Week 29.07 - 04.08: Recession fears, Japan Raises Rates, Cybersecurity Challenges and more...
Weekly Financial Digest
Key Stats of the Week
🏦 0.25% - Bank of Japan's new benchmark interest rate, marking a historic hike
🇬🇧 5% - New base rate set by the Bank of England after a surprise cut
💻 29% - Year-on-year growth in Microsoft's Azure cloud revenue
🛢️ 6 - Number of oil platforms BP plans to have in the Gulf of Mexico after building its latest one
🧑💼 $1.4B - Amount of Meta's settlement with Texas over its facial-recognition system
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Weekly Sector Performance
🤝 M&A Roundup
💄 Beauty: L'Oréal re-enters injectables market, acquiring 10% stake in newly listed dermatology company Galderma.
🏦 Banking: Société Générale to sell UK and Swiss private bank units for €900 million as part of CEO Slawomir Krupa's streamlining efforts.
⚡ Energy: Woodside Energy Group to acquire OCI Global's 'blue' ammonia project for $2.3 billion, marking its second quick deal for US assets.
🔋 Power: Carlyle Group to sell natural gas power plant owner Cogentrix Energy to private equity group Quantum Capital in $3 billion deal.
🇪🇸 Utilities: Spain's Iberdrola buys UK's Electricity North West for €5 billion, making Britain its largest market.
📊 Accounting: CBiz to acquire Spac-focused Marcum in $2.3 billion deal, creating a twist in the accounting industry's consolidation wave.
🥉 Mining: BHP revives copper ambitions with $3 billion joint takeover of Argentine assets with Canada's Lundin.
Chart Of The Week
Is the U.S. Economy at a Turning Point? What Young Investors Should Know
This chart gives us valuable insights into the mood of the U.S. economy and stock market. Let's break it down:
What We're Looking At:
The blue line shows how economists feel about the economy (Economic Sentiment).
The purple line shows how investors feel about the stock market (Investment Sentiment).
The bars show how the S&P 500 (a major stock index) is performing.
Key Takeaways:
💡Sentiment Matters: How people feel about the economy and markets can drive stock prices up or down.
💡Look for Gaps: When the blue line (economy) is much lower than the purple line (investment), it often signals trouble. We saw this during big crises like 2008 and COVID-19.
💡Current Situation: Right now, there's a small gap forming – economic sentiment is slightly below investment sentiment. This isn't a crisis signal, but it's worth watching.
💡Tech Optimism: The recent uptrend in both lines is largely due to excitement about AI and new tech. This has been driving the stock market higher.
💡Possible Peak: The chart suggests we might be reaching the top of this positive cycle. As a young investor, this doesn't mean "sell everything," but it's a reminder to stay alert.
This Week in Short
Bank of Japan's Historic Rate Hike
The Bank of Japan (BOJ) raised its benchmark interest rate to 0.25%, only the second increase in 17 years.
This marks a potential shift away from Japan's long-standing ultra-loose monetary policy.
Key points:
The BOJ aims to halt the yen's decline, which has fueled inflation above the 2% target for 27 months.
The bank plans to reduce its monthly bond purchases by half by spring 2026.
This move could strengthen the yen, impacting Japanese exporters and potentially creating opportunities in Japanese financial stocks.
It might however scare the market in the short term.
Bank of England's Surprise Rate Cut
The Bank of England cut interest rates for the first time since March 2020, reducing the base rate to 5%.
This decision signals:
Expectations of continued decline in Britain's headline inflation rate.
Potential weakening of pay and price-setting dynamics.
This move could revitalise the UK property market and boost consumer spending.
Federal Reserve Holds Steady, Hints at Future Cut
The Federal Reserve maintained its current interest rate but suggested a possible cut in September.
This comes as the U.S. economy shows robust growth:
Q2 growth reached an annualized rate of 2.8%, double the Q1 expansion of 1.4%.
A potential rate cut could boost growth stocks and real estate investments.
