policymakers. A more dovish U.S. monetary policy weakens the dollar, offering support to Chinese exports, one of the few remaining bright spots in the country’s economy. China’s offshore yuan hit its strongest level against the U.S. dollar in over a year following the PBOC’s announcement, underscoring the benefits of a weaker dollar. Nevertheless, analysts remain cautious. Louis Kuijs, APAC Chief Economist at S&P Global Ratings, pointed out that despite lower U.S. interest rates, China still needs more aggressive fiscal action. “Fiscal expenditure lags behind the 2024 budget allocation, bond issuance has been slow, and there are no clear signs of substantial fiscal stimulus plans,” Kuijs observed. As China grapples with sluggish growth, structural challenges such as high debt levels and weak domestic demand continue to weigh heavily on its recovery. While recent rate cuts offer some relief, the consensus remains that significant fiscal intervention will be needed to kickstart sustained growth in the world’s second-largest economy.
U.S. Accuses Visa of Monopolizing Debit Card Swipes, Driving Shares Down
Visa Inc. (NYSE: V), one of the largest global payment networks, faced a significant setback on Tuesday when the U.S. Department of Justice (DOJ) filed an antitrust lawsuit accusing the company of stifling competition in the debit card market. The lawsuit claims Visa has leveraged its dominance by imposing high fees on merchants and paying off potential rivals, contributing to rising consumer costs. Visa shares dropped approximately 5.5% following the news. The DOJ’s suit alleges Visa processes over 60% of U.S. debit transactions, generating around $7 billion annually in fees. Prosecutors claim the company uses its agreements with merchants, card issuers, and competitors to maintain its market dominance, suppressing competition. Visa General Counsel Julie Rottenberg defended the company, stating, “Competition is thriving in the debit market,” and vowed to contest the claims, emphasizing Visa’s value in providing security, reliability, and world-class fraud protection.
The lawsuit comes as part of the Biden administration’s broader effort to curb consumer prices, a critical issue in the lead-up to the 2024 U.S. presidential election. Attorney General Merrick Garland underscored the gravity of Visa’s actions, stating, “Visa’s unlawful conduct affects not just the price of one thing, but the price of nearly everything,” as merchants and banks often pass payment network costs to consumers. The allegations against Visa date back to 2012, following regulatory reforms that opened the debit card market to competition from unaffiliated networks. Prosecutors allege Visa entered into lucrative agreements with emerging financial technology competitors, including Apple (NASDAQ: AAPL), PayPal (NASDAQ: PYPL), and Block Inc.’s Square, preventing them from launching products that could undermine Visa’s dominance. While PayPal declined to comment, Apple and Block did not respond to requests for comment. In addition to the agreements, Visa is accused of imposing “staggering financial penalties” on merchants who fail to route the majority of eligible transactions through its network. The DOJ is seeking a court order to block Visa from maintaining pricing structures that discourage competition and from paying rivals not to compete. Prosecutors hope these measures will restore a fair competitive environment for processing debit payments, both online and in physical stores.
The lawsuit is not Visa’s first brush with antitrust scrutiny. The DOJ began investigating Visa’s debit card practices in 2021, the same year it blocked the company’s planned acquisition of financial technology firm Plaid. Mastercard (NYSE: MA), Visa’s primary rival, also disclosed earlier this year that it is under investigation by the DOJ for similar concerns. Visa and Mastercard have faced legal battles over their market dominance for nearly two decades. In 2019, both companies agreed to pay U.S. merchants $5.6 billion to settle a class action lawsuit over anticompetitive practices. More recently, a federal judge in Brooklyn rejected a parallel settlement in June that aimed to reduce swipe fees by $30 billion over five years. This settlement would have also required Visa and Mastercard to ease restrictions preventing merchants from charging customers for card use. Visa has set aside around $1.6 billion for potential settlements related to these and other U.S. cases involving interchange fees. As the legal battles continue, this latest DOJ lawsuit could have far-reaching implications for Visa’s business model and the broader payments landscape.
Volkswagen’s Labour Clash Highlights Broader Challenges in Europe’s Auto Industry
Volkswagen (ETR: VOWG_p) is facing significant challenges as tensions with labour unions over cost-cutting measures at underutilized factories have raised broader concerns about the company’s long-term strategy. The situation is prompting discussions about the underlying causes of Volkswagen’s troubles, including inefficient governance, poor EV investments, and economic struggles in key markets like China and Germany. Yet, Volkswagen’s issues are not unique; other major European automakers like Renault and Stellantis face similar challenges with underused factories, particularly in higher-cost markets like Germany and France. Across Europe, factory utilization rates for carmakers have dropped sharply since 2019, with utilization in higher-cost Western countries falling to just 54%, well below the profitability threshold of 70%. In contrast, plants in lower-cost countries like the Czech Republic and Turkey have maintained higher capacity utilization, averaging around 79%. This discrepancy highlights a growing east-west divide in Europe’s auto industry, with automakers increasingly shifting production to lower-cost regions.
Volkswagen’s Dilemma: EVs and High-Cost Production
Volkswagen’s decision to produce electric vehicles (EVs) in Germany, driven by political and union pressure to secure jobs, has been a double-edged sword. The company’s expensive German plants now produce high-cost EVs, which are not selling as well as expected. As a result, underutilized factories like VW’s Osnabrueck plant, which operates at just 30% capacity, are in danger of closure. Volkswagen CFO Arno Antlitz acknowledged that high costs in German plants are a challenge for the company, particularly as it tries to compete with cheaper rivals from China, where labour costs are as low as $3 per hour. Germany, by contrast, has the highest auto worker wages in the world, averaging €59 ($66) per hour.
Adding to Volkswagen’s woes, EV sales in Europe have slumped, with German EV sales plummeting by 69% in August. Union leaders argue that Volkswagen needs to produce more affordable EVs to stimulate demand, noting that the company’s cheapest EV, the ID.3, starts at over €36,000, while competitors like Stellantis offer less expensive options.
Labour Tensions and Political Blowback
Volkswagen is under pressure to cut costs further, with negotiations set to begin with unions on September 25. The automaker has already scrapped a long-standing job security agreement in Germany, allowing potential layoffs from mid-2025 unless a new deal is reached. However, with labour representatives holding half the votes on Volkswagen’s supervisory board, forcing plant closures could lead to significant political and union opposition.
The broader issue of overcapacity has been a persistent problem for Europe’s carmakers, compounded by high labour costs and strong union contracts that make plant closures politically difficult. As demand weakens due to high interest rates and increased competition from Chinese automakers, Volkswagen and other automakers are being forced to consider drastic measures to remain competitive.
The Shift to Lower-Cost Markets
Many automakers are already shifting production to lower-cost markets. Stellantis, for example, has moved some EV production to Poland through a joint venture with China’s Leapmotor and has significantly reduced capacity at its Turin plant in Italy. Renault and Ford have also made significant job cuts in Europe, while ramping up production in cheaper regions like Spain. As Chinese automakers such as BYD and Chery expand into Europe, setting up factories in countries like Hungary and Turkey, the pressure on Western automakers to reduce costs will likely intensify. Industry experts predict that the east-west divide in Europe’s auto industry will continue to grow, with countries like Germany focusing more on premium and luxury cars to offset higher operational costs. Volkswagen’s future depends on finding a balance between reducing costs, appeasing labour unions, and producing affordable EVs that can compete in a rapidly evolving global market. With major decisions looming, the outcome of the upcoming negotiations could have far-reaching implications for both the company and the European auto industry as a whole.
Caroline Ellison Receives Two-Year Sentence for Role in FTX Crypto Fraud
In a landmark case, Caroline Ellison, the former head of cryptocurrency hedge fund Alameda Research, was sentenced to two years in prison for her involvement in one of the largest financial frauds in U.S. history. Ellison, 29, played a pivotal role in the theft of $8 billion in customer funds from the now-defunct FTX exchange, founded by her ex-boyfriend, Sam Bankman-Fried. Despite her extensive cooperation with prosecutors, U.S. District Judge Lewis Kaplan emphasized the seriousness of the crime, stating that remorse and cooperation could not serve as a “get out of jail free card.” Bankman-Fried, once hailed as a rising star in the cryptocurrency world, is serving a 25-year sentence following his conviction last year. Ellison’s sentence could have been much harsher, as she faced seven felony counts of fraud and conspiracy, which carried a potential maximum sentence of 110 years. However, her cooperation with authorities, which included over 20 meetings with prosecutors and crucial testimony against Bankman-Fried, led to a more lenient outcome.
Ellison, who ran Alameda from 2021 to 2022, expressed deep remorse for her actions during the sentencing. “Not a day goes by when I don’t think about all the people I hurt,” she told the court, adding that she often contemplated leaving Alameda but struggled to act against Bankman-Fried’s influence. Judge Kaplan acknowledged her critical role in the fraud but also recognized her cooperation as a “fundamental distinction” from Bankman-Fried. “There’s no way you’re ever going to do something like this again,” he said, before noting the unprecedented scale of the financial fraud. Ellison will begin serving her sentence in November and may be eligible for release earlier for good behavior. Two other former FTX executives, Nishad Singh and Gary Wang, are also awaiting sentencing for their roles in the scheme. Ellison’s sentencing sends a powerful message about the gravity of financial crimes and the importance of full cooperation with authorities in such cases. The downfall of FTX has left a lasting impact on the cryptocurrency sector, reminding investors and regulators of the risks inherent in this volatile market.
Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $400 million AUM and over 1000 Clients.
Disclaimer: This post provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.
