Week 16.09 - 22.09: FED Surprise Rate Cut, Axel Springer Breakup, Legal Battles, and more...
Weekly Financial Digest
Key Stats of the Week
πΈ 0.5% β Size of the Fed's surprising rate cut -reducing its key rate to a range of 4.75% to 5%.
π 5% β Bank of Englandβs maintained benchmark interest rate after a previous rate cut in August.
π° β¬13.5 billion β Axel Springer's break-up deal with KKR - splitting its media and classifieds businesses.
π» $30 billion β Size of BlackRock's AI infrastructure fund - expected to grow to $100 billion with debt financing.
π¨ $15 billion β Nippon Steel's delayed takeover of US Steel - pending a US decision opposed by top political figures.
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Weekly Sector Performance
M&A Roundup
π₯οΈ Tech: Qualcomm approached Intel about a potential takeover bid in recent days - which could become the biggest tech acquisition in history if it materialises. But no formal offer has been made yet.
π Real Estate: Rupert Murdoch's REA Group upped its offer for Rightmove to nearly Β£5.9 billion, following the dismissal of its initial approach as 'opportunistic'.
π° Media: Axel Springer agreed to a β¬13.5 billion break-up deal with KKR, splitting the media division from the classifieds business. The deal could see top management making eight times their money.
π° Finance: Close Brothers is selling its wealth unit to Oaktree in a deal worth up to Β£200 million - as it prepares for a motor finance probe.
ποΈ Construction: Legal & General is selling Cala Homes to buyout firms for Β£1.35 billion as part of its plan to slim down and focus on main operations.
ποΈ Retail: Asda co-owner Mohsin Issa is stepping back from running the supermarket - with chair Stuart Rose taking over day-to-day responsibilities.
π Manufacturing: The US has delayed its decision on Nippon Steel's $15 billion takeover of US Steel - a deal opposed by Biden, Harris, and Trump.
π¬ Tobacco: Philip Morris is selling its asthma inhaler group Vectura at a discount after facing backlash from doctors over its pivot from tobacco to healthcare.
Chart of The Week
This graph shows how interest rates changed in the 6 months following the Fed's first rate cut in different years (1989, 1995, 1998, 2001, 2007, and 2019).
Here are the key insights we can learn from this:
Rate cuts can signal deeper trouble: In 2001 and 2007, continued rate drops led to major economic crises. If rates keep falling post-cut - it may hint at a recession β be cautious.
Rate cuts donβt guarantee recovery: In 1995, rates stabilised. But in other years like 2001 and 2007, things worsened. Donβt assume lower rates will boost markets; they can signal economic weakness.
Avoid quick decisions: Early fluctuations after rate cuts are often misleading. Wait for the longer-term trend before making investment choices.
Expect volatility: Steep rate declines in 2001 and 2007 show markets can stay unpredictable after cuts. The trick is to focus on stable, diversified investments rather than chasing short term stuff.
This Week in Short
Federal Reserve's Surprising Rate Cut
The Federal Reserve cut interest rates for the first time since March 2020. They reduced the key rate by half a percentage point to a range of 4.75% to 5%.
Key points:
The Fed suggests more cuts later this year
Pivot aims to address a cooling labor market
Inflationary pressures are easing
This rate cut is not only quite surprising - itβs also a big deal to be honest.
With cheaper borrowing costs, we might see a surge in startup activity and venture capital investments again.
For those eyeing the real estate market, this could be your moment β mortgage rates are likely to drop, making homeownership more accessible. Don't sleep on REITs either; they could see a nice bump as the cost of capital decreases.
Bank of England Holds Steady
The Bank of England maintained its benchmark interest rate at 5%. This followed a rate cut in August.
Noteworthy developments:
Britain's headline annual inflation rate steady at 2.2%
Price pressures still evident in the services sector
The BoE's cautious stance presents a potential nice opportunity in the UK market. With inflation seemingly under control, the pound might strengthen against other currencies.
For young investors - this could be an excellent time to diversify internationally.
Brazil Tightens Monetary Policy
In contrast to the US, Brazil raised interest rates for the first time in two years.
Here are the details:
Main rate increased by a quarter point to 10.75%
More rises expected to tackle high inflation
Brazil's move highlights the importance of understanding emerging markets. The higher interest rates could attract capital and potentially strengthen the Brazilian real.
The winners here? Companies like Brazilian exporters or multinationals with significant Brazilian operations.
Boeing's Labor Troubles
Boeing faces a significant strike by its largest union - which likely to impact its recovery efforts.
