Trail 140 — Doesn’t Matter
Markets Update by Aashish Singh
Business Update by Sylvia Lo
Financial markets are fascinating. They are constantly evolving, they follow no predetermined path and much like humans, their behaviour at times is completely irrational. Every day their movements are thoroughly analysed, yet their next steps are a complete mystery. They follow a random walk and therein lies their beauty. Each week I briefly recap a few stories that captured my interest.
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This week we had Donald Trump convicted, which made him the first US president to become a felon. While on the face of it, it’s a historical decision, it’s largely inconsequential. It doesn’t stop him from running for Presidency and in fact has rallied support from his donor base. This is emblematic of markets currently.
Starting with the US inflation data, which was in line with expectations, marking the first month of slowing annual data since January 2024. Treasury yields closed higher nonetheless, with an auction of fresh debt attracting lacklustre demand. The equity bears, which have been consistently beaten down over the last few months, saw the S&P 500 surge late on Friday to end May up 4%, as surging yield expectations were largely discounted.
Several central banks have taken measures to stem their currencies from declining vs a strong dollar, but as Japan and China have seen, measures have been expensive and largely futile. Essentially Mr. Market has bought into the high US growth and high dollar rates narrative and is discounting anything that suggests otherwise.
Cross asset volatility was a tad higher and credit spreads wider, but subdued from normal levels, nonetheless. Commodities saw profit booking related sell-offs continue as Gold and Copper flirted with fresh lifetime highs in May. Input costs have gone up significantly across the board, yet there is an expectation for inflation to subside. Israel-Hamas talks seemed to offer a peaceful resolution in sight, only for Israel to escalate its activities in the Gaza area. Biden allowed the usage of American missiles by Ukraine to strike inside Russia, another first. A lot happening with a lot of it getting discounted.
Hedging Trades in Danger
Bears have sounded like a broken record for months now: The 60/40 investment industry remains at the mercy of monetary angst and fiscal largess. After lacklustre Treasury auctions sent major assets into a tizzy with bond yields whipsawing, the naysayers looked less contrarian this week. Stocks and bonds posted fresh in-tandem gyrations, causing headaches for balanced 60/40 portfolios and hedging strategies on Wall Street.
Propped Up Yen
Japan spent a record ¥9.8 trillion ($62.2 billion) in the past month to prop up the yen after it fell to a 34-year low against the dollar, surpassing the total amount it used in 2022 to defend the currency. The finance ministry disclosed figures Friday for the period between April 26 and May 29. The amount exceeded earlier estimates of ¥9.4 trillion based on a comparison of the Bank of Japan’s accounts and money broker forecasts. Japan’s previous intervention record of ¥9.1 trillion was set in very different circumstances, when authorities were trying to weaken the yen in the autumn 2011.
China Allows Declines
China’s onshore yuan dropped to the weakest level since November as signs mount that policymakers are slowly letting the currency decline against a resilient dollar.
The yuan fell to as low as 7.25 per dollar as the People’s Bank of China gradually cut its daily reference rate for the managed currency to a level unseen in four months. The move came as a gauge of the greenback, edged higher for a second day, on bets the Federal Reserve is still not close to kicking off its rate-cut cycle.
In The World of Business
This week, Michael Dell’s net worth plummeted by $11.7 billion to $107.1 billion after Dell Technologies Inc. shares fell due to quarterly results that fell short of high investor expectations in the AI server business.
Facebook Marketplace’s rapid growth and user-friendly interface have made it a popular platform for second-hand purchases, attracting a new generation of thrifty shoppers despite challenges with scams and competition from other e-commerce giants.
China is significantly increasing its investment in semiconductor development with a new multi-billion-dollar fund to boost local chip making, despite past mixed results and ongoing U.S. efforts to curb China’s access to advanced chip technology.
Dell Disappoints
Michael Dell experienced his largest single-day drop after Dell Technologies Inc. posted results that fell short of investor expectations, causing his net worth to plummet by $11.7 billion to $107.1 billion. Despite reporting its first quarterly revenue increase in two years, the Texas-based computer maker saw its shares fall 18% in New York due to unmet high expectations for its AI server business. This decline significantly impacted Dell’s fortune, nearly half of which is tied to the company he founded 40 years ago, along with his stake in Broadcom Inc., which also saw a slide in shares.
Dell, who ranks 13th on the Bloomberg Billionaires Index, had joined the elite group of individuals with fortunes exceeding $100 billion in early March, driven by soaring demand for AI computing equipment that had tripled Dell’s stock over the past year. However, the recent disappointing results have reversed some of these gains. This volatility in tech fortunes underscores the high stakes and rapid changes in the tech industry, particularly as companies like Dell and Nvidia Corp. benefit from the AI boom.
The Thrill of the Thrift
Facebook Marketplace has rapidly evolved from a platform for neighbourhood sales to a formidable e-commerce contender, boasting 1.2 billion active users, far surpassing Craigslist’s user base and approaching Amazon’s. Its user-friendly interface, integration with Facebook Messenger, and inherent trust factor have contributed to its success. The platform’s growth was further accelerated by the pandemic, which shifted consumer behaviour towards e-commerce. This transformation has also provided a lifeline for small businesses and artisans, like Springfield’s Beautiful Fight Woodworking, which generated substantial revenue through Marketplace.
Despite its growth and popularity, Marketplace faces challenges such as scam proliferation and competition concerns from the EU. Yet, it remains an integral part of Meta’s strategy, primarily driving user engagement and ad revenue rather than direct sales profits. The platform’s appeal, particularly among Gen Z, lies in its blend of affordability, environmental consciousness, and the thrill of discovering unique items.
New Semiconductor Fund
In a bold move to fortify its semiconductor industry, Beijing has launched another multibillion-dollar investment into the China Integrated Circuit Industry Investment Fund, widely known as the “Big Fund.” This latest round of funding, amounting to 344 billion yuan ($47.5 billion), nearly matches the combined total of the two previous rounds, signalling a significant escalation in China’s efforts to develop a robust chip making sector. The Ministry of Finance leads this initiative, supported by state-owned banks and local government investment firms.
Despite mixed results and scandals in previous rounds, some Chinese chip making firms have seen notable successes. Semiconductor Manufacturing International Corporation (SMIC) and Yangtze Memory Technologies Co. (YMTC) have become key players, with SMIC producing advanced chips for Huawei’s latest smartphones despite U.S. export restrictions. However, the drive to create a leading semiconductor industry has also faced setbacks, including high-profile corruption cases and the collapse of ambitious projects like Wuhan Hongxin Semiconductor Manufacturing.
Beijing’s intensified focus on self-sufficiency in semiconductors comes amid increasing U.S. efforts to curtail China’s access to advanced chip technologies. Analysts suggest that this massive infusion of capital is a strategic move to ensure China remains competitive in the global semiconductor landscape, despite external pressures.
Until next week.