Daily Synopsis of the New York market close
Date Issued – 24th September 2024
DAX Index Analysis: German PMI Ignites ECB Rate Cut Speculation – Market Forecast & Outlook
Market Overview
On Monday, September 23, the DAX index saw a 0.68% rise, partially recovering from the previous session’s 1.49% decline, closing at 18,847. This uptick was driven by renewed optimism regarding an ECB rate cut in Q4 2024.
Key DAX Market Movers
Leading the gains, Zalando SE surged by 3.17%, while Siemens Energy AG posted a 2.88% increase as expectations of lower interest rates bolstered investor sentiment. The auto sector also benefited from the prospect of cheaper borrowing, with BMW up by 2.44%, Volkswagen by 2.14%, and Mercedes-Benz Group advancing 2.00%. However, Commerzbank faced a significant setback, plummeting 5.68% after the German government expressed opposition to UniCredit’s acquisition plans.
German Private Sector PMIs Fuel Rate Cut Bets
Private sector PMI data released on September 23 stoked expectations of a forthcoming rate cut. The HCOB Manufacturing PMI fell sharply to 40.3 in September from 42.4 in August, marking a 12-month low and underscoring weakening demand in Germany’s industrial base. The HCOB Services PMI also dipped, falling to a six-month low of 50.6 from 51.2 in August, highlighting a broader slowdown in economic activity. Hamburg Commercial Bank’s Chief Economist, Dr. Cyrus de la Rubia, commented: “The manufacturing downturn is now spilling over into the services sector. Service sector growth has slowed for four consecutive months, edging closer to stagnation. Companies continue to cut jobs in response to falling demand, and the outlook for the services sector looks bleak.”
German Ifo Business Climate in Focus
On Tuesday, September 24, all eyes will be on Germany’s Ifo Business Climate Index. Economists anticipate a drop from 86.6 in August to 86.1 in September, which would further align with the private sector PMI results. A steeper decline could heighten pressure on the ECB to consider rate cuts, possibly boosting the DAX toward the 19,000 level.
Expert Views on Eurozone Economy and ECB Policy
Daniel Kral, Macro Specialist for Europe at Oxford Economics, shared insights on the Eurozone’s broader economic landscape: “September’s composite PMI for the Eurozone entered contraction, driven in part by the fading impact of the Paris Olympics. Downside risks are escalating as Europe faces fiscal tightening while the ECB remains behind the curve.”
US Economic Developments and Impact
In the US, the S&P Global Services PMI, a key economic indicator, marginally decreased to 55.4 in September from 55.7 in August, allaying concerns of a hard landing. With services comprising almost 80% of the US economy, this slight decline suggests resilience.
US Market Performance
On Monday, US equity markets posted modest gains. The S&P 500 advanced by 0.28%, while the Dow Jones and Nasdaq Composite rose 0.15% and 0.14%, respectively.
US Economic Calendar: Consumer Confidence in Focus
On Tuesday, US consumer confidence data will be critical for market direction. Analysts expect the Consumer Confidence Index to rise to 103.8 in September, up from 103.3 in August. A stronger-than-expected report could bolster optimism for a soft US economic landing, which in turn may provide upward momentum for the DAX toward the 19,000 mark. Conversely, if consumer confidence falters and dips below 100, fears of an economic slowdown could resurface, potentially dragging the DAX back toward 18,500.
Near-Term DAX Outlook
Short-term DAX trends will hinge on US consumer confidence data and central bank rhetoric. Stronger-than-expected data from the US, alongside growing support for rate cuts from both the ECB and Federal Reserve, could push the DAX to test 19,000. However, disappointing consumer sentiment could reignite fears of a hard landing in the US, which may drive the DAX lower. At the start of Tuesday’s session, futures are pointing to a mixed day, with DAX futures up 28 points while Nasdaq mini futures are down by 25 points. Investors should remain vigilant to central bank commentary and macroeconomic indicators.
DAX Technical Analysis
The DAX continues to trade above both its 50-day and 200-day EMAs, signaling bullish momentum. A breakout above 18,850 could pave the way for a rally toward the September 19 peak of 19,045, with a potential push to 19,200 if positive sentiment holds. On the downside, a dip below 18,750 would bring the 50-day EMA into play. The 14-day RSI of 57.76 suggests there is room for further upside before the index enters overbought territory.
Investor Appetite for Small Caps on the Rise Following Fed Rate Cut, Citi Reports
Citi’s latest weekly market analysis highlights a growing interest in small-cap stocks, particularly the Russell 2000 index, in the wake of the Federal Reserve’s recent rate cut. Investors have been expanding their long positions in the Russell 2000, with short sellers facing an average loss of 5.7%. According to Citi strategists, a potential short squeeze could push the index higher in the near term. The broader US equity landscape also showed signs of overextension, especially in the S&P 500, while investor sentiment toward the Nasdaq 100 remained neutral with balanced positioning. Citi noted that market volatility spiked following the Fed’s 50-basis-point cut, but US futures markets quickly rebounded overnight, buoyed by strong inflows into exchange-traded funds (ETFs) and fresh long positions.
“Last week’s volatility was further heightened by Triple Witching, which drove significant roll activity alongside the FOMC’s rate decision,” Citi strategists explained. Despite the rally in US markets, investor risk appetite continues to show divergence. Inflows into US equities were robust, yet cautious sentiment lingered, as demonstrated by varied flows across different sectors.
Global Market Positioning
Outside the US, investor positioning in Europe remained neutral, with mixed flows in the Eurostoxx index. Although ETF inflows were steady, they lacked a clear directional trend. Meanwhile, in Asia, positioning in Europe, Australasia, and the Far East (EAFE) and emerging market (EM) futures saw unusually large shifts, even accounting for the roll week. EM futures moved from neutral to the third most extended long position, while EAFE futures transitioned from mildly bullish to the second most extended short. In China, the sentiment was mixed. For China A50 futures, net positioning stayed heavily bearish (-2.2 normalized), although a bullish trend began to emerge as investors started adding long positions to balance previously profitable shorts. Conversely, most short positions in the Hang Seng had already been unwound, leaving the market largely long, with average long positions showing a 4.2% gain.
Conclusion
Citi’s strategists suggest that the growing appetite for small caps and the evolving positioning trends in global markets could create new opportunities for investors. However, with volatility still elevated and key sectors showing divergence, caution is warranted as market participants navigate the changing macroeconomic environment.
JPMorgan Optimistic on Growth in India and Japan, Targets Southeast Asia for Expansion
JPMorgan Chase & Co. (NYSE: JPM), the largest bank in the United States, has expressed a bullish outlook on growth prospects in India and Japan, while also exploring Southeast Asia as part of its “China Plus One” strategy, according to a report from Reuters. In an interview with Reuters, Sjoerd Leenart, JPMorgan’s Asia Pacific CEO, highlighted India’s position as one of the bank’s top three, if not top two, markets in Asia, alongside Japan. India’s growth, he noted, is “very broad-based,” and JPMorgan is actively increasing its investment in the country. This includes expanding its banking team, boosting capital allocation, and enhancing technological capabilities to serve new market segments.
JPMorgan’s commercial banking division in India, which primarily serves mid-sized businesses, is projected to expand by up to 30% in the coming years. However, Leenart emphasized the need for India to further develop its manufacturing ecosystem in order to fully leverage the opportunities presented by the “China Plus One” strategy. While scaling this ecosystem presents a challenge, JPMorgan remains optimistic about India’s potential to succeed. Regarding Japan, Leenart pointed to the recent shift toward positive interest rates, which has sparked renewed client interest in the market. This shift presents opportunities for corporate activity as well as interest rate-driven investments, making Japan an attractive market for growth. Despite concerns over China’s slowing economic momentum, Leenart underscored that JPMorgan’s operations in China continue to expand. The bank is also eyeing Southeast Asia for future investment opportunities. Although the region’s fragmented nature poses challenges, its combined economies, valued at nearly $3 trillion, represent a significant growth potential for JPMorgan. Leenart’s remarks reflect JPMorgan’s strategic focus on diversifying its investments across Asia, balancing growth opportunities in India, Japan, and Southeast Asia while maintaining a presence in China amid shifting global economic dynamics.
Boeing’s ‘Best And Final Offer’ Met With Union Resistance Amid Striking Worker Tensions
Boeing has presented a “best and final offer” to its striking factory workers, promising significant raises and bonuses. However, the International Association of Machinists and Aerospace Workers (IAM) District 751, the union leading the strike, has pushed back, accusing the aerospace giant of attempting to bypass the negotiation process and create divisions among workers. In a public statement, the union criticized Boeing for releasing the offer directly to workers and the media, without involving the union’s negotiating team. According to IAM District 751, the negotiating team was still in the process of reviewing the offer when it was released. The union further stated that the mediation process collapsed on September 18, when Boeing refused to address key priorities raised by union members.
Boeing’s new offer includes a 30% pay raise over four years an increase from its initial 25% offer, but still below the union’s demand for 40%. Additionally, the offer doubles the ratification bonus to $6,000 and reinstates an annual productivity bonus that was previously excluded. However, Boeing has made the offer contingent upon the union workers voting to ratify it by Friday night, a deadline that the union leadership has rejected, arguing it does not provide sufficient time to inform members or arrange voting locations. The union also claims Boeing misled the media by implying that the union members are obligated to vote on the latest proposal. The union’s statement further emphasized that the proposal does not adequately address the workers’ concerns and falls short of the union’s expectations.
Key Quote
The union strongly criticized Boeing’s approach, stating: “They are trying to drive a wedge between our members and weaken our solidarity with this divisive strategy. This tactic is a blatant show of disrespect to you our members and the bargaining process. Boeing does not get to decide when or if you vote.”
