Week 8.06 - 15.06 : Falling Fertility Rates, Adjusted Interest Rates, Tariffs on China and more...
Weekly Financial Digest
Key Stats of the Week
🔺 5.25-5.5% - Federal Reserve's benchmark interest rate range maintained, with just one cut projected for 2023
⛽ 8M bpd - Projected global oil supply surplus by 2030 according to IEA
💼 272K - U.S. jobs added in May, far exceeding forecasts in sign of resilient labor market
🚗 17-38% - Proposed EU tariff range on Chinese electric vehicle imports due to unfair subsidies
✈️ 0.25% - European Central Bank interest rate cut to spur economic growth
🤖 $6.4B - Reported valuation of French AI startup Mistral after Microsoft/Nvidia-backed funding round
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Chart Of The Week
This chart shows the global fertility rates from 1970 and projected for 2024.
The key insights for stock market investors are:
✅Consumer goods and services companies may need to adapt their products and marketing strategies to cater to aging populations in developed nations.
✅Healthcare and pharmaceutical companies will benefit from increased demand for age-related products and services in countries with declining fertility rates.
✅Emerging markets with higher fertility rates may present opportunities for consumer goods, education, and infrastructure investments to support growing populations.
✅Labor-intensive industries are likely to face challenges in countries with declining fertility rates - leading to automation and technology investments.
Weekly Sector Performance
🤝 M&A Roundup
✈️ Infrastructure: Heathrow Airport Holdings Ltd - Ardian and Saudi PIF secured a £3.3bn stake in a major overhaul.
🏡 Homebuilding: Crest Nicholson PLC - UK homebuilder rejected a £667mn bid from rival Bellway after a profit warning.
🇨🇿 Defense: Czech billionaire Strnad's Czechoslovak Group is at the center of a $2bn US ammo maker bidding war.
💻 Retail: GameStop stockpiles $4bn war chest amid operational declines.
📷 Social Media: Photo app BeReal was acquired by French game developer Voodoo for €500mn.
👵 Pensions: Mercer is to buy UK's Cardano in £50bn workplace pensions market deal.
💣 Ammunition: Trump donor is leading a $2bn counter bid for Vista Outdoor's ammo unit.
Federal Reserve Rate Hikes and Cuts
The Federal Reserve maintained its benchmark interest rate range between 5.25% and 5.5%.
However, markets were more interested in the Fed's projected path for rate reductions.
The Fed now expects to cut rates only once this year, possibly as late as December.
That’s a significant change from its previous projection of three cuts in March.
The shift suggests a more cautious approach to rate cuts - which could impact the stock market's performance and overall economic conditions.
Oil Supply Surplus and Plunging Prices
According to the International Energy Agency (IEA), global oil production is set to ramp up - leading to a crazy oversupply of 8 million barrels per day by 2030.
The surplus, primarily driven by increased production in the United States, Brazil, and Guyana, is expected to cause oil prices to plunge.
Investors in the energy sector need to closely monitor these developments and their impact on oil company stocks.
Nvidia Stock Split and Tech Stock Momentum
Nvidia's stock split came into effect, with shareholders receiving ten shares for each one they held.
This price dilution makes the stock more attractive to small investors.
Similar stock splits by tech giants like Alphabet, Amazon, and Apple have also boosted market sentiment.
Strong U.S. Labor Market and Inflation
Defying expectations, the U.S. labor market added 272,000 jobs in May - far exceeding analysts' forecasts.
It’s a nice sign of a resilient economy.
The annual inflation rate also fell to 3.3%.
Strong labor markets and moderating inflation usually positively impact consumer spending and support stock prices.
European Union Tariffs on Chinese Electric Vehicles
The European Commission announced more tariffs on imports of Chinese electric vehicles - due to unfair state subsidies.
The proposed tariffs range from 17% to 38% depending on the carmaker. That’s on top of the existing 10% tariff.
Western firms producing in China and exporting to the EU will also face these taxes.
This move will definitely impact the competitiveness of Chinese EV manufacturers in the European market and likely create opportunities for domestic or non-Chinese EV companies.
The new tariffs could shift market share to European EV manufacturers like Volkswagen and Renault.
Saudi Aramco Share Sale
Saudi Aramco, the state oil company of Saudi Arabia, completed a long-awaited secondary sale of shares, selling approximately $11 billion worth of shares (0.64% stake) mostly to international investors.
Increased liquidity from Saudi Aramco's share sale might attract institutional investors -potentially stabilising the stock.
One should consider the geopolitical implications of investing in Aramco, including oil price volatility and OPEC's production policies.
Diversifying within the energy sector can mitigate these risks.
European Central Bank Rate Cut
On June 6th, the European Central Bank (ECB) cut interest rates for the first time in five years.
It reduced the deposit facility rate by a quarter of a percentage point to 3.75%.
The cut is likely to stimulate economic growth and potentially boost consumer spending in the Eurozone.
Investors might explore opportunities in undervalued European stocks, particularly in the banking sector, expected to benefit from increased lending.
Also: monitor inflation trends, as rising inflation could offset some benefits of the rate cut.
Turbulence at Southwest Airlines
Activist hedge fund Elliott Management has called for a change in leadership at Southwest Airlines.
It’s a sign of potential turbulence for the airline.
Elliott holds an 11% stake in Southwest, which is still recovering from an IT fiasco in late 2022 that led to thousands of canceled flights.
Apple's AI System and Stock Market Boost
Apple launched its much-anticipated new artificial intelligence system, Apple Intelligence.
The system integrates AI technology into its next operating system, iOS 18.
This move allows users to generate images and customize emojis.
Apple emphasized privacy aspects, but concerns were raised about an arrangement with OpenAI's ChatGPT.
The launch boosted Apple's share price, helping the S&P 500 and NASDAQ stock indices hit new records - more proof of the market's enthusiasm for AI advancements.
Mike Lynch Legal Saga
Mike Lynch, the former CEO of Autonomy, a British software firm acquired by Hewlett-Packard in 2011, was found not guilty by a jury in San Francisco of criminal fraud charges related to the acquisition.
However, a British judge still has to decide on potential damages from a civil trial that found him liable for fraud.
AI Startup Valuation and Investment Opportunities
Mistral, a French AI startup backed by Microsoft and Nvidia, was reportedly valued at €5.8 billion ($6.4 billion) after its latest funding round, tripling its valuation from December 2022.
Despite being founded just a year ago, Mistral aims to challenge AI products from tech giants like Google, Meta, and OpenAI.
Raspberry Pi IPO Success
Raspberry Pi, a British maker of low-cost single-board computers, saw its share price rise by 38% on its first day of trading on the London Stock Exchange.
The successful IPO highlights the potential for technology companies focused on accessible computing solutions and the interest from investors in supporting such initiatives.
Stocks
📈WINNERS:
Nvidia (NVDA, +9.09%)
Adobe (ADBE, +12.87%)
Apple (AAPL, 7.92%)
Home Depot (HD, +6.06%)
Broadcom (AVGO, +23.35%)
📉LOSERS:
Alibaba (BABA, -5.66%)
TotalEnergie (TTE, -5.67%)
Paypal Holdings (PYPL, -9.09%)
Banco Santander (SAN, -8.48%)
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