Week 08.09 - 15.09: Big Tech Face EU Fines, Inflation Falls, ECB Rate Easing and more...
Weekly Financial Digest
Key Stats of the Week
💰 €13B - Back taxes Apple must pay according to European Court of Justice ruling
📱 €2.4B - Fine upheld against Google by European Court of Justice for anti-competitive practices
📊 2.5% - US annual inflation rate in August, showing a decrease
🏦 3.5% - New main deposit rate set by ECB after 0.25 percentage point reduction
🏭 50% - Reduction in extra capital requirements for largest US banks under new Fed rules
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Weekly Sector Performance
M&A Roundup
🏦 Banking
UniCredit's Andrea Orcel made a bold move as theyacquired a 9% stake in Commerzbank - this could signal the start of long-awaited banking consolidation in Europe.
🚚 Logistics
Danish group DSV bought Deutsche Bahn's logistics business - Schenker, in a €14.3bn deal. The acquisition will make DSV the world's largest logistics management company.
📱 Telecom
UK regulator demanded changes to the £16.5bn Vodafone-Three merger - they cited concerns over potential higher bills for tens of millions of customers.
Virgin Media O2 is planning to sell its stake in mobile towers business Cornerstone - as telecoms groups continues to monetise its infrastructure assets.
🏍️ Sports & Entertainment
Liberty Media Corp's €4bn MotoGP takeover is facing scrutiny. Formula E's Alejandro Agag warned the deal would hand the US group significant power with broadcasters.
Axel Springer and KKR are nearing a deal on a €13.5bn break-up - which could cement Mathias Döpfner's control over media outlets Politico and Bild.
👁️ Healthcare
Eyecare company Bausch + Lomb is exploreing a sale to end a messy spin-off from its indebted parent company.
📰 Media
The Murdoch succession saga is reaching its 'end game' - with Rupert Murdoch's attempt to wrest control of his empire away from three of his children set to be resolved in a Nevada court.
🏪 Retail
7-Eleven owner Seven & i Holdings tapped Nomura to advise on takeover battle after rejecting a $39bn offer from Circle K parent Alimentation Couche-Tard.
🍟 Food & Beverage
Goldman Sachs is set to earn $93mn from the sale of Pringles owner Kellogg's snacks business.
Chart of The Week
This chart is like a report card for different flavors of the S&P 500 stock index. It shows how well each version performed each year - based on something called the Sharpe ratio.
Think of the Sharpe ratio as a score that tells you how much reward you're getting for the risk you're taking → Higher is better.
Why Should You Care?
This chart is quite relevant for investors. It helps you spot which investing styles have been winning over time.
Here’s what we can learn from it:
The Big Boys Club:
The "Top 50" stocks (think Apple, Amazon, etc.) have been absolutely killers lately (last two years). They're often at the top of the chart - meaning they're giving investors the best bang for their buck.Slow and Steady Can Win:
See those "Low Volatility" boxes? They shine during rough years (like 2018 and 2022). These are the stocks that don't jump around much in price. They won’t you rich overnight, but they help you sleep better when markets get crazy.Growth Isn't Always King:
You'd think "Pure Growth" stocks (companies expected to expand rapidly) would always win. But if we look closely – they're often in the bottom half.
This sort of tells us that betting on fast growth alone isn't always smart.Risk Can Pay Off:
Those "High Beta" stocks? They're the daredevils of the stock world - they move in price much more than the rest. Thing is - sometimes they are near the top - implying taking calculated risks can pay off big.
NB → Remember, past performance doesn't guarantee future results - but understanding these patterns can make you a smarter investor.
Use this chart to think about balancing your portfolio for both good times and bad.
This Week in Short
US Inflation and Federal Reserve's Rate Decision
Key economic indicators and monetary policy developments:
US annual inflation rate dropped to 2.5% in August
Core inflation remained unexpectedly high
Federal Reserve expected to cut interest rates for the first time in four years
The potential rate cut is big news for investors.
I’m expecting a rally in growth stocks, especially in tech and biotech.
Real estate could also see a boost – consider REITs for exposure.
However, I’m staying cautious with bank stocks - lower rates can squeeze their margins.
ECB's Interest Rate Decision
European Central Bank's monetary policy update:
Reduced interest rates by 0.25 percentage points
Main deposit rate now at 3.5%
Expects inflation to rise by year-end, then decline towards 2% target in late 2025
The ECB's rate cut essentially signals confidence in the Eurozone's economic recovery.
This could be bullish for European stocks, especially in sectors sensitive to consumer spending like retail and travel.
The euro might weaken against other currencies which would boost European exporters.
For young investors, this could be an excellent time to increase exposure to European markets through broad-based ETFs for example. European companies with strong global brands could benefit as well from both the domestic economic boost and any currency advantages in international markets.
Banking Regulations: Fed and BoE Ease Capital Requirements
Regulatory changes in the banking sector:
Fed to halve extra capital requirements for largest US banks under Basel framework
Bank of England also announced easing of rules
Follows intense lobbying from Wall Street
This easing is a big win for banks. For investors - this could make bank stocks more attractive - especially if you're looking for income.