By the Numbers
33,000: The number of unionized Boeing factory workers in the Pacific Northwest currently participating in the strike.
Background
Earlier this month, Boeing appeared to be on the verge of an agreement with the union, offering a 25% wage increase over four years, lower healthcare costs, and a commitment to build its next airplane in Washington state. However, on September 12, IAM districts 751 and W24 announced that their members had overwhelmingly rejected the contract offer, with 94.6% voting against it and 96% supporting strike action. The ongoing strike has halted most commercial aircraft production, and Boeing has been forced to furlough its executives, managers, and other white-collar employees one week out of every four during the strike. The strike and continued negotiations highlight the growing tension between Boeing and its workforce, as both sides grapple with wage expectations, production demands, and broader concerns over labor relations in the manufacturing sector.
NewHydrogen CEO and Dartmouth Energy Expert Discuss Nanomanufacturing and 2D Materials for Energy
In a recent podcast, NewHydrogen, Inc. CEO Steve Hill and Dartmouth’s Dr. William Scheideler explored advances in scalable nanomanufacturing and energy technologies like Perovskite solar cells and green hydrogen production. NewHydrogen’s ThermoLoop™ technology, a process that uses water and heat to produce low-cost green hydrogen, was a central focus of the discussion, emphasizing its potential to revolutionize the green hydrogen market by reducing reliance on expensive electricity. Dr. Scheideler, an expert in energy materials, shared insights on his research involving earth-abundant materials for electrocatalysis, aimed at replacing costly platinum and iridium catalysts in hydrogen production. His group’s work seeks to increase efficiency in hydrogen generation by organizing hydrogen and oxygen bubbles during electrolysis, improving overall energy use.
The conversation also touched on the limitations of battery storage for renewable energy, with Dr. Scheideler advocating for hydrogen as a more scalable solution for storing excess renewable energy generated from sources like wind and solar. This view aligns with the U.S. Department of Energy’s target of producing hydrogen at $1/kg using affordable materials and efficient processes. ThermoLoop™ further aims to cut the cost of hydrogen by utilizing heat from concentrated solar, geothermal, nuclear reactors, or industrial waste, eliminating the need for expensive green electricity. NewHydrogen’s goal is to significantly reduce the cost of producing green hydrogen and contribute to the broader adoption of a hydrogen economy, a market estimated to reach $12 trillion, according to Goldman Sachs.
Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $400 million AUM and over 1000 Clients.
Disclaimer: This post provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.
Daily Synopsis of the New York market close
Date Issued – 20th September 2024
Markets Embrace Optimism After Digesting Positive News
Record Highs Across U.S. Markets
U.S. stocks surged on Thursday, with both the S&P 500 and Dow Jones Industrial Average closing at record highs. The tech-driven Nasdaq Composite also enjoyed its fourth-best performance of the year, powered by a rally in major tech stocks. In Asia, markets followed suit, with Japan’s Nikkei 225 rising 1.7% on Friday, supported by a 2.8% year-on-year increase in the country’s core consumer price index, aligning with market expectations.
Central Banks Hold Steady in Asia
Two key central banks in Asia made crucial rate decisions on Friday. The People’s Bank of China surprised markets by keeping its one-year and five-year loan prime rates unchanged at 3.35% and 3.85%, respectively. Meanwhile, the Bank of Japan maintained its interest rates at “around 0.25%,” a decision that met the expectations of analysts in a Reuters poll.
Tech Stocks Lead the Charge
Tech stocks took center stage after a day of reflection on the U.S. Federal Reserve’s rate cut. On Thursday, Tesla surged 7.4%, Nvidia climbed 4%, and Apple gained 3.7%. This tech rally lifted the Nasdaq by 2.5%, marking its fourth-biggest one-day rise of 2024. The index’s strongest rally this year was a 3% jump on February 22.
A “Recalibration” of Fed Policy
Federal Reserve Chair Jerome Powell’s use of the word “recalibration” provided reassurance to investors. It signaled that the Fed’s 50-basis-point rate cut wasn’t a response to economic weakness but rather a proactive shift to safeguard employment levels. This interpretation helped fuel Thursday’s market rally, noted CNBC’s Jeff Cox.
Commodities Outlook
While stock markets have rallied on the back of the Fed’s rate cut, commodity markets may follow a different trajectory. Historically, lower rates tend to drive demand for commodities such as gold, copper, and oil. However, analysts from Citi and HSBC caution that predicting commodity performance requires careful analysis of historical patterns and broader economic shifts.
Bottom Line
The markets have quickly moved past their initial reactions to the Fed’s decision. As Dinah Washington famously sang, “What a difference a day makes.” After an initial dip following the Fed’s rate cut announcement, stocks bounced back decisively, hitting record highs across major indices. The S&P 500 climbed 1.7%, breaking through the 5,700 mark for the first time to close at 5,713.64. The Dow followed suit, closing above the 42,000 threshold for the first time at 42,025.19, rising 1.26%. The Nasdaq, driven by gains in Tesla, Nvidia, and Apple, emerged as the biggest winner, surging 2.51%. While September is historically a challenging month for stocks, historical data shows that when the S&P 500 reaches new highs in September, the fourth quarter tends to perform well. According to Oppenheimer, this pattern has occurred in 20 out of the last 22 instances since 1950.
BMO’s bullish outlook reflects this optimism. The bank raised its year-end target for the S&P 500 to 6,100, representing an 8.6% increase from Wednesday’s close the most aggressive projection on Wall Street. “Much like our last target increase in May, we continue to be surprised by the strength of market gains,” wrote Chief Investment Strategist Brian Belski.
As Washington’s song concludes, “What a difference a day makes, and the difference is you.” For now, Powell may feel like the central figure in this market serenade.
China Holds Lending Rates Steady Amid Fed Cuts, but Stimulus Expected Soon
In an unexpected move, China left its benchmark lending rates unchanged at Friday’s monthly fixing, surprising market participants who had anticipated a rate cut following the U.S. Federal Reserve’s aggressive interest rate reduction earlier this week. Despite this decision, most analysts believe China will introduce additional stimulus measures in the near future to support its slowing economy, now afforded more room for monetary easing thanks to the Fed’s rate cuts. The People’s Bank of China (PBOC) maintained the one-year loan prime rate (LPR) at 3.35%, while the five-year LPR remained unchanged at 3.85%. This decision caught many off-guard, as a Reuters survey of 39 market participants had found that 69% expected cuts to both rates.
Further Stimulus Likely on the Horizon
While no immediate action was taken, many experts believe that China’s policymakers are preparing a broader stimulus package, which could include a rate cut. “The rate cut is likely to be part of a larger policy package under review by senior officials,” said Xing Zhaopeng, Senior China Strategist at ANZ. He also noted that current economic indicators, including a slowdown in August’s credit lending and activity, support the case for a reduction. Analysts expect that such a move will help China’s economy meet its increasingly challenging 2024 growth target. The five-year LPR, which influences mortgage rates, is likely to be reduced in conjunction with these broader efforts. A more significant rate cut is anticipated by the fourth quarter as part of a comprehensive economic support strategy.
Pressure to Meet Growth Targets
China’s faltering economic performance has led global institutions to lower their 2024 growth forecasts for the country, now below the government’s target of around 5%. In response, President Xi Jinping recently emphasized the need for additional measures to achieve the nation’s economic and social development goals, as reported by state media. With Beijing’s room to maneuver expanding after the U.S. Fed’s rate cut, expectations are building for an imminent easing of monetary policy. “Lackluster growth demands policy easing, and the Fed’s cuts provide the necessary space for the PBOC to act,” analysts at Commerzbank noted.
Navigating Global Policy Divergence
For the past two years, China has been constrained in its monetary policy due to a diverging path from other major economies, particularly the United States. The yuan’s weakness has also complicated efforts to ease policy. However, the Fed’s recent 50-basis-point cut has opened a window for the PBOC to reduce rates without exerting excessive downward pressure on the yuan. Most loans in China are tied to the one-year LPR, while the five-year rate is used to set mortgage rates. With economic growth lagging and pressure mounting to meet development targets, it appears increasingly likely that rate cuts will be implemented in the coming months to stimulate demand and stabilize the property market. In the current context of global economic uncertainty, all eyes will be on China’s next steps in what may be a crucial period for both domestic recovery and broader international financial dynamics.
Natural Gas and Oil Forecast: Brent Eyes $75 as Bullish Momentum Builds
Market Overview
Oil prices saw a slight pullback on Friday but are poised to close the week on a positive note, driven by U.S. Federal Reserve rate cuts and a decline in crude stockpiles. The Fed’s 50 basis points interest rate reduction has lifted economic sentiment, potentially boosting energy demand. Geopolitical tensions in the Middle East further support prices, despite headwinds from weaker Chinese economic activity and reduced refinery output. Analysts suggest that oil prices will hover between $70 and $75 over the next quarter, but they anticipate potential declines heading into 2025 as broader market conditions evolve.
Natural Gas Price Forecast
Current Price: $2.351 (down 0.04%)
Natural Gas (NG) is trading slightly below its pivot point of $2.36, indicating mild bearish pressure. Immediate resistance is set at $2.43, with further targets at $2.48 and $2.54 if bullish sentiment gains traction. On the downside, key support sits at $2.28, with additional levels at $2.22 and $2.16. A break below these levels could signal increased selling pressure.
Technically, the 50-day EMA at $2.30 offers near-term support, while the 200-day EMA at $2.22 reinforces the broader support zone. If prices remain below the $2.36 pivot, bearish sentiment may dominate, but a breakout above this point could reinvigorate bullish momentum.
