Portfolio Update – July 2023

General news

• On 02/07/2023, The latest report from the Commerce Department indicates a slight easing of inflation pressures in May, primarily driven by a significant slowdown in consumer spending. The personal consumption expenditures (PCE) price index, a key metric closely monitored by the Federal Reserve, recorded a 0.3% increase for the month, excluding food and energy. This figure aligns with the estimates provided by Dow Jones. The core PCE, which excludes volatile food and energy prices, rose by 4.6% compared to the previous year, which was 0.1 percentage point lower than anticipated. In April, the index had shown a 0.4% increase for the month and a 4.7% increase from a year earlier.
• On 04/07/2023, Tesla shares experienced a 6.9% increase on Monday, primarily attributed to better-than-anticipated delivery and production figures for the second quarter. These numbers, disclosed by Tesla in their report on Sunday, are highly significant for analysts and shareholders. The market had expected approximately 445,925 deliveries for the period ending June 30, 2023. However, Tesla surpassed those expectations by delivering 466,140 vehicles, exceeding the estimate by more than 20,000 cars.
• In a highly anticipated decision on Tuesday, Australia’s central bank opted to keep its official cash rate unchanged at 4.10%. Prior to the announcement, economists held divided opinions, with 16 out of 31 respondents anticipating a 25 basis points increase, while the remaining 15 expected the central bank to maintain the rate. The stock market reacted positively to the news, with the S&P/ASX 200 index recovering earlier losses and rising by 0.5%. However, the Australian dollar weakened by 0.25% against the U.S. dollar, standing at 0.6652. The central bank’s decision was influenced by its assessment that inflation in the country has already peaked.
• On 06/07/2023, Meta, formerly known as Facebook, has launched its messaging app called Threads, positioning it as Instagram’s “text-based conversation app.” Mark Zuckerberg, CEO and co-founder of Meta, announced the debut of Threads, signaling the official release of the social media company’s new messaging platform with a focus on text-based communication. Threads aims to attract users who have migrated from Twitter, potentially due to the unpredictable tweets from Elon Musk, the CEO of Tesla and SpaceX.
• Minutes from the Federal Reserve’s June meeting revealed that the majority of officials expect further tightening of monetary policy, although at a slower pace compared to previous rapid increases. Despite concerns over economic growth, policymakers decided not to raise rates in June, citing the need to assess the economy’s progress towards the Committee’s goals of maximum employment and price stability. With 10 consecutive rate increases already implemented, officials believed that maintaining the target range unchanged would provide more time for evaluation.
• On 07/07/2023, According to a report from payroll processing firm ADP, the U.S. labor market continued to show strength in June, exceeding expectations. The private sector saw a significant surge in jobs, with 497,000 new hires for the month. This marked a notable increase compared to the downwardly revised 267,000 gain in May and surpassed the consensus estimate of 220,000. It was also the largest monthly rise in job creation since July 2022. Among the sectors, leisure and hospitality led the way with 232,000 new hires, followed by construction with 97,000, and trade, transportation, and utilities with 90,000. Market sees this is a bad new even though it’s a good new. It would allow FED to hike another rate.
• According to Mortgage News Daily, the average rate for a 30-year fixed mortgage reached 7.22%, the highest level since early November. Mortgage rates tend to follow the yield on the 10-year Treasury, which increased due to a stronger-than-expected employment report from ADP. The rates had already been rising last week following indications from Federal Reserve Chairman Jerome Powell that the central bank may continue raising interest rates. Powell stated that the Fed still has work to do in bringing inflation back to its 2% target. The next interest rate decision is scheduled for July 26. Over the past week, the 30-year fixed mortgage rate has risen by 31 basis points. As a result, the monthly payment for a $400,000 mortgage increased from $2,637 to $2,720 in just one week.
• On 08/07/2023, the pace of employment growth in the United States slowed, signaling a moderation in the previously robust labor market. The Labor Department reported an increase of 209,000 nonfarm payrolls for the month, with the unemployment rate remaining steady at 3.6%. This figure fell slightly below the Dow Jones consensus estimates of 240,000 job additions and a 3.6% unemployment rate. Although the total job gains are still solid when viewed in a historical context, they represent a significant decline from May’s revised figure of 306,000 and mark the slowest month for job creation since December 2020, when payrolls declined by 268,000. Nonetheless, the unemployment rate saw a marginal decrease of 0.1 percentage point.
