Market Movements and Their Impact on Global Investments: In today’s news report, we examine the key developments in global markets.
We examine how crypto startups continue to attract investments despite a market slowdown.
We also review the International Energy Agency’s revision of oil refinery profit estimates and,
finally, the impact of MSCI’s reduction of China’s weight in its indices on the Chinese economy.
Crypto Companies Raise More Funds Despite Market Slowdown
Crypto startups raised more funds but closed fewer deals during the second quarter of the year,
reflecting a broader slowdown in the crypto asset world.
Data from PitchBook reveals that venture capital investments in
crypto companies reached $2.7 billion in the three months ending in June,
a 2.5% increase from the first quarter but a 9.8% year-over-year decline.
International Energy Agency Cuts Refinery Profit Estimates After Methodology Adjustment
The International Energy Agency significantly lowered its profit estimates for oil refineries.
This comes after it announced changes to its methodology for calculating processing margins starting in 2020.
The new method includes regional utility costs but does not account for all energy or other significant expenses.
MSCI to Reduce China’s Weight and Exclude Dozens of Stocks from Its Indices
MSCI continues to exclude Chinese company stocks from its indices, and it plans to remove 60 companies this month.
This move will pave the way for a further reduction in China’s share in a major emerging markets index.
The changes highlight pessimistic expectations for the world’s second-largest economy,
as Chinese stocks risk losing their presence in emerging market asset portfolios.
Market Movements and Their Impact on Global Investments
Asian stocks recover losses amid market volatility and dollar decline
Most Asian stock indices recovered losses on Thursday,
with trading choppy and investors digesting central banks’ signals about the future of interest rates.
Japan’s Topix index rose after losses of 1.8%, and major stock indices rose in China and Hong Kong.
The MSCI Asia-Pacific index also rose slightly today, but is still down 1.3% since the beginning of the week.
The dollar fell against major currencies, including the yen.
Minutes from the Bank of Japan’s meeting last week, which saw interest rates raised, showed one member calling for timely rate hikes to avoid rapid rises, while another suggested the neutral interest rate should be 1%.
Last week, global markets were affected by the expectation that the US and Japanese central banks would move in opposite directions, reducing the yen’s role as a cheap source of funding for financial assets.
Unbundling the interest trade
According to Quincy Crosby of LPL Financial, there is more room to unwind the interest trade currently,
but the lower speed of transformation allows investors to catch their “breath.”
“A weaker dollar, driven by markets’ perception that the Fed will soon begin an easing cycle, would support a stronger yen – a negative for this trade,” he added.
Investors have exited three-quarters of the interest trade, as the recent recession wiped out all positive year-to-date returns, according to JPMorgan strategists.
The dollar was slightly weaker today as yields fell in Asian trade, partly reflecting moves from the previous session. Weak demand for the 10-year Treasury auction and $31.8 billion in debt offerings from major companies were headwinds.
The outcome of the Treasury auction “is consistent with our view that we are headed toward a sustained near-term correction,” said Zachary Griffiths, head of U.S. investment and macro strategy at CreditSights. “The repricing that followed a weak payroll report appears to be greatly exaggerated,” he added.
The region’s technology sector index fell about 2%, with shares of companies such as SK Hynix Inc falling 4.8% and Taiwan Semiconductor Manufacturing Co falling 2.8%.
American markets
The S&P 500 closed down 0.8%, with Nvidia shares leading the losses. Super Micro Computer Inc. fell 20% on disappointing earnings. In late trading, Warner Bros. declined.
Discovery Inc, the parent company of CNN and TNT, reported a $9.1 billion loss as a result of writedowns of the value of its traditional television networks.
Sony shares rose today after the Japanese consumer electronics company boosted its full-year operating income guidance.
General economic situation
Markets have been in disarray since weak economic data last week raised concerns that the Federal Reserve’s decision to hold interest rates at their highest level in two decades threatens a deeper economic slowdown.
Economists at JP Morgan believe there is a 35% chance that the US economy will head into recession by the end of this year, up from 25% at the beginning of last month.
“Stocks are still at risk,” says Fouad Razaqzadeh of City Index and Forex.com, adding: “More evidence of a bottom is needed to stimulate investor entry again. Overall, sentiment remained cautious.
Not many people were confident about Buy stocks in this recent decline, especially with the announcement of the US Consumer Price Index approaching next week.”
Oil prices rose as investors remained concerned about the possibility of a retaliatory strike from Iran on Israel.