WTI Oil Price Forecast
Current Price: $70.97 (down 0.14%)
WTI Crude Oil (USOIL) is holding just above its pivot point at $70.54, a critical support zone. As long as prices stay above this level, the outlook remains bullish, with additional support at the 50-day EMA of $69.74. Immediate resistance is positioned at $71.88, followed by $72.95, and an extended target of $74.24 if upward momentum persists.
On the downside, key support is located at $68.45, and a break below this level could lead to increased selling pressure, potentially shifting the near-term outlook to bearish.
Brent Oil Price Forecast
Current Price: $74.66 (down 0.29%)
Brent Crude Oil (UKOIL) is trading above a crucial pivot point of $74.02, maintaining a bullish outlook. The 50-day EMA at $73.18 provides robust support, signaling that buyers still control the market. Immediate resistance lies at $75.19, with further targets at $76.24 and $77.45 if the bullish momentum continues to build. On the downside, key support levels are at $72.39, followed by $71.05 and $69.84. The formation of a bullish engulfing candle suggests a potential breakout, and the upward channel supports continued buying pressure. Should Brent break above $75.19, the market may see stronger gains in the near future.
Conclusion
Both WTI and Brent crude are poised for further gains if bullish momentum holds, with Brent potentially breaking the $75 barrier. Natural gas remains range-bound, but a break above $2.36 could shift market sentiment in its favor.
Gold (XAU) Daily Outlook: Bullish Trend Eyes $2,600 Amid Fed Rate Cuts
Market Overview
Gold prices (XAU/USD) are experiencing a sustained rally, nearing a record high of $2,595, driven by the Federal Reserve’s recent aggressive interest rate cut. This upward momentum is expected to persist, fueled by growing market anticipation of further Fed easing by year-end, which is pressuring the US Dollar (USD) towards year-to-date lows. As the dollar weakens, gold’s status as a safe-haven asset is attracting more investors, enhancing its appeal as a store of value in uncertain economic times.
Gold’s Rally Backed by a Weaker Dollar and Economic Concerns
The US dollar has been under pressure following the Fed’s 50 basis points rate cut, making dollar-denominated assets like gold more attractive. Fed policymakers have signaled the potential for additional cuts, with borrowing rates projected to fall to 3.4% by 2025 and 2.9% by 2026, further weakening the dollar. While recent positive economic indicators such as a drop in jobless claims to 219,000 and an unexpected rise in the Philadelphia Fed’s manufacturing index haven’t reversed the dollar’s slide, concerns over economic growth and slowing activity in China have kept the greenback under pressure. This backdrop has bolstered gold’s standing as a non-yielding asset.
Increased Safe-Haven Demand Amid Global Uncertainty
Beyond monetary policy, rising concerns over economic slowdowns in both the US and China are contributing to higher gold prices. Geopolitical tensions, particularly in the Middle East and Eastern Europe, along with uncertainty in the US ahead of the upcoming presidential election, are also pushing demand for safe-haven investments like gold. Given the volatile economic and geopolitical landscape, analysts anticipate further upward momentum for gold, projecting prices to surpass $2,600 in the coming weeks as investor demand remains robust.
Short-Term Forecast
Gold (XAU/USD) continues to push higher, approaching key resistance at $2,604. With support levels anchored at $2,585, the ongoing bullish sentiment is expected to drive prices beyond the $2,600 mark, underpinned by a weakening US dollar and continued Fed rate cuts.
Technical Analysis
Currently trading at $2,593.65 (+0.23%), gold is exhibiting strong upward momentum. The pivot point at $2,585.89 serves as critical support, sustaining the rally. Immediate resistance lies at $2,604.25, with further resistance targets at $2,618.20 and $2,632.15. On the downside, key support levels include $2,573.90, $2,560.25, and $2,547.22. The 50-day EMA at $2,560.61 reinforces near-term support, while the 200-day EMA at $2,505.77 highlights the broader bullish trend. A recent bullish engulfing candle pattern suggests continued gains, though a break below the $2,585 pivot could invite selling pressure, shifting the short-term outlook. Overall, gold remains well-positioned to reach new highs, with the combination of economic uncertainty, a weakening dollar, and geopolitical risk providing a favorable environment for further price increases.
Indonesian Rupiah Set for Best Week Since January as Bonds Surge
Market Overview
The Indonesian rupiah is on track for its strongest weekly performance since January, bolstered by a rally in the country’s bonds and rising investor inflows. Bank Indonesia’s decision to allow the rupiah to appreciate further has contributed to its surge, with the currency climbing as much as 1% on Friday to 15,080 per U.S. dollar, bringing its weekly gain to approximately 2.1%. This places the rupiah among the top performers in emerging markets. Simultaneously, the yield on Indonesia’s 10-year government bonds dropped to its lowest level in a year, reflecting strong demand from foreign investors.
Appeal of Southeast Asian Assets Grows
Southeast Asian assets, including Indonesia’s, are gaining favor among global investors seeking higher returns amid the U.S. Federal Reserve’s monetary easing cycle. Indonesia’s surprise interest-rate cut earlier this week has heightened the allure of its bonds and currency, with analysts forecasting further easing from the central bank. “Rupiah strength is underpinned by increased interest in Indonesian government bonds,” said Alan Lau, a currency strategist at Maybank in Singapore. Lau noted that Bank Indonesia is in a more favorable position compared to other central banks in the region, allowing for continued easing, which has amplified the attractiveness of Indonesian assets.
Rupiah Strength and Bond Inflows
Indonesian bonds are set for their fifth consecutive month of net inflows, marking the longest streak of inflows since 2017. Bank Indonesia has allowed the rupiah to strengthen, refraining from market intervention on Friday, according to Edi Susianto, the central bank’s executive director for monetary management. He reassured that the currency’s volatility remains manageable. Traders are closely monitoring the 15,000-per-dollar level, seen as the next key resistance point for the rupiah. “While markets might continue to favor the rupiah, caution could increase as it approaches the key psychological barrier of 15,000,” said Jeffrey Zhang, a strategist at Credit Agricole CIB in Hong Kong.
Conclusion
As the rupiah gains momentum and bonds attract more inflows, Indonesia’s financial markets are seeing heightened interest. With the central bank poised for further easing, the rupiah may continue to strengthen, although traders are mindful of potential resistance at key levels.
Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $400 million AUM and over 1000 Clients.
Disclaimer: This post provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.
Daily Synopsis of the New York market close
Date Issued – 19th September 2024
Market Outlook Hinges on Fed’s Bold Rate Cut: Soft Landing in Sight?
In what many are calling a pivotal moment for monetary policy, the Federal Reserve’s recent decision to lower interest rates by 50 basis points has captured the attention of the financial world. This substantial cut, the first in more than four years, signals the central bank’s efforts to shield a resilient economy from a rapid slowdown. But as investors digest the news, one key question emerges: will this timely intervention allow the U.S. economy to land softly, or is a more turbulent descent ahead? The Fed’s dramatic rate cut comes as a preemptive move, not a panicked response. Chair Jerome Powell emphasized that the reduction was meant to “recalibrate” the policy in light of falling inflation, rather than to address acute weaknesses in the labor market. While many expected a rate cut, the sheer scale surprised the market, sparking debates about the central bank’s foresight and the future trajectory of growth.
Market Reaction: A Momentary Pause?
Despite the sizable rate cut, markets reacted with cautious optimism. Initially, stocks and bonds rallied before retreating to more modest levels. The S&P 500, after a volatile session, closed down 0.3%, although the index remains up nearly 18% for the year. Investors are now grappling with mixed signals: some are skeptical about whether the Fed’s move was too late to mitigate labor market weakness, while others see it as a bullish signal for risk assets. Eric Beyrich, co-CIO of Sound Income Strategies, highlighted market ambivalence: “For many, this was a surprise. The Fed’s bold move makes some wonder, what risks do they see that we might be missing?”
Is a Soft Landing Still Possible?
Amid mounting concerns over labor market softening, the prospect of a “soft landing” remains central to market hopes. Investors are betting that the Fed can cool inflation without triggering a recession. Historically, rate cuts in non-recessionary periods have propelled equity markets, with the S&P 500 posting a 14% average gain six months after the first cut. This pattern offers hope for a continued bull market in 2024, but the risks remain. Jeff Schulze, head of market strategy at ClearBridge Investments, remains optimistic: “This rate cut boosts the chances of the Fed achieving a soft landing, which would be hugely bullish for risk assets.”
Long-Term Impact: Adjusting to a New Normal
The Fed’s forward-looking guidance also provides insight into its evolving stance. Although deeper rate cuts are now expected, the Fed’s longer-term rate forecasts remain above market expectations, reflecting a cautious approach. Some market participants, like Vanguard’s John Madziyire, expect bond yields to adjust accordingly: “The market’s pricing of rate cuts was aggressive. A correction in long-term yields is a logical response.” However, geopolitical uncertainty, especially with the upcoming U.S. presidential election, adds complexity to the path forward. Andrzej Skiba of RBC Global Asset Management warns that trade tensions under a Trump presidency could reignite inflationary pressures, limiting the Fed’s ability to continue cutting rates. As the Fed navigates this delicate balancing act, markets remain on edge, hoping that the bold rate cut was the right move at the right time to guide the U.S. economy towards a stable and prosperous future.
Global Economy ‘Stronger than Expected,’ in 2024 Citi Says
Citi analysts have raised their expectations for the global economy in 2024, predicting it will perform better than initially expected, driven by easing interest rates and strong momentum in some emerging markets. While the global economy is forecast to grow by 2.5%, this figure is slightly below last year’s growth. However, the overall outlook is more positive due to favorable monetary conditions, despite challenges in key developed markets and China.
