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Weekly Sprout

It's a Wild, Wild, Week!

12 Nov 2022

Inflation cools, China relaxes restrictions, and FTX collapses

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⏰ THIS WEEK IN MARKETS

It’s been a week that everything seemed to happen at the same time.

No wonder the saying “When it rains, it pours”.

The only difference is that the rain has been pouring largely on FTX CEO Sam Bankman-Fried and the crypto space. 

After a week of many twists and turns, one of the largest digital asset exchanges globally filed for bankruptcy. 

Investors who participated in the latest 6-month T-bill auction were also disappointed that the yield came down to 4% p.a.

Elsewhere, there’s much to cheer in equity markets globally as US inflation cooled, and China announced sweeping changes in its Covid measures. 

There’s a lot to look out for in the week ahead with the results of Sea and Grab coming up! 

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Source: Bloomberg. Price as of 11 Nov

 

 

❄️ Cooling down

What’s going on here?

  • The US Consumer Price Index (CPI) rose by 7.7% compared to the previous year, below market expectations of 7.9%.

What does this mean?

  • Cooling prices would be music to the ears of US Fed officials, who have been trying to dampen prices by raising interest rates. 
  • Economists quickly revised down their expectations of upcoming interest rate hikes. 
  • US stocks rose, tech stocks soared, and Cathie Woods’ flagship ARK Innovation Fund jumped by more than 10%.

Why should I care?

  • Inflation and rising interest rates have been driving the markets for most of the past year. 
  • For now, one datapoint does not make a trend. There are also some worrying signs in the CPI data, such as how sticky services inflation is. 
  • There’s one final Fed meeting this year on 14 December, and the good news is that few are expecting another 0.75% hike. 

 


 

️  Re-opening

What’s going on here?

  • China announced sweeping changes to its Covid policy, including reducing the amount of time travelers and close contacts of Covid cases must spend in quarantine.

What does this mean?

  • The market was euphoric over the 20 new measures to guide Covid control, which were seen as an adjustment in its approach towards the pandemic. 
  • Chinese officials emphasised that the change in playbook was a refinement of rules and not a relaxation of controls. 
  • Yet, the government did not rule out easing the rules further. Deputy head of the National Health Commission Lei Haichao said that China will “keep advancing in small steps”.

Why should I care?

  • The tight Covid measures have taken a significant social and economic toll, and any relaxation is definitely welcomed. 
  • 60% of investors surveyed by BofA Securities said that “reopening” was the key factor for them to turn “more positive” on China. 
  • Investors have also cited attractive valuation as a reason to buy. The Hang Seng Index is trading close to its lowest price-to-book ratio on record.

 


 

💣 Blowing up

What’s going on here?

  • FTX, the digital asset empire run by Sam Bankman-Fried, has filed for bankruptcy, sending shockwaves across the crypto industry. 

What does this mean?

  • There have been a number of high profile failures this year, but FTX’s collapse stands out as it operated one of the world’s largest exchange of digital assets. 
  • In 2021, FTX had more than 5 million users worldwide trading more than $700 billion worth of crypto. 
  • The close linkages between firms in the crypto industry will likely lead to more contagion in the days ahead. BlockFi, a crypto lender that received emergency funding from FTX earlier, said it will pause client withdrawals due to “a lack of clarity”. 

Why should I care?

  • Some have compared FTX’s sudden downfall to crypto’s Lehman moment.
  • With questions raised about potential conflicts of interest between FTX and Alameda Research, the trading arm at the centre of the empire, there will likely be more regulatory scrutiny ahead. 
  • For now, regulators seem to agree that investors need better protection in this space. 

 


 

🚗  MOVING THIS WEEK

  • Meta (META) cut 13% of its staff, or more than 11,000 employees, according to a message shared by the CEO Mark Zuckerberg.
  • Twitter (TWTR) suffered an exodus of remaining top executives while Elon Musk warned that bankruptcy was a possibility.
  • Nio (NIO) announced that its EV deliveries in the current quarter could double from a year ago. 
  • Singtel’s 1HFY2023 earnings grew 23% from the previous year to S$1.17 billion, as it booked gains from its recent divestment in Bharti. It announced an interim dividend of 4.6 cents, plus a special dividend of 5 cents over two tranches. 
  • SATS incurred a loss of S$32.5 million in 1HFY23 with fees incurred for the proposed acquisition of WFS, the world's largest air cargo handler. It also announced that it will continue to withhold dividend payments for now, and will tap shareholders for a rights issue of up to S$800 million. 

Source: Bloomberg, CNBC, Business Times, Edge Singapore

 


 

💡 THE BIG IMPORTANT STORY

T-bills vs REITs – What are we be buying now as inflation eases?

REITs have bounced as slowing price increases have led to expectations that peak interest rates are in sight. We analyse if they are more attractive now compared to T-bills.

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👨💻 WHAT WE’RE LOOKING OUT FOR THIS WEEK

  • Tuesday, 15 Nov:  Sea Limited, Walmart earnings
  • Wednesday, 16 Nov: Grab earnings, US retail sales data
  • Thursday, 17 Nov: Alibaba earnings
  • Friday, 18 Nov: JD.com earnings 

Source: SGX, Bloomberg, Refinitiv

 


 

🍭 THAT’S INTERESTING

Gen Z is embracing Prada 

  • You’ve probably heard of the movie ‘The Devil Wears Prada”. But Prada has seen its popularity slide compared to other luxury brands since the 2006 movie. It posted falling sales for five years through 2018. 
  • Now’s its fortune seems to be turning around as Gen Z is rediscovering the brand with a love for all things 90s. In the past quarter, Prada was the second hottest brand on the Lyst Index, which measures searches on and off the Lyst fashion platform, as well as social media mentions. 
  • Despite the surge in popularity, Prada’s profit margin remains below Hermes and LVMH as it is more exposed to fashion and shoes, and less to handbags. 

Source: Bloomberg

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