Gold also rose for the first time in six sessions.
Asian stocks recover losses amid market volatility and dollar decline
Stock Market Collapse Puts S&P 500 on the Verge of Correction: Global financial markets have recently experienced significant volatility,
with major stock indices suffering sharp declines amid fears of an impending economic recession.
The U.S. financial markets, in particular, have seen drastic movements,
raising questions about the future of the economy and financial markets.
The S&P 500 index experienced a significant collapse, losing about 3% of its value.
It continued its stumble with an 8.5% decline from its peak.
Meanwhile, the 10-year U.S. Treasury yields remained unchanged at 3.78% while the dollar fell.
Worst Start of the Month for the Nasdaq 100 Since 2008
The Nasdaq 100 technology index had its worst start to the month since 2008.
At one point during the session, the “Wall Street Fear Gauge” (VIX) also saw its highest rise since 1990.
Market Volatility
Renewed talk of a potential economic recession affected the U.S. financial markets,
sparking warnings that this year’s significant stock market rally might have gone too far.
Stock indices collapsed from New York to London to Tokyo.
The Economy Isn’t in Crisis… But
Despite growing concerns, some experts believe the economy isn’t in crisis, at least not yet.
They argue that the Federal Reserve risks losing some of its capabilities
if it doesn’t better acknowledge the cracks in the labor market.
SoftBank Value Decline
In Japan, the sell-off wave caused the Topix index to drop by 12%,
leading to a loss of about $15 billion in SoftBank Group’s value.
Caution Regarding Stocks
With increasing concerns about an economic slowdown,
some prominent investors have heightened their warnings about market risks.
Experts predict that stocks will remain under pressure from weak business activity,
falling bond yields, and deteriorating earnings forecasts.
Potential for Higher Returns
Following a robust first half, some analysts believe the market is overstretched in the short term.
They expect that markets will see a typical 9% pullback at some point,
though stocks may still rise by the end of the year.
Feeling That the Fed is Late
Amid ongoing volatility, some investors feel the Federal Reserve
has been late in cutting interest rates, increasing the likelihood of additional fluctuations in the future.
Markets Getting Ahead of the Fed
Some experts believe the markets are again getting ahead of the Federal Reserve in the current turmoil.
They note that economic data suggest the U.S. economy has hit an “air pocket,”
making a rate cut in September almost certain.
Conclusion
Financial markets continue to face sharp fluctuations,
with growing concerns about economic recession and slowing growth.
As investors monitor economic and financial developments,
markets remain prone to further volatility in the future.
Stock Market Collapse Puts S&P 500 on the Verge of Correction
Meta Achieves Strong Financial Results Thanks to AI Investments
Meta announced better-than-expected sales in the second quarter,
indicating that the company’s substantial investments in artificial intelligence are
helping to enhance and personalize ad targeting.
As a result, the company’s shares surged by nearly 10% at the close of today’s trading session.
Meta, the parent company of Facebook and Instagram, reported sales of $39.1 billion for the quarter ending June 30, surpassing analysts’ estimates of $38.34 billion, according to Bloomberg data. Meta noted that AI is helping to improve how ads reach interested users, thereby increasing the efficiency and profitability of its business.
Massive Investments
Massive Investments in AI and Infrastructure
Meta expects its sales for the current quarter to range between $38.5 billion and $41 billion, compared to the average estimate of $39.2 billion. Additionally, the company is making significant investments in data centers and computing power, as CEO Mark Zuckerberg aims to strengthen the company’s position in the industry’s AI race.
Meta has updated its capital expenditure forecast for 2024, setting a new range of $37 billion to $40 billion, raising the lower end of the range by $2 billion. The company is investing in developing large language models that support AI-driven chatbots and recently unveiled its largest model to date, which cost hundreds of millions of dollars to train.
Positive Impact
Positive Impact on Meta AI Chatbot Program
In a press release on Wednesday, Zuckerberg stated that the company’s chatbot program,
Meta AI, is on track to become the world’s most widely used chatbot by the end of the year.
However, he urged investors to be patient, noting that the financial returns from this technology could take years to materialize.
In an earlier interview with Bloomberg this month, Zuckerberg said,
“I believe there’s a significant chance that we might look back and say we could have spent billions more than we did,
given that many companies are overbuilding right now.
” He added, “On the other hand, I think all the companies investing are making a rational decision because the downside of falling behind is missing out on the most important technology over the next 10 to 15 years.”