• The U.K. housing market experienced a significant decline in house prices in June, with the fastest annual decrease in 12 years. According to the price index released by mortgage lender Halifax, property prices fell by 2.6% compared to the previous year, marking the largest decline since June 2011. This decline was a significant increase from the 1.1% annual drop recorded in May. Additionally, prices have declined for the third consecutive month, with a 0.1% decrease since May. The average cost of a property in the U.K. now stands at £285,932 (£364,490), down from the peak of £293,992 reached in August 2022. The ongoing increase in mortgage costs has further added pressure to the property market.
• On 11/07/2023, JPMorgan Chase acquired First Republic, a troubled regional lender, signaling the end of one set of problems but the beginning of another. Despite the calming reassurances from JPMorgan Chase CEO Jamie Dimon that “this part of the crisis is over,” the underlying forces that triggered the regional banking crisis in March remain active. The wave of government seizures of failed midsized banks may have subsided, but the issues persist, keeping the banking industry on edge.
• Microsoft confirmed that it is implementing further job cuts, following the downsizing efforts announced earlier in the year. This round of cuts comes after the software giant had already laid off 10,000 employees in January. Similar to other technology companies such as Amazon and Google, Microsoft has seen the need to scale back after rapidly expanding its workforce to meet the increased demand during the Covid-19 pandemic. The company has acknowledged that clients are seeking cost-saving measures for their cloud computing expenses, prompting the need for adjustments.
• According to the Black Knight Home Price Index, home prices reached a record high in May, showing a 0.7% increase compared to April on a seasonally adjusted basis. This marks a continued upward trend in prices since January. Additionally, May home prices were 0.1% higher compared to the same period last year. Despite the temporary slowdown caused by the significant increase in mortgage interest rates last year, the housing market has rebounded quickly. Home prices are once again rising, and the pace of appreciation is accelerating month by month, even in the face of relatively high interest rates.
• On 14/07/2023, According to data compiled by Bloomberg, major US banks, including JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley, have collectively written off around $5 billion worth of loans in the second quarter of this year. This reflects borrowers defaulting on their loans, which is attributed to the negative impact of inflation and higher interest rates on consumers. The write-offs indicate that the banks are officially recognizing significant losses in the value of assets on their balance sheets. Credit card debt is cited as the primary source of these multibillion-dollar write-offs, with JPMorgan Chase alone reporting losses of $1.1 billion in bad credit card debt, marking a significant increase compared to the previous year.
• On 16/07/2023, JPMorgan reported a significant increase in net income, which surged by 67% to reach $14.5 billion, equivalent to $4.75 per share. When excluding specific factors such as the impact of the First Republic acquisition, loan reserve builds, and securities losses tied to the purchase, earnings stood at $4.37 per share. The bank’s revenue also experienced notable growth, rising by 34% to reach $42.4 billion. This increase was primarily driven by a substantial 44% jump in net interest income, which amounted to $21.9 billion and surpassed the StreetAccount estimate by approximately $700 million. JPMorgan’s solid performance was supported by a 13% increase in average loans, although there was a 6% decline in deposits. Overall, the bank capitalized on higher interest rates and witnessed robust loan growth, contributing to its impressive financial results.
• On 18/07/2023, Concerns are increasing over the possibility of deflation in China’s economy as recent economic data points to stagnant growth, prompting calls for significant policy intervention. The announcement on Monday revealed that China’s second-quarter GDP grew by 6.3% compared to the previous year, falling short of the market’s expectation of 7.3%. Additionally, the quarter-on-quarter growth rate of 0.8% was slower than the 2.2% recorded in the first three months of the year. Chief economist Hong Hao from Grow Investment Group expressed the need for persistent price pressure before declaring deflation but acknowledged the presence of such pressure in upstream sectors. He believes that it typically takes two to four quarters for the impact to be felt in downstream sectors. Hong further suggested that action should be taken to counter the deflationary pressure before it worsens.
• On 19/07/2023, UK inflation showed a notable slowdown in June, coming in below expectations with an annual rate of 7.9%. Economists had forecasted a higher annual rise of 8.2%, following May’s unexpectedly high reading of 8.7%. However, inflation remains significantly above the Bank of England’s target of 2%. On a monthly basis, headline CPI increased by 0.1%, lower than the consensus forecast of 0.4%. Core inflation, which excludes volatile components, stood at an annualized rate of 6.9%, down from a 31-year high of 7.1% in May. The decrease in motor fuel prices had the most significant impact on the monthly change in the CPI annual rate, while food prices saw a more modest increase compared to the same period last year.
