Portfolio Update – January 2024

General news

• On 03/01/2024, Apple’s shares fell 4% after Barclays downgraded the stock to underweight and slightly reduced its price target from $161 to $160. Barclays analyst Tim Long noted the “lackluster” sales of the iPhone 15, particularly in China, and predicted weak sales for the iPhone 16 as well as for Apple’s hardware sales overall. Long also expected decelerated growth in Apple’s services business, citing regulatory scrutiny as a factor. While Apple CEO Tim Cook highlighted “better-than-expected” growth in the services unit, Barclays expressed concerns about the reliability of that growth in the long term, citing potential investigations into app stores and Google’s Traffic Acquisition Cost (TAC).
• On 04/01/2024, The minutes from the December meeting of the Federal Open Market Committee (FOMC) indicate that Federal Reserve officials concluded that interest rate cuts are likely in 2024. The FOMC agreed to hold its benchmark rate steady in a range between 5.25% and 5.5%, with members expecting three quarter-percentage point cuts by the end of 2024. However, there is a high level of uncertainty about the timing and conditions surrounding these potential rate cuts. Officials noted progress in addressing inflation and supply chain challenges but emphasized the need for a careful and data-dependent approach to making monetary policy decisions. The minutes suggested that the policy rate is likely at or near its peak for this tightening cycle but acknowledged uncertainties in the economic outlook.
• Turkey’s inflation rose to 64.8% on an annual basis in December, up from 62% in November but slightly below economists’ expectations. The country faced high inflation, reaching a peak of 85.5% in October 2022, leading to a steep depreciation of the Turkish lira. The central bank implemented a controversial policy of lowering interest rates initially but reversed course in June, raising rates from 8.5% to 42.5%. Despite efforts to address inflation, the central bank faces challenges, and some analysts anticipate further rate hikes in the coming months.
• On 05/01/2024, Yemeni militants, backed by Iran, have targeted commercial ships in the Red Sea, impacting global trade and causing shipping prices to soar. The Freightos Baltic Global Container Index (FBX) doubled in the past two weeks, reaching almost US$2,600. Houthi attacks using drones and missiles prompted shipping companies like MSC and Hapag-Lloyd to reroute vessels, avoiding the Suez Canal. The longer routes and increased fuel costs have raised freight rates, sparking worries about inflation. Despite current costs remaining below the peak of the COVID-19 era, economists Simon MacAdam and Lily Millard believe the impact on inflation will be limited.
• On 06/01/2024, in December 2023, the U.S. labor market exceeded expectations with the addition of 216,000 jobs, maintaining an unemployment rate of 3.7%. This robust hiring pace surpassed predictions, as economists anticipated an increase of 170,000 jobs. The more comprehensive unemployment measure, accounting for discouraged workers and part-time employment for economic reasons, rose to 7.1%. Despite the positive job market, the labor force participation rate declined to 62.5%, reaching its lowest point since February. The report highlighted gains in government jobs, health care, leisure, hospitality, and construction, while transportation and warehousing experienced a loss of 23,000 jobs. Inflationary pressures persisted, with average hourly earnings rising 0.4% for the month and 4.1% year-over-year, surpassing estimates. The average workweek slightly decreased to 34.3 hours. The December figures contributed to a total of 2.7 million job gains in 2023, marking a monthly average of 225,000.
• On 07/01/2024, India has forecast annual economic growth of 7.3% for the fiscal year ending in March, making it the highest rate among major global economies. The National Statistical Office’s early projections align with the Reserve Bank of India’s increased forecast of 7%. Analysts suggest that sustained growth above 7% for a third consecutive year, especially amid a global economic slowdown, could bolster Prime Minister Narendra Modi’s chances for a third term in the upcoming national elections. S&P Global Ratings expects India to remain the fastest-growing major economy for the next three years, positioning it to become the world’s third-largest economy by 2030.
• On 08/01/2024, Shares of Evergrande NEV, the electric vehicle manufacturing arm of China Evergrande, dropped 23% after the company revealed that its vice chairman, Liu Yongzhuo, had been detained. The company did not specify the nature of the crimes or when the detention occurred. Last week, Evergrande NEV shares fell over 18% after the cancellation of its planned share sale to U.S.-listed NWTN. The recent events add to the challenges faced by China Evergrande, which is grappling with a debt crisis and a liquidity crunch.