Meta Achieves Strong Financial Results Thanks to AI Investments
Breaking the 5600 Point Barrier for the First Time
Driven by the surge in shares of the world’s largest tech companies,
the S&P 500 index reached unprecedented levels,
surpassing 5600 points for the first time.
Despite Federal Reserve Chairman Jerome Powell’s testimony before Congress,
traders continued to bet on interest rate cuts by the Federal Reserve this year.
Renewed optimism in giant tech companies pushed the U.S. stock index to its longest rally since November. Nvidia’s stock surged by over 2.5%, while Apple shares rose following news that it plans to increase shipments of new iPhones by 10% after a challenging 2023.
Treasury Bonds Remain Stable
Treasury bonds remained relatively stable after a strong $39 billion sale of 10-year bonds. Market swaps are pricing in two rate cuts from the Federal Reserve in 2024, with the first cut likely in September.
Powell’s Remarks and Interest Rate Expectations
Powell stated that the Federal Reserve does not need inflation to be below 2% before cutting interest rates, emphasizing that more work needs to be done. He noted that the labor market has slowed “significantly” and that commercial real estate does not pose a financial stability threat.
Market details
Towards a September Rate Cut
Krishna Guha of Evercore commented that the main takeaway from Powell’s testimony is that if supported and sustained by data, the Federal Reserve’s changing risk assessment could lead to a rate cut in September.
The S&P 500 rose by 1%, marking its seventh consecutive gain and the 37th record high this year. Shares of gold and silver mining companies climbed on bets of imminent easing by the Federal Reserve, while banks underperformed. Alphabet, Google’s parent company, halted plans to acquire HubSpot Inc., according to insiders.
Bond Yields and Oil Prices
U.S. 10-year bond yields fell by two basis points to 4.28%. Oil prices rose with increasing demand for gasoline and jet fuel due to the U.S. holiday.
Calm Markets Amid Anticipation
Mark Hackett of Nationwide noted that markets “remain remarkably calm” despite the expected data flow this week, including Powell’s testimony, the Consumer Price Index (CPI) and Producer Price Index (PPI) reports, and the start of earnings season.
The core CPI, excluding food and energy costs, is expected to rise by 0.2% in June for the second month in a row, marking the smallest consecutive increase since August. Anna Wong of Bloomberg Economics said the June CPI report is another “very good” report that would bolster the Federal Open Market Committee’s confidence in the inflation path and pave the way for a rate cut in September.
Market Reactions and Investor Sentiment
A survey by 22V Research found that 55% of investors expect the market to lean towards risk-taking in response to the CPI report, while 16% believe it will “avoid risk” and 29% expect a “mixed or weak” reaction. Dennis DeBusschere said there is general optimism about inflation among investors.
Potential Market Volatility
Some trading desks warn that investors should be prepared for a possible end to the recent strange calm in the market. Options markets are betting that the S&P 500 will move by 0.8% in either direction following Thursday’s CPI report, according to Stuart Kaiser, head of U.S. equity trading strategy at Citigroup.
If this occurs, it would be the largest move since June 12, another CPI reading day and rate decision. Market volatility may increase in the coming days and weeks due to U.S. political uncertainty, Powell’s comments, and the start of second-quarter earnings season, according to Mark Haefele of UBS Global Wealth Management.
Slowing Earnings for the “Magnificent Seven”
For the first time since 2022, S&P 500 earnings may not focus solely on tech companies. Bloomberg Intelligence strategists led by Gina Martin Adams predicted that the earnings of the “Magnificent Seven” (Meta, Apple, Nvidia, Amazon, Tesla, Alphabet, Microsoft) will slow in the second quarter, while the rest of the index may finally record its first year-on-year growth in at least five quarters.
The Future of NVIDIA: Analyst Lowers Recommendation
NVIDIA has seen a decline in the growth momentum it achieved since the beginning of last year,
at least for now, according to analyst Pierre Ferragu of New Street Research.
Ferragu downgraded his recommendation for the company’s stock, which focuses on manufacturing AI chips, from “Buy” to “Neutral,” explaining that the stock “has reached full valuation” after rising 156% this year, in addition to gains of around 240% in 2023. The stock fell as much as 2% on Friday, compared to a gain of about 1% for the Nasdaq 100 index.
Ferragu noted that additional stock gains “will only materialize if post-2025 expectations increase significantly,” adding, “We do not have confidence that this scenario will occur.” He added that although “the brand’s quality remains intact,” there is a “risk of deterioration” if current expectations remain unchanged.