Key Highlights from Citi’s Global Economic Outlook:
- Developed Economies Slowing Down: Growth in major developed economies like the U.S., UK, and Canada is expected to soften significantly in the second half of 2024. Citi forecasts stagnation in the Eurozone, with particular weakness in Germany. Meanwhile, Japan may experience a mild contraction in its gross domestic product (GDP), despite some expected uptick in consumer spending, which could drive inflation higher. The Bank of Japan is expected to raise interest rates further by the end of the year.
- China’s Weak Consumer Sentiment: China is cited as a key concern due to weaker-than-expected consumer spending and declining economic momentum, especially in manufacturing and services. The country’s property sector has shown no sign of recovery, which has compounded the economic slowdown. Citi expects Chinese GDP growth to hit 4.7% in 2024, falling short of the government’s 5% target. Despite these challenges, the Chinese government has been slow to roll out robust stimulus measures, raising doubts about the effectiveness of its fiscal policies.
- U.S. Resilience with Uncertainty: While the U.S. economy remains somewhat uncertain, resilience in consumer spending and a deeper easing cycle from the Federal Reserve are likely to support some growth. However, a cooling labor market presents risks, as recent indicators suggest steady deterioration in job conditions. This could undermine economic momentum if the trend continues.
- Emerging Markets Strengthening: One of the more optimistic parts of Citi’s report is the outlook for emerging markets. The easing interest rates in developed economies are expected to spur broader monetary easing cycles in these regions, which will help boost their economic growth. Emerging markets are expected to gain more traction as global conditions become more favorable.
Conclusion
While developed economies face stagnation and contraction in certain areas, easing monetary policies and a more positive outlook for emerging markets offer some optimism for the global economy in 2024. However, China’s sluggish growth and slow policy response remain major concerns that could temper overall global growth momentum.
Tupperware’s Bankruptcy: How a Household Name Struggled to Adapt in the Digital Era
Tupperware Brands Corporation, once a dominant force in the world of food storage, has filed for Chapter 11 bankruptcy protection. Despite enjoying a temporary surge in sales during the pandemic, the company has struggled to remain relevant in today’s fast-evolving retail landscape. Here’s a breakdown of the reasons behind Tupperware’s financial decline and what the future might hold for this iconic brand.
The Downfall: What Went Wrong for Tupperware?
In its bankruptcy filing, Tupperware cited a “challenging macroeconomic environment” as a key driver of its financial troubles. This reference to inflation, rising interest rates, and reduced consumer spending highlights the pressures many businesses face today. However, a closer look at the company’s history reveals deeper, structural problems that stretch far beyond external economic conditions. For decades, Tupperware’s business model relied heavily on its direct-selling strategy using independent consultants to market its products through personal networks. While this approach was highly effective in the 20th century, it began to falter in the digital age. According to the bankruptcy petition, Tupperware’s commitment to direct sales came at the cost of developing a robust omnichannel or e-commerce infrastructure. This critical misstep left the company ill-equipped to compete in a world where online shopping has become the norm.
Lagging in the E-Commerce Revolution
By 2023, nearly 90% of Tupperware’s sales still came through its traditional direct-sales channel a staggering statistic in an era dominated by digital commerce. The company only ventured into online sales in the 2020s, decades after e-commerce became an essential component of retail success. Tupperware didn’t open its Amazon storefront until June 2022, and began selling on Target.com just months later in October. This delay proved costly, as competitors quickly captured market share. In its court filings, Tupperware acknowledged the severe impact of this delayed digital transformation, stating that its online presence remains weak and that search results on platforms like Amazon frequently promote rival brands like Rubbermaid.
What’s Next for Tupperware?
Despite its financial woes, Tupperware plans to continue operating while restructuring under Chapter 11. The company’s strategy focuses on preserving its iconic brand while transitioning into a “digital-first, technology-led” business model. The specifics of this turnaround plan remain unclear, but it will likely include expanding its e-commerce presence and strengthening online marketing efforts to capture a larger share of the digital marketplace. Tupperware has also indicated that it will seek approval from the bankruptcy court to facilitate a potential sale of the business. The goal is to find a buyer who can protect the brand’s legacy while accelerating its digital transformation.
Fierce Competition Ahead
Even with a fresh strategy, Tupperware faces stiff competition in the online marketplace. As its court filing reveals, even after launching on Amazon, the company’s products are often overshadowed by competitor offerings. The challenge now will be to leverage effective marketing and branding strategies to stand out in a crowded digital space.
Tupperware’s Legacy: From Market Leader to Penny Stock
Founded in 1938, Tupperware once revolutionized household storage and enjoyed decades of dominance in its field. However, its stock has plummeted from an all-time high of over $74 per share in April 2017 to less than 51 cents as of today. Year-to-date, Tupperware shares have fallen over 74%, underscoring the severity of its financial distress. As the company attempts to navigate bankruptcy, it faces the daunting task of modernizing its business while maintaining the iconic status of its brand. Whether Tupperware can evolve and recapture its former glory remains to be seen, but its story serves as a cautionary tale for legacy brands that fail to adapt to the digital age.
China’s Quest to Rival Nvidia in AI Chips Faces Significant Challenges
China is ramping up efforts to create a domestic rival to Nvidia, the American semiconductor giant whose chips power many of today’s advanced AI applications. Despite its ambitions, China is struggling to keep pace, hindered by U.S. sanctions and technological gaps. Here’s a closer look at the challenges China faces in trying to compete with Nvidia and the companies vying for leadership in this critical space.
The Rise of AI and Nvidia’s Dominance
Nvidia’s surge in demand stems from its cutting-edge Graphics Processing Units (GPUs) that power artificial intelligence (AI) models, such as those behind OpenAI’s ChatGPT. These GPUs are critical for training large datasets, enabling applications like chatbots and other advanced AI technologies. However, U.S. sanctions imposed since 2022 have restricted China’s access to Nvidia’s most advanced chips, a major obstacle in Beijing’s goal to become a leader in AI.
China’s Emerging Contenders
Chinese companies such as Huawei, Alibaba, Baidu, and startups like Biren Technology and Enflame have made notable progress in developing AI chips. However, analysts agree they are still lagging behind Nvidia. According to Wei Sun, a senior analyst at Counterpoint Research, these companies are focusing on application-specific integrated circuits (ASICs) but struggle to close the gap in general-purpose GPUs, making it unlikely that they will match Nvidia in the short term.
U.S. Sanctions and Technological Bottlenecks
The biggest roadblock to China’s semiconductor aspirations remains U.S. sanctions, which have blacklisted some of the country’s leading companies and restricted access to critical AI-related technology. Many of China’s chip designers previously relied on Taiwan Semiconductor Manufacturing Co. (TSMC) for production. However, due to U.S. restrictions, they now turn to China’s largest chipmaker, Semiconductor Manufacturing International Corporation (SMIC). SMIC, however, lags behind TSMC, in part because it lacks access to crucial equipment from Dutch company ASML needed to produce the most advanced chips. Adding to the complexity, Huawei has been using much of SMIC’s production capacity for its own chips, leaving less room for other Chinese GPU startups to scale their manufacturing.
Nvidia’s Competitive Edge: More than Just Hardware
Nvidia’s dominance isn’t limited to hardware. Its success is deeply tied to its CUDA software platform, which enables developers to build applications for Nvidia’s hardware, creating a robust ecosystem around its products. According to Paul Triolo, a partner at consulting firm Albright Stonebridge, this integrated ecosystem of hardware, software, and developer tools gives Nvidia a significant advantage that is difficult for others to replicate.
Huawei Leads the Pack, but Challenges Remain
Among China’s competitors, Huawei appears to be leading with its Ascend series of processors for data centers. The company’s upcoming Ascend 910C could be comparable to Nvidia’s H100 chip, according to reports. While Huawei is a key player, it faces similar hurdles to the rest of the industry, such as U.S. export controls and production limitations at SMIC, which restrict its ability to manufacture advanced GPUs.
IPOs and the Future of China’s AI Chip Ambitions
China’s chip startups, like Biren Technology and Enflame, are pushing forward despite these setbacks. Both companies are reportedly looking to go public in Hong Kong to raise capital for expansion and talent acquisition. While these firms have skilled personnel, many with experience from Nvidia and AMD, they lack the financial resources of a tech giant like Huawei, which further complicates their road to success.
Conclusion
China’s efforts to develop a domestic Nvidia competitor are stymied by both internal challenges and external pressures from U.S. sanctions. While companies like Huawei, Biren, and Enflame are making progress, the road to rivaling Nvidia is steep and fraught with obstacles. With technological bottlenecks, limited manufacturing capabilities, and a lack of comprehensive software ecosystems, it’s clear that China’s ambition to lead in AI chip production is still far from being realized.
UN Advisory Body Proposes Seven Key Recommendations for AI Governance
An artificial intelligence (AI) advisory body established by the United Nations has released its final report, offering seven crucial recommendations aimed at addressing AI-related risks and governance challenges. As AI technology continues to evolve rapidly, particularly following the release of OpenAI’s ChatGPT in 2022, concerns about misinformation, copyright infringement, and social control have intensified globally. The 39-member advisory group, formed last year, has urged the international community to tackle the gaps in AI governance, with the recommendations set to be discussed at an upcoming U.N. summit in September.
Key Recommendations:
- Global AI Panel for Scientific Knowledge: The advisory body recommends the creation of a global panel that would offer impartial and reliable scientific expertise on AI developments. This panel would address the information asymmetry that exists between AI labs and other sectors, ensuring that AI technologies are understood and regulated effectively.