• Alaska Airlines has decided to temporarily ground its fleet of 65 Boeing 737 Max 9 planes after a section of one of its planes blew out midflight, prompting an emergency landing. The airline plans to conduct full maintenance and safety inspections on each aircraft before returning them to service. The incident involved Flight 1282 heading to Ontario, California, from Portland, Oregon, with 171 passengers and six crew members on board. While there were no serious injuries reported, images and videos on social media showed a gaping hole on the side of the plane. The National Transportation Safety Board and the Federal Aviation Administration plan to investigate the incident.
• On 09/01/2024, Samsung Electronics has announced its expectation to report a 35% decline in operating profit for the fourth quarter of 2023. The anticipated operating profit of 2.8 trillion South Korean won ($2.13 billion) is significantly lower than expectations, with the firm falling short of the SmartEstimate of 3.7 trillion won. The decline is attributed to a rebound in semiconductor prices, which likely narrowed losses in Samsung’s main profit-driving segment, as the company is a major player in dynamic random-access memory (DRAM) chip production. The fourth-quarter revenue is expected to drop 4.9% year-on-year to 67 trillion won.
• Federal Reserve Governor Michelle Bowman, previously a proponent of tight monetary policy, indicated a shift in her stance, suggesting that interest rate hikes are likely over. In remarks at a private event, Bowman acknowledged progress against inflation and hinted at the possibility of maintaining short-term rates at their current levels. While she did not advocate for rate cuts immediately, she suggested that the Fed might consider lowering rates if inflation moves closer to the 2% target. Bowman emphasized that important upside inflation risks still exist, and policymakers will remain cautious and flexible in their approach based on evolving economic conditions.
• On 12/01/2024, The U.S. unemployment rate held steady at 3.7% in December, according to the Bureau of Labor Statistics (BLS). The monthly job gains for December exceeded expectations, reaching 216,000, compared to the estimated 160,000. The year 2023 saw a total job gain of 2.7 million, with an average monthly gain of 225,000, a notable decrease from 2022’s 4.8 million and an average monthly gain of 399,000. The December hiring boost came from gains in local and federal government, health care, social assistance, and construction, while the transportation and warehousing sector experienced job declines. Weekly jobless claims for the week ending Jan. 6 decreased to 202,000. The insured unemployment rate was 1.2% for the week ending Dec. 30.
• China experienced an annual decline in exports for the first time in seven years in 2023, with a 4.6% drop, according to customs data. Although December exports beat expectations with a 2.3% YoY increase, the overall trend reflects the impact of slower global growth and reduced demand for Chinese goods. Imports also declined by 5.5% in 2023, following a drop in 2020 during the initial stages of the COVID-19 pandemic. China’s trade with major partners decreased in 2023, with the Association of Southeast Asian Nations emerging as the largest regional trading partner. Despite overall declines, exports to Russia increased by almost 47%.
• Google has confirmed that it cut several hundred jobs across the company, impacting teams in hardware, central engineering, and Google Assistant. The layoffs are part of Google’s efforts to focus on efficiency and prioritize its “biggest product priorities.” The move comes as Google aims to rein in headcount growth pursued during the pandemic and streamline operations. Last January, Google slashed its workforce by 6%, and it has since made other cuts in various divisions. The company is emphasizing developments in artificial intelligence and competing with rivals like Microsoft and Amazon.
• On 13/01/2023, Citigroup has announced plans to cut 10% of its workforce, amounting to about 20,000 employees, over the “medium term.” The term is typically used to denote a three- to five-year period. This move is part of Citigroup’s broader efforts to overhaul the bank and improve financial performance. The bank, which had approximately 200,000 workers at the end of 2023, has been restructuring under CEO Jane Fraser to address long-standing challenges and enhance competitiveness. Citigroup aims to streamline operations and boost its stock price in the face of increased pressure from investors.
• Tesla faced challenges that impacted its stock performance, including supply chain delays due to the Red Sea crisis and additional price cuts on its vehicles in China. The company plans to suspend most production at its German factory from late January to early February due to disruptions in global trade caused by the conflict in the Red Sea. The Houthi militia group’s attacks on cargo ships have led to longer transportation times, creating a gap in supply chains. Tesla’s stock closed down more than 3% amid concerns about the impact on deliveries and the ongoing price cuts affecting its ability to sell electric vehicles in high volumes to rental car companies.