Situation overview:
Workers rejected a 25% pay raise over four years
Union pushing for a 40% increase
First strike at Boeing since 2008
Company suspending hiring and furloughing white-collar staff
This labor dispute at Boeing reflects broader trends in the job market - where workers are demanding higher wages to keep pace with inflation. $The significant gap between the company's offer and union demands highlights the ongoing tension between corporate profitability and worker compensation.
This situation could have ripple effects throughout the aerospace industry and manufacturing sector
Intel's European Expansion Pause
Intel is delaying the expansion of its chipmaking capacity in Germany and Poland for two years.
Key points:
Company focusing on turning foundry business into independent subsidiary
German government had promised β¬10 billion in subsidies
BP's Strategic Shift in Renewables
BP is exiting the wind power business in America, putting its operational wind farms up for sale.
Strategy details:
Focus shifting to solar energy in renewables portfolio
Solar capacity expected to exceed wind in America over the next decade
BP's move is a clear signal that solar is the hot ticket in renewables.
TikTok's Legal Battle Against US Ban
TikTok has launched its appeal against the Biden administration's plan to ban the app unless it separates from ByteDance.
Key arguments:
TikTok claims the ban is an "extraordinary speech prohibition"
Government cites national security concerns
Both sides request a decision by December 6th
This case could set important precedents for how governments regulate foreign-owned tech companies and handle data sovereignty issues.
The outcome could have far-reaching implications for international tech companies operating in the US and spark retaliatory measures in other countries.
BlackRock's Massive AI Infrastructure Fund
BlackRock launched a $30 billion investment fund focused on AI infrastructure and supporting energy sources.
Fund highlights:
Potential to swell to $100 billion with debt financing
Backed by Microsoft, Global Infrastructure Partners, and MGX
Nvidia offering expertise
This is the institutional money putting its chips on the table for AI. While you might not have access to this specific fund, you can ride this wave by looking at publicly traded companies involved in AI infrastructure.
Think data centres REITs, chip manufacturers beyond just Nvidia, and companies working on AI-optimized cloud services.
Also Iβd consider the massive energy needs of AI β this could create opportunities in green energy companies specifically targeting data centres power needs.
Pret A Manger's Global Expansion
Pret A Manger reported annual global sales above Β£1 billion for the first time.
Growth highlights:
690 shops worldwide, 480 in Britain
International expansion driving growth
New York described as "overseas capital" for customers
Pret's success is a masterclass in scaling a food service brand globally. Pret's success in New York is also a reminder of the continued importance of that city as a global trendsetter β maybe a factor to consider when evaluating other consumer brands' expansion potential?
Google's Antitrust Victory
The EU's General Court ruled that Google should not pay a β¬1.5 billion fine imposed by the European Commission in 2019.
Case details:
Fine related to AdSense platform practices
Court found insufficient evidence of hampered innovation
The ruling might embolden other tech companies to push back against regulations.
Amazon's Return-to-Office Mandate
Amazon has ordered employees to return to the office five days a week, the strictest policy among major US tech firms.
Policy changes:
Previous three-day requirement increased to five days
Four-month remote work option scrapped
Hot-desking eliminated in US offices
Amazon's move could be a trendsetter - and has multiple angles.
First it could boost companies in the business of office refurbishment and corporate real estate.
Or it might create a talent exodus from Amazon to more flexible competitors - potentially benefiting smaller tech companies or startups.
Murdoch Empire Succession Drama
A closed-door hearing in Nevada is determining the future control of Rupert Murdoch's media empire.
Key points to remember are:
Rupert Murdoch reportedly wants to change family trust terms
Plan would give eldest son Lachlan full control of News Corporation and Fox
Current trust transfers voting shares to four of his children
If Lachlan takes full control, expect a potential shift in Fox's direction, which could affect everything from political advertising spend to streaming content strategies.
This might create opportunities in competing media companies or in emerging platforms that cater to viewers seeking alternative voices.
Stocks - Performance Recap
π WINNERS:
Spotify Technology (SPOT, +8.07%)
Adp Inc (ADP, +8.65%)
Palo Alto Networks Inc. (PANW, +7.55%)
Meta Platforms, Inc. (META, +7.00%)
APO Group (APO, +8.82%)
KKR & Co. Inc. (KKR, +8.49%)
Blackstone Group (BX, +6.58%)
π LOSERS:
Novo Nordisk (NVO, -6.93%)
Arm Holdings (ARM, -5.75%)
Biogen Inc. (BIIB, -5.14%)
Philip Morris International (PM, -3.85%)
Merck & Co. Inc (MRK, -1.68%)
Disney (DIS, -3.53%)
Johnson & Johnson (JNJ, -0.82%)
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