• Goldman Sachs has lowered the probability of a U.S. recession occurring in the next 12 months from 25% to 20%, citing positive economic indicators. The investment bank’s chief economist, Jan Hatzius, mentioned that better-than-expected economic data has increased confidence that inflation can be brought down without a recession. The report highlights resilient U.S. economic activity, with second-quarter GDP growth tracking at 2.3%. Additionally, the rebound in consumer sentiment and a decrease in unemployment to 3.6% in June have contributed to Goldman Sachs’ optimism. In the first quarter, the U.S. economy expanded by 2% at an annualized pace, and recent data on jobless claims also showed improvement.
• On 20/07/2023, After the closing bell, Tesla announced its earnings, revealing a record-breaking quarterly revenue. However, the company’s margins were impacted by price cuts and incentives, leading to a decline in stock price during the earnings call. CEO Elon Musk and other executives were unable to provide specific details on the Cybertruck’s specs and start of delivery dates, as well as a robotaxi-ready vehicle, which seemed to further dampen investor sentiment. Additionally, Tesla stated that vehicle production would slow down in Q3 due to factory shutdowns for improvements. As a result, the stock price fell approximately 5% after hours.
• Australia’s employment trends showed stability in the labor market. In both trend and seasonally adjusted terms, the unemployment rate remained steady at 3.5%, while the participation rate held firm at 66.8%. Employment numbers increased to 14,046,100 people in seasonally adjusted terms, and 14,045,800 people in trend terms, indicating positive growth. The employment-to-population ratio remained at 64.5%, reflecting a stable proportion of the population being employed. However, the underemployment rate saw a slight increase, reaching 6.4%, suggesting some workers faced challenges in securing full-time employment. Despite these variations, the total monthly hours worked increased, reaching 1,947 million in seasonally adjusted terms, and 1,956 million in trend terms. Notably, full-time employment saw growth, with 39,300 more people engaged in full-time work, totaling 9,868,900 individuals. Conversely, part-time employment decreased by 6,700 people, amounting to 4,177,100 people. Overall, the data indicates a mixed employment landscape, with certain areas experiencing positive developments while others face ongoing challenges.
• On 21/07/2023, Tesla’s shares experienced a significant drop of nearly 10% on Thursday, as investors were disappointed by imprecise remarks from CEO Elon Musk and other executives regarding the company’s latest vehicle, the Cybertruck, and a planned robotaxi-ready car. This decline represents the worst day for Tesla’s stock in three months. Musk also warned that the company’s production in Q3 might be slightly lower due to summer shutdowns for necessary factory upgrades. Despite setting a target of 1.8 million vehicle deliveries for the year, concerns were raised by analysts about Tesla’s margin “headwinds,” with a 9.6% margin, the lowest in at least the last five quarters.
• The United States Federal Reserve has made it clear that its upcoming service for instant payments between organizations, called the FedNow Service, is not related to central bank digital currencies (CBDCs). The FedNow Service recently received certification as “ready” after conducting tests with 41 financial institutions, 15 service providers, and the U.S. Department of the Treasury ahead of its scheduled launch by the end of July 2023. Despite offering instant fiat payments and real-time gross settlement (RTGS), the service is not based on a CBDC, as the central bank clarified.
• On 24/07/2023, Chinese property stocks experienced a sharp decline on Monday, with Country Garden taking the lead as its shares dropped to eight-month lows due to renewed debt concerns in the Chinese real estate sector. Hong Kong-listed shares of Country Garden witnessed a nearly 7% decline, hitting its lowest level since early November. Its property services arm, Country Garden Services, experienced an even steeper plunge, plummeting over 15%. JP Morgan responded to the situation by downgrading both companies to underweight and significantly reducing the target price for Country Garden and its property services listing. The bank’s analysts expressed concerns about liquidity issues, suggesting that unless the Chinese government provides more policy support, the situation may persist. The Hang Seng Mainland Property Index, which tracks Hong Kong-listed Chinese property companies, also fell more than 5%, underperforming the broader Hang Seng Index, which experienced a 1.5% decline.
• On 25/07/2023, Twitter, under the ownership of Elon Musk, has undergone a rebranding and officially changed its logo to “X.” The iconic bird logo, synonymous with the platform, has been replaced with the letter X. While the website Twitter.com remains live and the app version’s branding appears unchanged, the bird logo has been transformed into the letter X. Musk teased the change on Sunday with a flickering “X” video and confirmed the logo alteration during a Twitter Spaces audio chat. He humorously stated that they would be cutting the Twitter logo off the building with blow torches. Early on Monday, Musk tweeted an image of the new X branding displayed across Twitter’s headquarters.