- Policy Dialogue on AI Governance: The U.N. advocates for a new global policy dialogue dedicated to AI governance, with the goal of fostering international cooperation and collaboration on AI regulation and responsible development.
- AI Standards Exchange: Establishing an AI standards exchange is seen as critical for ensuring that AI technologies meet consistent global benchmarks, enhancing transparency and accountability in the development and use of AI systems.
- Global AI Capacity Development Network: The report calls for the creation of a capacity development network that would support governance capabilities around the world, helping nations, particularly those with fewer resources, to keep pace with AI advancements and ensure responsible AI deployment.
- Global AI Fund: The advisory group recommends establishing a global AI fund to address the gaps in capacity and collaboration, particularly in under-resourced regions. This fund would support the equitable distribution of AI benefits while addressing potential risks.
- Global AI Data Framework: A global AI data framework is proposed to ensure transparency, accountability, and ethical data use in AI applications. This framework would also address privacy concerns and the need for responsible handling of data in AI systems.
- Small AI Office for Coordination: Finally, the U.N. advisory body recommends the creation of a small, dedicated AI office to coordinate the implementation of these proposals and ensure that progress is made toward responsible AI governance at a global scale.
The Global Context
The recommendations come at a time when AI regulation is still largely fragmented. The European Union has led the way with its comprehensive AI Act, while the U.S. has taken a voluntary compliance approach, and China has focused on maintaining state control. Additionally, on September 10, the U.S., along with 60 other countries, endorsed a “blueprint for action” aimed at governing the responsible use of AI in military applications, though China opted out of the non-binding agreement.
As AI development remains concentrated in a few large multinational corporations, the U.N. advisory body emphasized the danger of AI technologies being imposed on the global population without adequate representation or control. The recommendations are seen as a significant step toward ensuring that AI is governed in a way that is transparent, accountable, and beneficial for all. These proposals, if adopted, could form the foundation for an international framework that balances innovation with ethical considerations, creating a global approach to AI governance that addresses both risks and opportunities.
Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $400 million AUM and over 1000 Clients.
Disclaimer: This post provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.
Daily Synopsis of the New York market close
Date Issued – 18th September 2024
Market Focus Shifts to Landmark Fed Decision, Futures Edge Higher
1. Focus on the Fed
The Federal Reserve is at the center of market attention as investors eagerly await its crucial interest rate decision. As speculation mounts, the debate centers around whether the Fed will opt for a 25-basis point cut or a more aggressive 50-basis point reduction. This would mark the first rate cut since March 2020, a significant shift as the Fed seeks to balance economic momentum and inflationary pressures. The FedWatch Tool by CME Group currently reflects a 61% probability of a larger 50-basis point cut, fueled by reports from the Financial Times and Wall Street Journal, which indicate the possibility of a jumbo cut. Former New York Fed President Bill Dudley adds weight to the argument, stating a “strong case” exists for the larger cut, as current rates may be above neutral territory. However, mixed economic data, including stronger-than-expected retail sales in August and tepid inflation trends, makes this a closely contested decision. Analysts at ING describe it as a “close call,” underscoring the uncertainty in the macro outlook. Investors are also eyeing potential signals from the Fed on future rate cuts, with markets anticipating at least 100 basis points in reductions by the end of 2024.
2. Futures Edge Higher
Ahead of the Fed’s pivotal meeting, U.S. stock futures inched upward. As of 03:30 ET (07:30 GMT), Dow futures added 45 points (0.1%), S&P 500 futures edged higher by 7 points (0.1%), and Nasdaq 100 futures gained 39 points (0.2%). These modest gains follow a turbulent Tuesday session, where positive retail sales data propelled the S&P 500 and Dow Jones Industrial Average to record highs, only for markets to fade on Fed uncertainty. The tech-heavy Nasdaq Composite closed the day with a slight 0.2% increase.
3. 23andMe Directors Resign Over Take-Private Offer
Genetic testing firm 23andMe faced board upheaval as all seven independent directors resigned following failed negotiations with CEO Anne Wojcicki regarding her proposal to take the company private. The board expressed disappointment over the lack of a “fully financed, actionable proposal” that would benefit non-affiliated shareholders. Wojcicki controls 49% of the company and had offered to buy remaining shares at $0.40 each, a move rejected by a special committee. In a memo to employees, Wojcicki stated she was “surprised and disappointed” by the resignations, reiterating her belief that going private would free 23andMe from the short-term pressures of public markets. Shares plummeted in extended trading following the announcement.
4. Nippon Steel Wins Extension on U.S. Steel Deal Review
Nippon Steel’s $14.1 billion bid for U.S. Steel is receiving a prolonged security review, potentially extending the timeline past the U.S. presidential election in November. Bloomberg reports that Nippon Steel was granted the ability to revoke and refile its submission to a U.S. security committee, a strategic move amid political sensitivities surrounding the deal. President Joe Biden has publicly opposed the transaction, further complicating the outlook, particularly as U.S. Steel is a major player in Pennsylvania, a key battleground state in the 2024 election. Shares of U.S. Steel rose 3% in aftermarket trading on the news.
5. Oil Prices Decline as Inventories Rise
Oil prices dipped in early European trading, trimming recent gains following an unexpected increase in U.S. crude inventories. Brent futures fell by 0.5% to $73.33 per barrel, while West Texas Intermediate (WTI) dropped to $69.63. Despite the short-term pullback, prices remain elevated on the back of supply disruptions from Hurricane Francine and anticipation of Fed rate cuts, which have pushed traders to take advantage of discounted oil prices. Additionally, rising Middle East tensions are contributing to price volatility, with Hezbollah threatening retaliation against Israel. Both Brent and WTI contracts have rebounded sharply over the past week, recovering from three-year lows.
Why Big Banks Are Obsessed with 1995
The echoes of 1995 are growing louder on Wall Street, and for good reason. That year, a series of Federal Reserve interest rate cuts sparked one of the best multiyear periods in banking history. With inflation cooling and U.S. consumer spending slowing, the Fed reduced rates by 25 basis points in July, December, and again in January 1996. The result? An extraordinary rally for banks. An index tracking the banking sector surged by more than 40%, outperforming the broader market for two consecutive years. Today, with speculation rising over potential Fed rate cuts in 2025, many financial institutions are drawing parallels to that remarkable period, hoping for a repeat performance. While the path to another 1995-like boom may seem distant, Wall Street analysts and bank executives are contemplating what it would take to recreate such a winning streak.
A Strong Start for 2023
The banking sector has already posted respectable gains this year. The KBW Nasdaq Bank Index (^BKX), which tracks large U.S. banks, is up over 14%, and the Financial Select Sector SPDR Fund (XLF), which includes a wide range of financial institutions, has gained 19%. However, these gains still lag behind major market indices. As Mike Mayo, an analyst at Wells Fargo, puts it: “History isn’t likely to repeat, but it may rhyme.” While Mayo is cautious about expecting a full repeat of 1995, he notes that key similarities are emerging. In particular, Mayo points out that in three instances—1995, 1998, and 2019—where the Fed cut rates without triggering a recession, bank stocks initially sold off before rebounding and outperforming the S&P 500. However, history also shows that only in 1995 did this outperformance last longer than three months after the initial rate cut.
1995: A Turning Point for Banks
The conditions leading up to the 1995 boom were far from ideal for banks. Major institutions were reeling from the bankruptcy of Orange County in December 1994 and the collapse of British merchant bank Barings in early 1995. The bond market had suffered a significant wipeout, leading to substantial trading losses. Meanwhile, commercial real estate lenders were still grappling with loan losses from a crisis dating back to the late ’80s.
Despite this, a key factor worked in favor of the banking sector: a steep yield curve. Long-term Treasury yields remained higher than short-term rates, allowing banks to profit from the spread between borrowing at short-term rates and lending at long-term ones. Moreover, deregulation provided a tailwind, with new laws allowing banks to open branches across state lines, setting the stage for the emergence of mega-banks like Wells Fargo and Bank of America.
Could Regulation Swing Back to Favor Banks?
Today’s regulatory environment is different from 1995, but some believe the pendulum may be swinging back in favor of big banks. While regulation has tightened since the Trump administration, recent developments suggest a potential easing. For instance, new bank capital rules introduced last week were less stringent than initially expected. Additionally, the Supreme Court’s rejection of the Chevron doctrine, which granted regulatory agencies broad authority in interpreting laws, may limit regulatory power moving forward.
However, there are significant differences between now and 1995. The current shift in monetary policy follows one of the longest periods of low interest rates in U.S. history. During the pandemic, banks experienced a surge in deposits, which left many institutions ill-prepared for the recent sharp rate hikes. As Allen Puwalski, CIO at Cybiont Capital, noted, “There’s no argument that falling rates are good for banks. I’m just not sure it’s for the same reasons that it was in ’95.”
The Path to 2025: Can Banks Repeat 1995’s Success?
For 2025 to be as strong for banks as 1995, the Fed would need to engineer a “soft landing”—reducing inflation without triggering a recession. This is a challenging task, but not impossible. As former Boston Fed President Eric Rosengren told Yahoo Finance, “There are plenty of things that could go wrong, but I think it’s a high enough probability that it’s still reasonable to talk about a soft landing.” Looking ahead, banks that have benefited from high interest rates may see shrinking profits, while those that struggled could be poised for a rebound. At a recent Barclays conference, several bank executives, including Bank of America CEO Brian Moynihan and PNC CEO Bill Demchak, expressed optimism about earnings in 2025. Others, like JPMorgan Chase COO Daniel Pinto, were more cautious, warning that analysts might be too optimistic about future earnings.