• On 16/01/2024, The global shipping industry is facing disruptions and increased freight rates due to attacks by Yemen-based Houthi militants in the Red Sea. Vessels have changed routes, leading to longer detours around the Cape of Good Hope and pushing ocean freight rates up to $10,000 per 40-foot container. Shipping companies are diverting over $200 billion of goods away from the Red Sea to avoid Houthi strikes. The disruptions could bring a reversal in the industry’s fortunes, which experienced a recession last year. Some market watchers expect increased profits for Vessel-Operating Common Carriers (VOCC) if the disruptions persist.
• Robert Holzmann, a member of the European Central Bank’s Governing Council, suggested that the ECB may not implement interest rate cuts in 2024, defying market expectations. Holzmann stated that he cannot imagine discussing rate cuts yet, and unless there is a clear decline in inflation towards the 2% target, there may be no rate cuts at all in 2024. Headline inflation in the eurozone rose to 2.9% in December, above the ECB’s target of 2%. Holzmann’s comments come amid uncertainty about the ECB’s monetary policy direction and market speculation about potential rate cuts.
• On 17/01/2024, China’s fourth-quarter GDP growth came in at 5.2%, below the 5.3% forecast, according to the National Bureau of Statistics. For the full year 2023, GDP growth was also 5.2%, compared to a 3% increase in 2022. The data reflects China’s ongoing economic transition to a new growth model, with a shift away from property sector investment. Real estate prices in 70 major Chinese cities fell by 0.4% in December, and overall investment into real estate declined by 9.6% in 2023, while infrastructure and manufacturing investment rose. Authorities acknowledge challenges for 2024, including weak domestic demand and overcapacity.
• On 21/01/2024, JetBlue Airways and Spirit Airlines are appealing a federal judge’s ruling that blocked their planned merger on antitrust grounds. The judge had barred the combination, stating it would eliminate the budget carrier Spirit and lead to higher prices for cost-conscious consumers. JetBlue had planned to acquire Spirit for $3.8 billion in a deal struck in 2022. The airlines are now appealing the decision, with JetBlue stating it is consistent with the requirements of the merger agreement. The U.S. Department of Justice is also expected to weigh in on another proposed merger between Alaska and Hawaiian.
• On 22/01/2024, Florida Governor Ron DeSantis dropped out of the 2024 presidential race and endorsed Donald Trump, the front-runner, just two days before the New Hampshire primary. DeSantis stated that he was suspending his campaign as he couldn’t see a clear path to victory. He emphasized Trump’s superiority to the current incumbent, Joe Biden, and honored his pledge to support the Republican nominee. Trump, in response, expressed appreciation for DeSantis’ endorsement and said he looked forward to working together to defeat Joe Biden.
• This week’s economic reports, including the initial gross domestic product (GDP) estimate for the fourth quarter of 2023 and the personal consumption expenditures (PCE) price index for December, could influence market expectations regarding Federal Reserve monetary policy. Economists anticipate a 1.7% growth rate for Q4 GDP, which would be the slowest since Q2 2022. The PCE price index, a key inflation gauge for the Fed, is expected to show 0.2% growth for December and 3% for the full year. These reports may provide insights into the potential direction of interest rates and impact market sentiment.
• On 23/01/2024, The Bank of Japan (BOJ) has maintained its ultra-loose monetary policy, keeping interest rates at -0.1% and sticking to its yield curve control policy. The central bank also cut its core inflation forecast for the next fiscal year, lowering the median growth forecast for core consumer prices to 2.4% for fiscal 2024, compared to the 2.8% estimated in October. The BOJ continues to be the world’s only central bank with negative rates. Analysts expect the BOJ to potentially abolish its negative rates regime in April, depending on wage negotiations and trends in meaningful wage increases.
• China is reportedly considering a rescue package supported by offshore funds to prevent a decline in its struggling stock markets. Chinese authorities are said to be seeking around 2 trillion yuan ($278 billion), primarily through offshore accounts of state-owned companies, to stabilize the market by purchasing stocks onshore through Hong Kong markets. The move comes after mainland China’s CSI 300 index experienced an 11.4% decline in 2023, marking its third consecutive year of falls, and Hong Kong’s Hang Seng index fell nearly 14% in the same period. The government has expressed the need for powerful and effective measures to stabilize the market and confidence.
• On 24/01/2024, The French Data Protection Authority (CNIL) has fined Amazon’s warehouse manager in France €32 million ($34.7 million) for excessive monitoring of employees. Amazon France Logistique provided employees with scanners to record tasks, which were then used to evaluate quality, productivity, and periods of inactivity for each worker. CNIL deemed the system “excessively intrusive,” and the company’s practice of retaining data and statistical indicators on employees for 31 days was considered excessive. Amazon strongly disagreed with CNIL’s conclusions and stated its intention to file an appeal.