• On 26/07/2023, home prices in the United States continued to rise for the fourth consecutive month, according to the S&P CoreLogic Case-Shiller home price index. Despite a significant increase in mortgage interest rates during the month, prices saw gains. Nationally, home prices rose by 0.7% on a month-to-month, seasonally adjusted basis. The 10-city composite index increased by 1.1%, while the 20-city composite index gained 1%. Compared to May 2022, home prices nationally were still down by 0.5%, but they are now only 1% below their peak in June 2022. The annual declines in the 10-city and 20-city composites were 1% and 1.7%, respectively, showing some improvement compared to the previous month. However, regional differences in home price trends are becoming more pronounced.
• The Australian share market saw a positive surge on Wednesday, with the S&P/ASX200 closing up by 0.85% at 7402.00 points, reaching a new 100-day high. The market was boosted by the latest report on inflation from the Australian Bureau of Statistics, which indicated a deceleration in the cost of living. The consumer price index fell to six per cent in the year to June, down from seven per cent in March. Notable price rises were observed in rent, which increased by 2.50 per cent in the June quarter and 6.7 per cent annually. Additionally, essential items like food saw significant price increases, with a 1.6 per cent rise in the last quarter and a 7.5 per cent increase over the past year. The positive inflation report contributed to the market’s optimistic performance, especially benefiting the mining sector on an otherwise “dull” day.
• On 27/07/2023, the Federal Reserve followed through with its anticipated interest rate hike, pushing benchmark borrowing costs to their highest level in more than 22 years. The Federal Open Market Committee raised its funds rate by a quarter percentage point, setting a target range of 5.25%-5.5%. This midpoint would mark the highest level for the benchmark rate since early 2001. Market analysts were closely observing whether this hike could be the last before the Fed takes a pause to assess the impact of previous increases on the economy. While policymakers had previously indicated two rate increases this year, the market has been suggesting a possibility of no further hikes for the rest of the year. Federal Reserve Chairman Jerome Powell, during a news conference, noted that while inflation has eased somewhat since the middle of last year, achieving the Fed’s 2% target still has a long way to go. He also hinted at the potential for holding rates steady at the next Fed meeting in September.
• On 28/07/2023, The U.S. economy displayed resilience in the second quarter, showing no signs of recession as gross domestic product (GDP) grew at a faster-than-expected pace, according to the Commerce Department’s report on Thursday. GDP, which measures all goods and services activity, increased at an annualized rate of 2.4% from April to June, surpassing the consensus estimate of 2% from Dow Jones. This growth was an improvement from the 2% pace in the first quarter. The positive report led to a rise in markets, with stocks set for a positive open and Treasury yields increasing. The solid quarter was primarily driven by robust consumer spending, supported by increases in nonresidential fixed investment, government spending, and inventory growth.
• Japan’s central bank, the Bank of Japan (BOJ), announced a loosening of its yield curve control policy, expressing concerns about the prolonged impact of its monetary easing on both financial markets and the real economy. The BOJ stated that it will continue to allow 10-year Japanese government bond (JGB) yields to fluctuate within a range of approximately plus and minus 0.5 percentage points from its 0% target level. Additionally, the bank will conduct fixed-rate operations to purchase 10-year JGBs at 1%, effectively expanding its tolerance by another 50 basis points. The BOJ emphasized its intention to maintain greater flexibility in its yield curve control, viewing the upper and lower bounds of the range as references rather than strict limits in its market operations, due to the significant uncertainties surrounding Japan’s economic activity and prices.
  
• On 29/07/2023, Inflation in the United States showed further signs of cooling in June, as indicated by the personal consumption expenditures price index, a gauge closely monitored by the Federal Reserve. The core PCE, which excludes volatile food and energy prices, rose by 0.2% from the previous month, in line with market estimates. On an annual basis, core PCE increased by 4.1%, slightly below the expected 4.2% rate. This annual rate was the lowest since September 2021, signaling a decrease from the 4.6% pace observed in May. Headline PCE inflation, which includes food and energy costs, also rose by 0.2% in June and showed a 3% increase on an annual basis. The yearly rate was the lowest since March 2021 and decreased from 3.8% in May.