However, it also increases systemic risk so one needs to stay cautious. Also these changes might mean more competition for FinTech companies again - as traditional banks get more flexibility to innovate and take risks.
European Banking Consolidation: UniCredit's Move on Commerzbank
A potential shake-up in European banking as UniCredit eyes Commerzbank:
UniCredit declared a 9% stake in Commerzbank
Expressed interest in increasing its holding
German government reducing its stake from 16.5% to 12%
This move is huge – it's the start of a long-awaited consolidation in European banking.
I think one can expect more cross-border mergers in the coming years.
Apple's €13bn Tax Bill and Google's Antitrust Battles
Major legal setbacks for tech giants in Europe:
European Court of Justice ruled Apple must pay €13bn in back taxes
Overturned lower court's 2020 decision
Apple claims commission is "retroactively changing the rules"
ECJ upheld €2.4bn fine against Google for anti-competitive practices
Although this is a bit of a sting for these companies - don't panic-sell your tech holdings - these giants have deep pockets and will likely find ways to adapt and thrive.
I think these events are particularly interesting for cybersecurity and compliance tech firms – they're likely to see increased demand as big tech scrambles to adapt to stricter regulations → will be keeping an eye on this for you.
Google's New Antitrust Trial in the US
Another antitrust trial against Google commenced in the US:
Accusations of monopoly power abuse in digital advertising
Google denies claims, arguing fierce competition "millisecond by millisecond"
Trial expected to last several weeks
While Google might face short-term headwinds - don't count them out.
Instead I’d look at the broader adtech ecosystem and keep an eye on privacy-focused tech companies – as regulators scrutinise data practices, these firms could see increased demand.
Northvolt's Scaling Back: A Sign of European Competitiveness Issues
Swedish EV battery maker Northvolt announced operational cutbacks:
Scaling back operations and potential job losses
Pausing production of cathode active materials
Shifting to imports from cheaper Chinese and South Korean rivals
Northvolt's struggles are a red flag for the European EV industry.
It sort of signals that European manufacturers are struggling to compete with Asian rivals on cost.
Asian EV and battery makers seem to be clearly winning the cost game.
This could be an opportunity to diversify your portfolio geographically - especially if you're heavily invested in Western markets.
Draghi's Report on European Growth and Competitiveness
Mario Draghi - former ECB president and Italian PM - released a crucial report on boosting European innovation and competitiveness:
Calls for combining EU countries' research spending
Proposes a new super-agency for advanced projects
Recommends easing competition rules for consolidation
Advocates for integration of capital markets
Draghi emphasised the urgency - stating it's not "do or die," but "do this, or it's a slow agony."
Draghi's report is a wake-up call for the EU. The potential easing of competition rules might spark a wave of mergers - especially in tech and finance.
For young investors this could be the perfect time to start building positions in European blue-chip companies that are likely to benefit from these changes.
→Think big names in tech, pharma, and finance that have been lagging behind their U.S. counterparts.
Smartphone Innovations: Apple's AI Push and Huawei's Tri-fold
Contrasting developments in the smartphone market:
Apple's iPhone 16 to feature AI capabilities, some ready by 2025
Investors unimpressed with Apple's announcement
Huawei launched Mate XT, world's first tri-fold smartphone, priced at $2,800
The lukewarm reception to Apple's AI plans shows that the market is hungry for more immediate, tangible innovation.
If apple isn’t able to innovate enough - gor investors, it might be time to look beyond the usual suspects.
The $2,800 price tag on Huawei's tri-fold phone suggests there's still a market for ultra-premium devices. Luxury goods makers entering the tech space could be an interesting play.
I think it’s also important not to overlook the potential of AR/VR in mobile – companies working on these technologies might be the real winners in the next wave of smartphone innovation.
Southwest Airlines' Management Shake-up
Changes at Southwest Airlines following pressure from activist investor:
Executive chairman to depart next year
Six directors to retire, four new independent directors to be appointed
Board reaffirms support for CEO Bob Jordan, despite Elliott Management's demands
This shake-up at Southwest is a classic example of activist investing at work.
For young investors, it's a reminder that corporate governance matters - companies with strong, independent boards will just be better positioned to weather storms and adapt to change.
Stocks - Performance Recap
📈 WINNERS:
Oracle Corporation (ORCL, +14.26%)
NVIDIA Corporation (NVDA, +15.82%)
Broadcom Inc. (AVGO, +22.41%)
Tesla Inc. (TSLA, +9.28%)
Taiwan Semiconductor Manufacturing Co. (TSM, +10.00%)
Amazon.com Inc. (AMZN, +8.81%)
📉 LOSERS:
Adobe Inc. (ADBE, -4.71%)
Merck & Co., Inc. (MRK, -1.68%)
AstraZeneca PLC (AZN, -5.76%)
JPMorgan Chase & Co. (JPM, -3.83%)
Berkshire Hathaway Inc. (BRK-A, -2.54%)
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