A Rare Occurrence
Downgrading the recommendation is rare for a company that has significantly benefited from the AI spending boom. About 90% of analysts tracked by Bloomberg recommend buying the stock. NVIDIA’s stock is currently trading at about 23 times the projected revenue for the next 12 months, making it the most expensive stock in the S&P 500 index by this measure. The stock is also the second-best performer among the index’s components this year, trailing only Super Micro Computer Inc., another favorite among AI investors.
This rise added $1.9 trillion to NVIDIA’s market value, briefly making it the world’s largest company by market capitalization.
The Future of NVIDIA: Analyst Lowers Recommendation
During the first quarter of the current year, Saudi Aramco experienced a 14% decline in profits compared to last year, reaching SAR 102.27 billion, which was below average analyst estimates.
This decline in profits was due to a 4% drop in revenues, which the company attributed to reduced quantities of crude oil sold.
Despite this, crude oil prices saw an increase during the same period, which partially mitigated the decline. Additionally, profits were impacted by lower profit margins in refining and chemicals activities, as well as a decrease in financing income.
The company announced dividend distributions to shareholders totaling SAR 116.5 billion (USD 31 billion), including SAR 76.1 billion as basic dividends for the first quarter and SAR 40.4 billion as performance-linked dividends.
Samsung Achieves Significant Profit Surge Due to AI Growth
Samsung Electronics’ profits have risen sharply, driven by the recovery of the semiconductor sector and substantial investments in developing artificial intelligence technologies.
As the world’s largest memory chip manufacturer, the company reported a net income of 6.62 trillion won (approximately $4.8 billion) for the first quarter of the year, surpassing analysts’ expectations who had predicted a net income of 5.63 trillion won.
These results indicate a substantial improvement in the company’s performance compared to the previous year, with profits increasing more than fourfold. The growing demand for memory chips, widely used in modern electronic devices and AI-based systems, has begun to recover after a significant downturn, contributing to a stock price increase of less than 1% in early trading in Seoul.
Amid global economic uncertainties that have led to a continuous decline in performance over the past year, this recovery signals the company’s strength and resilience. Additionally, data released by South Korean trade this month shows that semiconductor shipments led the growth in national exports during the first twenty days of April, with a 43% increase compared to last year.
Samsung anticipates continued strong demand for chips during the current quarter and the second half of the year, reflecting optimism in the industry, largely due to the accelerated growth in the field of generative artificial intelligence.
Samsung Achieves Significant Profit Surge Due to AI Growth
Can Boeing begin to repair its culture by developing a new aircraft?
Trust among customers and investors in Boeing has been severely shaken for various reasons and at different stages.
Today, we will take a look at Boeing’s history.
Boeing was a symbol of engineering excellence, but it faced multiple scandals such as the crash of two 737 MAX aircraft. These incidents revealed problems in design and safety, leading to a loss of public and customer trust.
Company Culture and Its Impact on Production and Quality:
Calhoun and his predecessors adopted strategies heavily focused on cost reduction, which contributed to quality issues. The pressure to achieve short-term production goals led to the neglect of some engineering and safety standards.
Calls for Change in Leadership and Strategy:
Calhoun’s resignation may represent an opportunity for Boeing to reassess its values and priorities. The new leader will need to adopt an approach that prioritizes innovation and safety over the long term rather than narrowly focusing on short-term profits.
Rebuilding Company Culture:
Boeing can enhance a culture focused on quality and innovation by developing new aircraft that utilize the latest technologies and best engineering practices. This requires bold investments and a long-term vision.
Financial and Competitive Challenges:
Boeing faces intense competition from Airbus and other companies that have invested in developing new technologies and more efficient and safer aircraft. To overcome these challenges, Boeing may need to overcome its reservations about large investments and adjust its product development approach.
Impact on Reputation and Industrial Relations:
Developing a new aircraft could be a step towards improving Boeing’s reputation and could lead to improved relations with labor unions and regulatory organizations, enhancing trust in the company and opening the door for more collaboration.
Ethical Dimensions and Corporate Commitments:
By adhering to high standards of ethics and transparency, Boeing can demonstrate to customers and partners that it is committed to learning from its mistakes and improving itself, which could be a crucial factor in regaining its position as a leader in the aviation industry.
Problem Details
The continuous focus on cost reduction has led to a series of crises that have damaged the trust of customers
and travelers in Boeing.
Before becoming the CEO of the company, Dave Calhoun wrote a book advocating the importance of providing innovative products that meet customer needs before they even realize they need them,
published in 2010 under the title “How Companies Win.”