Conclusion: A Dream Worth Pursuing?
While a repeat of 1995 may seem like a long shot, the banking sector is once again in the midst of significant change. Loan growth, a revival in investment banking, and a favorable regulatory environment could provide the necessary ingredients for another rally. But as RBC Capital Markets analyst Gerard Cassidy cautions, “We do expect to see incrementally higher loan loss provisions in the next 12 months.” In the end, while betting on a repeat of 1995 may be risky, the industry’s trajectory is pointing in the right direction—making it a dream worth keeping an eye on.
BlackRock and Microsoft Aim to Raise $30 Billion for AI Investments
BlackRock Inc. and Microsoft Corp. have joined forces in a major initiative to fund the expansion of data centers and energy infrastructure essential to supporting the explosive growth of artificial intelligence (AI). Alongside the United Arab Emirates’ MGX investment vehicle, the two firms are targeting $30 billion in private equity capital for the project, with the potential to leverage this sum into as much as $100 billion in investments over time. According to BlackRock CEO Larry Fink, the Global AI Infrastructure Investment Partnership has been in development for months. The aim is to fund the global buildout of data centers, a project estimated to require trillions of dollars in financing. “This is a prime example of capital markets driving infrastructure development and enabling new technologies,” Fink said.
The infrastructure projects, which will focus on both data and energy investments, are expected to be concentrated in the U.S., with some funds allocated to partner countries. The companies are seeking additional investors for the effort, and Fink expressed confidence that raising the capital would not be a challenge, citing strong interest from pension funds and insurers eager for long-term infrastructure investments. Key players in this initiative include Global Infrastructure Partners, led by Bayo Ogunlesi, which BlackRock is acquiring for $12.5 billion, and Abu Dhabi’s MGX, a newly established investment entity focused on AI. Nvidia Corp., a leading chipmaker, is also part of the collaboration, providing its expertise in building AI data centers and systems, as well as critical software and networking technologies.
Microsoft Vice Chairman Brad Smith emphasized the immense investment opportunity AI presents, describing it as “the next general-purpose technology” poised to drive growth across industries globally. Microsoft, which has already invested $13 billion in OpenAI, is heavily investing in AI-focused data centers and infrastructure to support the burgeoning demand. The company is also grappling with the challenge of limited data center capacity and chip shortages, which constrain its ability to serve AI customers.
Energy and Infrastructure Challenges
One of the most significant hurdles facing the AI boom is the immense energy demand from data centers. According to Bloomberg Intelligence, electricity usage by these facilities is expected to surge up to tenfold by 2030. This has prompted energy companies across the U.S. to delay the retirement of coal and gas plants, plan new gas plants, and ramp up investment in renewable energy sources such as solar and wind farms. However, competition for electricity has already extended the time needed to connect new data centers to the grid up to seven years in Virginia’s Data Center Alley.
Ogunlesi underscored the critical need for increased power generation, stating, “Power availability is now a key constraint on not just data center expansion but broader electrification efforts. We must accelerate the development of renewable energy plants in the U.S.” In parallel, Microsoft has been in discussions with OpenAI co-founder and CEO Sam Altman, who is working on his own plans to bring together investors and tech firms to massively expand the infrastructure needed for AI products. As AI continues to evolve as a transformative technology, the collaboration between BlackRock, Microsoft, and their partners highlights the scale of investment and infrastructure required to meet the industry’s rapid growth.
JPMorgan CEO Jamie Dimon to Visit Africa in Strategic Expansion Push
Jamie Dimon, CEO of JPMorgan Chase, is set to visit Africa in mid-October as part of the bank’s strategy to expand its presence on the continent. This will be Dimon’s first trip to Africa in seven years, with planned visits to key markets including Kenya, Nigeria, South Africa, and Ivory Coast, according to sources familiar with the matter. JPMorgan already operates in South Africa and Nigeria, offering asset and wealth management, as well as commercial and investment banking services. The bank, which holds over $4.1 trillion in assets and operates in more than 100 countries, is actively targeting international markets as a growth strategy.
In 2018, Dimon had expressed interest in expanding into Ghana and Kenya, although local regulatory hurdles initially slowed these efforts. However, recent developments suggest renewed momentum: Kenyan President William Ruto announced in early 2023 that JPMorgan had committed to opening an office in Nairobi. The timeline for entering Ghana and Kenya remains unclear. The move is part of a broader trend where major global banks are increasingly eyeing Africa’s sovereign debt and corporate transactions. Analysts note that international lenders, like JPMorgan, are also looking to provide wealth management services for multinational companies with African operations. Eric Musau, head of research at Standard Investment Bank in Nairobi, explained that such offerings typically focus on access to offshore equity, debt, and mutual funds, which international banks view as key growth areas.
In addition to wealth management, private banking services are gaining traction in Africa, particularly as global banks seek to differentiate themselves from local and regional competitors. Francis Mwangi, CEO of Kestrel Capital in Nairobi, sees private banking as “the next evolution” for financial services on the continent, where most consumers currently rely on local commercial banks. JPMorgan has emphasized its commitment to international expansion, prioritizing growth in overseas markets. As of May 2023, the bank ranked among the top five international private banks by assets under supervision. In recent years, JPMorgan has significantly bolstered its global footprint, adding 700 bankers across 27 new locations, generating $2 billion in additional revenue.
Dimon’s Africa visit underscores JPMorgan’s ambition to capture a larger share of the continent’s banking landscape. The bank is supported by an advisory board that includes influential figures with African ties, such as Nigerian billionaire Aliko Dangote and former UK Prime Minister Tony Blair.
As competition intensifies, global banks are adopting diverse strategies in sub-Saharan Africa, targeting the most promising markets. Standard Chartered, for example, has focused its efforts on Kenya, where assets under management surged by 25% to $1.4 billion in 2022. Meanwhile, the bank has scaled back in other parts of the region, exiting markets such as Angola, Cameroon, and Sierra Leone. JPMorgan’s expansion push signals its belief in Africa’s growing importance in global financial markets, with the continent’s rapid development offering fertile ground for investment banking and wealth management growth.
Factbox: Airlines Suspend Flights as Middle East Tensions Rise
International airlines are adjusting their flight operations amid escalating tensions in the Middle East, with several carriers suspending services to affected regions or avoiding particular airspaces. Here’s a summary of the changes made by some airlines:
Airlines Suspending or Adjusting Flights:
- Air Algérie: Suspended flights to and from Lebanon until further notice.
- AirBaltic: Plans to resume flights between Riga and Tel Aviv on Sept. 17.
- Air France-KLM:
- KLM canceled all flights to and from Tel Aviv until Oct. 26.
- Transavia (a low-cost subsidiary) canceled flights to Tel Aviv until March 31, 2025, and to Amman and Beirut until Nov. 3.
- Air India: Suspended scheduled flights to Tel Aviv indefinitely.
- Cathay Pacific: Canceled all flights to Tel Aviv until March 27, 2025.
- Delta Air Lines: Paused flights between New York and Tel Aviv until Oct. 31.
- EasyJet: Stopped flights to Tel Aviv in April, with plans to resume on March 30, 2025.
- IAG (Vueling): Canceled flights to Tel Aviv until Jan. 12, 2025, and suspended flights to Amman indefinitely.
- LOT Polish Airlines: Suspended flights to Lebanon but is operating flights to Tel Aviv regularly.
- Lufthansa Group:
- Suspended all flights to and from Tel Aviv and Tehran until at least Sept. 19.
- Swiss International Air Lines suspended flights to Beirut until the end of October.
- Ryanair: Canceled flights to Tel Aviv until Oct. 26 due to operational restrictions.
- Sundair: Canceled flights between Bremen and Beirut until Oct. 23.
- SunExpress: Suspended flights to Beirut until Dec. 17.
- United Airlines: Suspended flights to Tel Aviv indefinitely due to security concerns.
Alerts for Lebanese Airspace:
- The UK government advised airlines to avoid Lebanese airspace from Aug. 8 to Nov. 4, citing potential military risks.
These suspensions reflect heightened concerns over safety and security in the region as airlines take precautionary measures.
Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $400 million AUM and over 1000 Clients.
Disclaimer: This post provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.
Daily Synopsis of the New York market close
Date Issued – 17th September 2024
European Stocks Edge Higher as Markets Brace for Fed’s Key Policy Meeting
European stocks posted modest gains on Tuesday, with investors cautiously optimistic ahead of the Federal Reserve’s highly anticipated policy-setting meeting, which begins later today. By 07:05 GMT (03:05 ET), Germany’s DAX rose by 0.4%, France’s CAC 40 gained 0.5%, and the U.K.’s FTSE 100 climbed 0.8%. Market sentiment suggests a shift towards a more dovish stance from the Fed, raising expectations of a potential rate cut.
All Eyes on the Federal Reserve Meeting
The Federal Reserve kicks off its two-day meeting today, with markets widely anticipating the first rate cut in four years to support economic growth. While uncertainty lingers over the scale of the rate reduction, many traders are betting on a more aggressive 50 basis point (bps) cut rather than the more traditional 25 bps. According to CME FedWatch, there is a 68% likelihood of a 50 bps cut, while a 25 bps cut has a 32% chance. Additionally, policymakers at the Bank of England and the Bank of Japan are set to meet later this week, making it a pivotal moment for global monetary policy.