• China’s central bank, the People’s Bank of China (PBOC), has announced a 50 basis points cut in reserve ratio requirements (RRR) starting from February 5. Additionally, the PBOC will provide 1 trillion yuan ($157 billion) in long-term capital to boost economic growth. The move is part of China’s efforts to stabilize its economy amid financial risks, particularly in the real estate sector. The country has been facing challenges with some major real estate developers grappling with significant debt issues, prompting the government to take measures to deleverage the sector.
• Netflix reported strong subscriber growth in the fourth quarter of 2023, adding 13.1 million subscribers and reaching a total of 260.8 million paid subscribers. This surpassed Wall Street expectations, and the company’s stock jumped in after-hours trading. The streaming giant highlighted its focus on building its ad-supported service and cracking down on password sharing. Additionally, Netflix increased its 2024 full-year operating margin forecast to 24%, up from the previously expected range of 22% to 23%. The company plans to continue investing in content but ruled out acquisitions of traditional entertainment companies or linear assets.
• On 25/01/2024, The Federal Reserve announced on Wednesday that the Bank Term Funding Program (BTFP), created last year in response to the collapse of Silicon Valley Bank (SVB), will close as scheduled in March. The program, designed to provide a funding lifeline to banks amid concerns of a wider financial crisis, will end as fear in the banking system has abated. Additionally, the Fed will immediately raise the interest rate on new loans from the BTFP for the remainder of its duration. This decision effectively closes what had become a popular and profitable arbitrage opportunity for U.S. lenders. Michael Barr, the Fed’s vice chair for supervision, stated earlier this month that the BTFP was designed for emergency situations like the panic triggered by SVB’s collapse. The program aimed to ensure that banks, creditors, and depositors understood that banks had the necessary liquidity during such crises.
• Microsoft briefly reached a global valuation of $3 trillion on January 24, becoming the second company in history to do so. This achievement is attributed to the rise of general artificial intelligence (AI) technologies and the market boom following OpenAI’s ChatGPT launch last year. As the second-most valuable firm globally, trailing only Apple, Microsoft’s success is fueled by its significant investments of $13 billion in OpenAI. This partnership has driven record revenue over the past two quarters, with analysts projecting another all-time high of around $61 billion in the next quarter. However, amidst this success, regulators in the US, UK, and Europe are scrutinizing whether the Microsoft-OpenAI partnership should be regulated as a de facto merger, following Microsoft’s recent experience with merger disputes during its successful acquisition of Activision-Blizzard-King in October 2023.
• On 26/01/2024, Turkey’s central bank raised its key interest rate by another 250 basis points to 45%, a move in line with economists’ expectations. This hike to the benchmark one-week repo rate is part of the country’s ongoing efforts to combat double-digit inflation, which reached 64.8% year-on-year in December. The Turkish lira has also weakened significantly, hitting a new record low against the U.S. dollar earlier in January. Analysts anticipate that this rate hike may be the last for a while, especially with local elections approaching in March. The central bank signaled that this could mark the end of the tightening cycle, emphasizing the need to maintain high interest rates to bring inflation back down to single digits. Despite this, some economists believe the central bank will likely keep rates unchanged throughout the year.
• Microsoft is implementing layoffs affecting approximately 1,900 employees at Activision Blizzard and Xbox this week, with a focus primarily on roles at Activision Blizzard. Some Xbox and ZeniMax employees will also be affected. The layoffs represent about 8 percent of the overall Microsoft Gaming division, which totals around 22,000 employees. The decision comes alongside the departure of Blizzard president Mike Ybarra, who has decided to leave the company after overseeing the acquisition. Microsoft plans to name a new Blizzard president next week. Additionally, Allen Adham, Blizzard’s chief design officer and co-founder, is also departing. As part of these changes, Blizzard’s previously announced survival game has been canceled. Microsoft intends to reallocate some of the affected employees to other promising projects within the company.
• The U.S. economy defied expectations of a looming recession, with the Commerce Department reporting a robust growth rate of 3.3% in the fourth quarter of 2023, surpassing the Wall Street consensus of 2%. This growth momentum follows a 4.9% pace in the third quarter. Alongside this strong GDP performance, there was positive movement in inflation, with core prices for personal consumption expenditures rising 2% for the period. On an annual basis, the PCE price index increased by 2.7%, down from 5.9% the previous year, while the core figure, excluding food and energy, saw a 3.2% annual increase compared to 5.1% previously. Chief economist Beth Ann Bovino described the situation as “supersonic Goldilocks,” noting strong economic numbers alongside controlled inflation. The U.S. economy for the full year of 2023 accelerated at a 2.5% annualized pace, surpassing initial Wall Street expectations.
