Your bite-sized weekly update (10 July)

THIS WEEK IN MARKETS

It was a week of relief in the market, as falling commodity prices is driving more investors to believe that we have seen the worst of inflation. Oil, wheat, nickel– you name it, and it’s probably down more than 20% from its peak last month. Even a very strong jobs report that will probably reinforce the Fed’s determination to raise interest rates again later this month did not cause much of a dent to the gains from earlier in the week.   

WHAT'S IMPORTANT

• US job market shows its strength. US non-farm payrolls increased by 372,000 in June, better than market expectations of 250,000. Average hourly earnings rose 0.3% from the previous month, inline with expectations. The stronger-than-expected jobs report has prompted investors to think that the Fed will continue on its aggressive rate hikes.
• China rolls out stimulus. China’s Ministry of Finance is considering allowing local governments to sell RMB 1.5 trillion (US$220bn) of special bonds in 2H22, targeted at driving infrastructure spending. After Covid related lockdowns caused a slump in economic activity, government officials are eager to make sure that growth targets this year are hit. 
• Time to go shopping in Europe. If there’s one market that is facing the brunt of inflation and recession concerns, Europe has to take the lead. An energy crisis caused by Russian threats of cutting off gas supplies is raising risks that the region will fall into a recession The Euro fell to its lowest level against the US Dollar in two decades, with Bloomberg estimating that there is a 60% chance that the currency could reach parity with the US Dollar by year-end.   

ICYMI

• Musk cancels Twitter deal. Elon Musk is trying to end an agreement to buy Twitter for $44 billion and take it private, as he believes that Twitter has misled him over the number of spam bots on the social network. The Twitter Board has vowed to bring the matter to the courts, and has said that it is committed to closing the transaction on the price and terms agreed previously. 
• Tesla’s delivery numbers disappoint. The electric car maker delivered 254,695 cars in 2Q22, at the lower end of market estimates in the range of 250-270k. On a more positive note, Tesla said that June was the “highest production month in Tesla’s history”, hinting of a possible strong 3Q if there are no further Covid shutdowns. Across the EV space, there are worries that Stellantis/ production could be cut by about 220,000 vehicles this year due to a chip shortage.  
• Amazon is partnering Grubhub. The deal will offer Grubhub’s food delivery service as a free benefit for Amazon’s “Prime” members, and allow Amazon the option to take a stake in Grubhub in future. The share price of DoorDash and Uber, Grubhub’s competitors in the US food delivery market, fell at the back of this news. 
• Samsung Electronics lifts Asian tech. The world’s largest memory chip maker reported a 21% increase in revenue, even as other chipmakers such as Micron and AMD have signalled weakening demand for chips. Its operating profit rose 11% and marked its best 2Q profit since 2018. Investors cheered the set of results, which also lifted sentiment for other Asian tech stocks.  
• Another bad week in the crypto world. Crypto lender Voyager Digital filed for bankruptcy, and Singapore-based crypto platform Vauld suspended withdrawals. With all the bad press that crypto is getting these days, it wasn’t a surprise that the US Treasury has called on Biden to work with G7 to tighten regulations. Closer to home, the MAS is also considering tighter regulations

(Source: Bloomberg, CNBC, Business Times)

WHAT’S UP THIS WEEK

Monday, 11 Jul

• Public Holiday in Singapore

Wednesday, 13 Jul

• Everyone’s looking at US CPI. After last month’s shock on inflation, the June CPI reading will be hotly anticipated in the coming week. No one is having high hopes that we will see a moderation here, with consensus expectation that the CPI print will be 8.8%, an increase from last month’s CPI of 8.6%. 

Thursday, 14 Jul

• JP Morgan kicks off banks results. Investors will be looking out closely for how financial firms fared in 2Q, and looking for signs of how the Fed’s interest rate increases have hurt borrower sentiment. 

THE BIG IMPORTANT STORY

Investing in 2H22 – Recession, rising prices, & restructuring

• Real-time economic data suggests that the US is likely already in a technical recession. However, Singapore might be able to avoid a recession as its re-opening helps to support consumer spending. 
• With falling commodity prices, inflation expectations have come off in the last few weeks. This might lead the US Fed to be less aggressive on its interest rate hikes.
• Coming out of the pandemic into a slowing economy, companies might accelerate on their restructuring plans. We'll also be looking out for signs of further regulatory easing in China.
• No one knows how deep or how long the economic slowdown might be, so the best strategy is to always stay prudent. 

WHAT’S INTERESTING

• Singaporean musician JJ Lin has jumped on the NFT bandwagon. He has emerged as the third co-founder of ARC, which claims to be Asia’s first private NFT club. The other co-founders of ARC are Kiat Lim, son of Singaporean billionaire Peter Lim, and Elroy Cheo, who is known have dated Taiwanese singer Elva Hsiao.