German ZEW Survey and U.S. Retail Data Under Scrutiny
Before the Fed’s decision, market participants are watching the release of Germany’s ZEW economic sentiment index, which is expected to show a slight decline as Europe’s largest economy continues to face headwinds. Meanwhile, U.S. retail sales data for August is projected to show a month-on-month contraction, but investors may discount the report in light of a possible rate cut by the Fed.
EssilorLuxottica Extends Partnership with Meta
In corporate news, shares of EssilorLuxottica (EPA) rose 0.5% after the eyewear giant announced an extension of its partnership with Meta Platforms (NASDAQ). The companies signed a new long-term agreement to continue developing smart eyewear into the next decade. Their collaboration, which began in 2019, has produced two generations of Ray-Ban-branded smart glasses, combining fashion and technology.
Kingfisher’s Shares Surge Following Profit Outlook Upgrade
Kingfisher (LON) saw its stock rise over 5% after the European home improvement retailer reported flat first-half profits, which were impacted by weak demand for large discretionary purchases. However, the company raised its full-year profit outlook, providing a boost to investor confidence.
Crude Prices Strengthen as Hurricane Disruptions Continue
Oil prices moved higher on Tuesday, driven by ongoing disruptions to U.S. crude production following Hurricane Francine. At 03:05 ET, Brent crude rose by 0.5% to $73.12 per barrel, while U.S. West Texas Intermediate (WTI) gained 0.7%, reaching $68.48 per barrel. The aftermath of the hurricane has kept over 12% of crude production and 16% of natural gas output in the Gulf of Mexico offline, according to the U.S. Bureau of Safety and Environmental Enforcement. With the Federal Reserve’s expected rate cut adding to market optimism, traders are also awaiting the American Petroleum Institute’s weekly inventory data, which is expected to show another decline in U.S. crude stockpiles. Markets are closely monitoring these developments as they signal broader trends in both economic and energy sectors.
Von der Leyen Prepares to Unveil New European Commission Leadership
European Commission President Ursula von der Leyen is set to announce the key appointments in the EU’s executive branch on Tuesday, determining which national representatives will take charge of major portfolios such as trade, competition, and climate policy. As the most influential institution within the 27-nation European Union, the Commission holds the authority to propose new laws, oversee corporate mergers, and negotiate international trade agreements. Each EU member state will secure a position within the Commission, akin to a ministerial role. However, the significance of these positions varies depending on the assigned portfolio, with sectors like trade, competition, energy, and the internal market carrying substantial influence over businesses and consumers across the bloc.
The next European Commission is expected to assume office by year-end, aligning with a critical juncture: the outcome of the U.S. presidential election in November. A second Trump presidency could challenge the EU’s unified stance on supporting Ukraine against Russian aggression and disrupt trade relations with the U.S., the world’s largest economy. Beyond the political landscape, the new Commission will face the urgent task of addressing the diminishing competitiveness of European industries, particularly as rivalry with China intensifies over green technologies such as electric vehicles.
Tensions Ahead of New Commission Line-Up
A notable shake-up occurred on Monday when France replaced its candidate, Thierry Breton, with Foreign Minister Stephane Sejourne after Breton abruptly resigned, issuing sharp criticism of von der Leyen. Spain’s nominee, Teresa Ribera, currently serving as the ecological transition minister, is reportedly a contender for a senior role. Meanwhile, Poland’s Piotr Serafin is expected to oversee the EU budget, and Lithuania’s Andrius Kubilius is tipped to become the EU’s inaugural defense commissioner, a new role aimed at bolstering Europe’s defense industry in response to Russian aggression on its eastern borders. However, final appointments are subject to last-minute negotiations, with the gender balance within the Commission proving a complicating factor. Von der Leyen had urged EU governments to nominate both male and female candidates to ensure gender parity, but the current tally stands at 17 men and 10 women—an improvement, yet still falling short of the desired balance.
Once the nominations are finalized, each candidate must undergo a hearing in the European Parliament, where lawmakers will scrutinize their qualifications and extract commitments for their future role. While the Parliament has the power to reject nominees, Hungary’s Oliver Varhelyi is expected to face particularly tough questions during his hearing, potentially complicating his approval. The final make-up of von der Leyen’s new team will set the tone for the EU’s policy direction over the next five years, particularly in the critical areas of trade, defense, and green technology.
Microsoft Boosts Dividend by 10% and Unveils $60 Billion Stock Buyback Plan
Microsoft (MSFT) announced on Monday that its board of directors has approved a substantial $60 billion stock buyback program, alongside a 10% increase in its quarterly dividend. The tech giant will raise its dividend from 75 cents to 83 cents per share, with the dividend payable on December 12 to shareholders of record as of November 21. Additionally, the company’s annual shareholders meeting is set for December 10. These financial maneuvers come at a time when Microsoft is under pressure to demonstrate the return on its significant investments in artificial intelligence (AI). In July, the company informed investors of its plans to accelerate AI infrastructure spending in response to surging demand that exceeds its current capacity.
On the same day, Microsoft introduced several new AI-driven features at its “Wave 2” event, enhancing its Copilot AI assistant. Key updates include the general availability of Copilot in Excel and OneDrive, as well as a new feature in Outlook that summarizes emails. These enhancements aim to improve user experience and boost productivity across Microsoft’s suite of applications. Jefferies analysts responded positively to the announcements, identifying Microsoft as a “top AI beneficiary” due to the early signs of strong Copilot adoption and user engagement improvements. Following the news, Microsoft shares gained 0.7% in extended trading. The stock has risen nearly 15% year-to-date, reflecting growing investor confidence in the company’s strategic focus on AI and its potential to drive long-term growth.
Amazon Announces “Prime Big Deals Day” on October 8-9
Amazon revealed today that it will host its “Prime Big Deals Day” on October 8-9, a sales event similar to its popular Prime Day. This marks the third consecutive year that the e-commerce giant has scheduled a major fall event in October. In addition to the U.S., Prime Big Deals Day will take place across various countries, including Australia, Austria, Belgium, Brazil, Canada, France, Germany, Italy, Luxembourg, the Netherlands, Poland, Portugal, Singapore, Spain, Sweden, the U.K., and Turkey. Japan will also host its version of the event later in the month. Prime Members can expect new deals every five minutes throughout the event. Amazon has also curated a holiday gift guide to enhance the shopping experience. Earlier this year, Amazon introduced its AI shopping assistant, Rufus, to all U.S.-based users, and the company hopes the event will encourage even more adoption of the feature.
“Exclusive savings events like Prime Big Deal Days, combined with unlimited fast, free delivery of over 300 million products across more than 35 categories, make Prime membership more valuable than ever,” said Jamil Ghani, vice president of Prime Worldwide. Analysts consider Amazon’s Prime Day in July a success, generating a record $14.2 billion in sales. Notably, 49.3% of purchases were made via mobile devices, and Adobe predicts that mobile shopping will account for 53% of online sales during this year’s holiday season. Amazon remains the dominant player in U.S. e-commerce, with projected sales expected to reach $491.65 billion in 2024—an increase of 10.5% year-over-year. According to Emarketer, Amazon continues to hold the largest share of the U.S. e-commerce market at 40.4%.
Key Intel Price Levels to Watch as Stock Surges Following CEO Business Update
Intel (INTC) saw its shares surge in after-hours trading on Monday, rising 7.9% to $22.56, following an encouraging business update from CEO Pat Gelsinger. The embattled chipmaker revealed plans to cut costs, reduce its real estate holdings, and sell part of its stake in the Altera programmable chip unit. Gelsinger also announced plans to turn Intel’s chip manufacturing arm into a separate subsidiary, producing chips for Amazon (AMZN) and the U.S. military, further boosting investor confidence. Intel shares had already gained over 6% during regular trading on Monday, driven by a Bloomberg report on the company’s contract to manufacture custom chips for the military. Despite the recent gains, Intel’s stock has lost more than half of its value since the beginning of the year.
Technical Analysis: Key Levels to Watch
Intel’s stock has been trending downward since December, encountering significant selling pressure near the 50-day moving average (MA). The stock is now down 64% from that point, with increased trading volumes during the sell-off, signaling strong bearish momentum. However, the stock has made a partial recovery this month, raising the possibility of a bullish reversal.
Potential Bullish Reversal with Hammer Candlestick
The current price action suggests Intel may be forming a hammer candlestick, a pattern that often indicates a potential bullish reversal after a sharp decline. The key price level to watch here is $20, which the stock reclaimed on Monday. This level aligns with historical support points from 1997 to 2012, making it a critical area for investors looking for signs of a sustained rebound. A confirmed hammer pattern in September would mark a notable victory for bulls.
Key Support Levels to Monitor
- $20 Support: A psychological and historical support level. Holding above this would suggest a potential bottom in Intel’s decline.
- $17 Support: If Intel continues its downtrend, the stock could find support around $17, where it consolidated between 1997 and 1998. This level also aligns with lows from 2006 and 2010.
- $14 Support: A more significant level in the event of prolonged weakness, with buy-and-hold investors potentially entering near lows from the dotcom bubble and the 2009 financial crisis.
Key Resistance Levels to Watch
- $25 Resistance: If Intel sees a reversal, the stock will likely face resistance at $25, a level connected to multiple peaks and troughs from 1997 to early 2022.
- $35 Resistance: Further upward momentum could bring Intel to $35, where a trendline from 1999 to 2023 meets the 200-day moving average, a key point for potential selling pressure.
As Intel continues its efforts to turn the business around, these price levels will be critical for investors assessing both the stock’s recovery potential and risk.
Find below some of our Buy/Sell Recommendations. Balfour Capital Group is a distinguished global boutique investment management firm with $400 million AUM and over 1000 Clients.
Disclaimer: This post provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.