• On 27/01/2024, The latest inflation data released by the Commerce Department’s personal consumption expenditures price index for December indicated a slight cooling in the rate of price increases, with a 0.2% rise on the month and a 2.9% increase on a yearly basis, excluding food and energy. While core inflation saw a monthly increase from 0.1% in November, the annual rate declined to 3.2%, the lowest since March 2021. Including volatile food and energy costs, headline inflation rose 0.2% for the month and remained steady at 2.6% annually. This data, alongside a stronger-than-expected 0.7% increase in consumer spending and a 0.3% growth in personal income, suggests that consumers are dipping into savings to fund their expenditures, with the personal savings rate falling to 3.7% for the month. The report also highlighted a decline in prices for goods by 0.2% and a rise in services prices by 0.3%, indicating a reversal in the trend seen during the pandemic. With gross domestic product growing at a faster-than-expected 3.3% pace in the fourth quarter, the overall economic outlook shows an expanding economy and inflation gradually moving back towards the Fed’s 2% annual target. Analysts suggest that these developments provide a favorable environment for the Fed to consider dialing back policy restrictiveness soon, given the positive trajectory of both economic growth and inflation.
• On 29/01/2024, Shares of China Evergrande plummeted over 20% in early trading on Monday after a Hong Kong court ruled to liquidate the embattled property developer, leading to a halt in trading. This development underscores the ongoing debt crisis gripping the country, with Evergrande, once among China’s largest property developers, at the center of Beijing’s debt woes. The company, known as the world’s most indebted property developer, defaulted in 2021 and initiated an offshore debt restructuring program in March last year. The Wall Street Journal reported that Evergrande’s overseas creditors failed to reach a restructuring deal, raising concerns about imminent liquidation. In response to the crisis, Chinese policymakers have announced measures to bolster liquidity for property developers, aiming to contain the contagion effect on the broader economy.
• China’s securities regulator announced on Sunday a full suspension of the lending of restricted shares, effective from Monday, in a bid to stabilize the country’s stock markets amid recent sharp declines. This move follows a series of supportive policies by Beijing, including a significant cut to bank reserves, which initially lifted Chinese stocks from 5-year lows early last week but saw a retreat on Friday due to deep investor pessimism over market outlook and economic stability. Restricted shares, typically offered to company employees or investors with sale limits, can be lent for trading purposes like short-selling, adding pressure on markets during downturns. The China Securities Regulatory Commission (CSRC) stated that the suspension aims to enhance fairness and reasonableness, reduce securities lending efficiency, and restrict institutional advantages in information use, allowing investors more time to digest market information and fostering a fairer market order. Additionally, the CSRC plans to crack down on illegal activities using securities lending to reduce holdings and cash out, while also limiting the efficiency of some securities lending in the securities refinancing market starting March 18.
• On 30/01/2024, the S&P 500 reached a new record high as investors awaited earnings reports from mega-cap tech companies and the Federal Reserve’s rate policy decision. The index rose 0.76%, closing at 4,927.93, surpassing its previous high of 4,894.16. The Dow Jones Industrial Average also climbed by 0.59%, while the Nasdaq Composite gained 1.12%. This week, major tech giants like Microsoft, Apple, Meta, Amazon, and Alphabet are scheduled to report earnings, along with several Dow components such as Boeing and Merck. The Federal Open Market Committee is set to begin its two-day policy meeting, with expectations that interest rates will remain unchanged. Investors are closely watching for potential earnings disappointments, Fed updates, and job data. Shares of iRobot plummeted nearly 9% after Amazon announced it would not pursue an acquisition deal with the company.
• On 31/01/2024, PayPal CEO Alex Chriss announced in an internal memo that the company will reduce its global workforce by 9%, affecting approximately 2,500 jobs. The cuts will impact existing roles as well as planned hires and will be implemented gradually throughout the year. Chriss cited the need for increased focus, efficiency, and automation across the organization, emphasizing the company’s commitment to investing in growth areas. Last week, PayPal unveiled its push into artificial intelligence with features aimed at enhancing the checkout experience and providing personalized recommendations, marking the beginning of what Chriss called the company’s “next chapter.”