Keep an eye on sectors that typically benefit from lower interest rates, such as technology and consumer discretionary.
Microsoft's AI Push and Cloud Growth
Microsoft reported strong earnings but faces AI-related challenges:
Azure cloud revenue up 29% year-on-year, slightly below expectations.
They cited AI capacity constraints as a factor in the shortfall.
Increased capital spending by 80% to $19 billion - largely for AI investments.
Microsoft's heavy investment in AI signals long-term commitment to this technology.
But it’s important to consider not just the tech giants - but also companies that provide essential AI infrastructure and components.
Amazon's Product Liability Ruling
The U.S. Consumer Product Safety Commission ruled that Amazon is legally responsible for defective goods from third-party sellers:
Amazon must issue safety recalls and notify consumers of faulty products.
The company is appealing the decision.
This ruling could have significant implications for e-commerce platforms.
Increased liability might affect Amazon's business model and create opportunities for competitors or specialised insurance providers.
Energy Giants' Strong Performance
BP and Shell reported strong quarterly profits:
BP plans to build its sixth oil platform in the Gulf of Mexico.
Shell posted a loss in its renewables business and shelved a European biofuels project.
Despite the push for renewables, traditional energy companies remain profitable.
Boeing's Continued Struggles
Boeing reported a $1.4 billion quarterly net loss, facing multiple challenges:
Production slowdowns due to new quality control measures.
Operating losses in its defense and space division.
Appointment of Kelly Ortberg as the new CEO → bringing experience from Rockwell Collins.
Boeing's issues highlight the importance of robust quality control and effective management in the aerospace industry.
Airbus Faces Similar Headwinds
Airbus isn't immune to the aerospace industry's challenges:
Recorded a higher-than-expected charge of almost €1 billion related to its space business.
Reduced its target for commercial plane deliveries.
The struggles of both Boeing and Airbus suggest industry-wide issues.
Investors: Look for companies that supply critical components or services to multiple aerospace firms → as they may be more resilient to individual company problems.
Meta's AI Investment Strategy
Meta is also ramping up its AI investments:
CEO Mark Zuckerberg emphasised proactive capacity building for AI.
Settled a $1.4 billion lawsuit with Texas over its facial-recognition system.
Microsoft's Cybersecurity Challenges
Microsoft faced another global outage, this time due to a cyber-attack:
It affected its email service and Minecraft game.
Previous disruptions from a faulty CrowdStrike update continue to impact users.
This just shows again how critical cybersecurity is.
We investors would be wise to keep an eye on companies specialising in robust IT infrastructure and cybersecurity solutions → as demand for their services is likely to grow even more.
Air New Zealand's Climate Goal Setback
Air New Zealand abandoned its short-term climate target:
Cites challenges including unavailability of fuel-efficient aircraft and high costs of alternative fuels.
Remains committed to reaching net zero by 2050.
This sot of highlights the challenges faced by the aviation industry in meeting sustainability goals.
Companies developing innovative solutions for sustainable aviation might be worth a watch → as they may see increased demand.
Stocks - Performance Recap
📈 WINNERS:
McDonald's Corp (MCD, +9.80%)
NextEra Energy Inc (NEE, +6.65%)
Mastercard Inc (MA, +5.44%)
Meta Platforms Inc (META, +4.82%)
Eli Lilly and Co (LLY, +3.53%)
UnitedHealth Group Inc (UNH, +3.53%)
Philip Morris International Inc (PM, +3.93%)
Visa Inc (V, +2.74%)
📉 LOSERS:
Micron Technology Inc (MU, -11.83%)
Wells Fargo & Co (WFC, -11.81%)
Qualcomm Inc (QCOM, -11.52%)
Bank of America Corp (BAC, -9.81%)
Morgan Stanley (MS, -8.01%)
Taiwan Semiconductor Manufacturing Co Ltd (TSM, -7.46%)
Salesforce Inc (CRM, -7.13%)
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