However, under Calhoun’s leadership, Boeing did not achieve the expected success, incurring losses exceeding $23 billion over the four years he led the company, losing customer trust and the patience of airlines and regulatory bodies.
With Calhoun’s impending resignation at the end of the year, the illusion that he was the right leader for reform has dissipated.
Throughout its history, Boeing has been a symbol of American industrial pride and engineering excellence,
an image that began to falter after the crashes of the 737 MAX in 2018 and 2019,
and most recently the incident involving a MAX door this year.
Calhoun followed the teachings of Jack Welch, former CEO of General Electric,
who taught American companies the basics of efficiency and speed and moving production to lower-cost countries and being strict with labor unions.
While manufacturing and quality issues continue to haunt Boeing, there is an urgent need for a radical change in the company’s organizational culture,
possibly through the development of a new aircraft that could rebuild trust and improve long-term performance.
Boeing and Airbus
Boeing and Airbus are two of the world’s largest aircraft manufacturers, each with distinctive characteristics and strategies. Here are some key differences between them:
Establishment and Headquarters:
Boeing: Established in the United States in 1916 by William Boeing and headquartered in Chicago, Illinois.
Airbus: Established in Europe in 1970 as a joint venture between several European aircraft manufacturers, headquartered in Toulouse, France.
Products and Specializations:
Boeing: Boeing offers commercial, military, and space aircraft, in addition to defense and security services.
Airbus: Airbus produces commercial and military aircraft and has specialized divisions in space and defense, including satellite manufacturing and space equipment.
Prominent Aircraft Models:
Boeing: Notable aircraft include the Boeing 737, Boeing 777, and Boeing 787 (Dreamliner).
Airbus: Notable aircraft include the Airbus A320, Airbus A350, and Airbus A380, the world’s largest passenger aircraft.
Innovation and Technology:
Boeing: Focuses on advanced engineering and design technologies to improve fuel efficiency and performance. Boeing also works on improving flight systems and safety in its aircraft.
Airbus: Airbus is known for its significant use of digital technology, such as using electrical systems instead of hydraulic systems in aircraft control, as seen in the A320.
Competition and Market:
Boeing and Airbus: Both companies fiercely compete in the global commercial aircraft market, offering competitive products in multiple aircraft categories. The competition between the two significantly affects innovations and prices in the aviation industry.
Challenges and Crises:
Boeing: Boeing has faced significant crises such as accidents and safety issues with the 737 MAX, which negatively affected its reputation and financial performance.
Airbus: Airbus faces regulatory and legal challenges, including investigations into allegations of corruption and bribery, in addition to challenges related to the production and delivery of the giant A380 aircraft.
In the end, airlines’ choice between Boeing and Airbus depends on a range of factors including operating costs, performance, and reliability, as well as competitive offers from each company.
Can Boeing begin to repair its culture by developing a new aircraft?
Citi Group Adjusts Its Valuation of American Technology Stocks
Citi Group has revised its valuation of American technology stocks downwards in line with the general market uptrend.
The bank’s team has downgraded its rating for financial company stocks,
recommending maintaining the current ratio during the second quarter of this year.
Citi Group analysts believe that the upward momentum of American stocks will extend to cover broader sectors beyond technology,
adopting a more cautious stance towards this sector’s stocks.
Led by Scott Chronert, the team has adjusted its recommendation for technology stocks,
preferring to maintain the current weight in investment portfolios instead of increasing it,
following earlier advice to reduce the relative weight of hardware company stocks.
Citi’s strategists have pointed out that “the investment scenario we predicted months ago is now opening the door for the growth of sectors less affected by market fluctuations, especially those sensitive to interest rate changes.
” In their analysis of the technology sector by category, analysts have continued to recommend increasing the relative weight of software companies’ stocks while maintaining the current market weight for semiconductor companies’ stocks.
As for other sectors, they have reduced their recommendation for financial companies’ stocks to maintain the current relative weight during the second quarter of the year.
S&P
The “S&P 500” index is currently trading 3% above Citi Group’s year-end target of 5100 points,
thanks to expectations of the American economy achieving a controlled downturn,
in addition to growing excitement about artificial intelligence. In a separate note,
Chronert indicated that the bank’s investor sentiment index has reached a level of euphoria,
reflecting a decreased likelihood of achieving positive returns over the next year.
Citi Group Adjusts Its Valuation of American Technology Stocks
