May 5, 2024

Notable market news this past week (05-May-24)

Here is the Skeptivest roundup of the latest market headlines for the week

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🔋 Elon Musk's Beijing visit boosts Tesla stock price

Musk is a fan of China: When Elon Musk landed in Beijing for a surprise visit to meet Premier Li Qiang and other senior officials, he was seen saying: “I’m a big fan of China.”

China reciprocates:

• ‍‍Beijing cleared Tesla in a key data security test, paving the way for Tesla's automation system (i.e. Full Self Driving), to be approved for China (Tesla's second-largest market). Introducing its advanced driver assistance system could enhance Tesla's revenue and position in the Chinese market, where consumers demand cutting-edge technology features.
• Musk reached a groundbreaking deal for Tesla with Chinese tech company Baidu, allowing Tesla to use its navigation and mapping services

Rising optimism amidst intense competition: Tesla's sales in China have faced decline amid stiff competition from domestic EV manufacturers offering superior self-driving capabilities to customers. However, these initiatives could help balance the competitive landscape. Stock price soared >10% in the past month. This is despite Tesla recently reported its first quarterly revenue decline since 2020 in addition to missing delivery targets.

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📱 All eyes on Apple's latest earnings as management announce massive share buyback plan

Apple's (+5.75% last 5 days) numbers: Apple's quarterly results, though not as dire as anticipated, especially in China, offered relief to investors with a projected return to growth.

• EPS: $1.53 vs $1.51 consensus (beat consensus) 
• Revenue: $90.75b vs $90.45b consensus (beat consensus) 
• iPhone revenue: $45.96b vs $46b estimated (missed consensus) 
• Net income was down just 2.17% from last year, largely due to strong cost cuts that allowed margins to continue to expand

Massive share buyback plan: This was complemented by the board's approval of a $110b share buyback, the largest in US history, surpassing Apple's previous record (set in 2018 when it authorized $100b). All told, Apple is responsible for the top six of the 10 largest share-repurchase announcements ever made in the country.

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☕️ Quick fire happenings to note

🌏 Global macro

• US Fed holds interest rate: In the most recent FOMC, the Fed maintained rates at the current range of 5.25% to 5.5%. This means that the economy is still too strong for rate cuts. Meanwhile, Fed Chairman Jerome Powell maintained hopes for a rate cut, stating that a rate increase is unlikely to be the next policy move. According to the CME Fedwatch Tool, the market is now pricing in a probability that there might be two rates cuts this year.
• Xi's EU trip to underscore China's economic appeal amid global concerns: President Xi Jinping is embarking on his first trip to the European Union in 5 years, emphasizing Beijing's capacity to offer the bloc superior economic prospects and bilateral relations compared to what the US acknowledges. During his 5-day visit to France, Serbia, and Hungary, which are seeking increased investment from China, Xi faces a backdrop of the EU aligning more closely with the US in expressing concerns about China's export practices and perceived security threats. Xi's visit coincides with recent warnings from US Treasury Secretary Janet Yellen and German Chancellor Olaf Scholz regarding China's industrial overcapacity and its global ramifications.
• Attention focuses on China's "Third Plenum": The upcoming assembly (set for July) of top Communist Party leaders, referred to as the third plenum, will establish Beijing's long-term agenda. China's 24-man Politburo signaled in a monthly meeting that more support for the economy is ahead. Expectations for more state support are high. In financial markets, there’s even loud speculation among some analysts that China will need to devalue its currency.
• US-Saudi security pact reaching close: The deal might transform the Middle East, potentially paving the way for Israel's first formal diplomatic relations with Saudi Arabia. Secretary of State Antony Blinken met Saudi leaders earlier this week and Israeli Prime Minister Benjamin Netanyahu to discuss the deal's framework, which involves Saudi recognition of Israel in exchange for a defense partnership with the US. Preconditions include Israel ending its Gaza conflict and committing to a path for Palestinian statehood.
• Turkey to halt all trade with Israel: Turkey announced a cessation of all trade with Israel until the latter permits uninterrupted and adequate humanitarian aid to Gaza.
• Florida becomes first state to ban lab-grown meat, prompting similar bills in other states: Politicians and meat lobbying groups oppose cultivated meat, labeling it "fake meat" and "slop", citing threats to traditional agriculture. Despite pushback, about 150 companies are developing lab-grown meat, with two startups gaining USDA approval for their products, set to debut in restaurants before grocery stores.

🏦 Individual stocks/companies

• Starbucks (-17.17% last 5 days) - Weak earnings as same-store sales fall 4%: Starbucks massively underperformed consensus. It reported EPS of $0.68/share on $8.5b in sales vs $0.79/share on $9.1b consensus estimates. This is largely due to a 4% drop in same-store sales. Traffic decreased 6% and management has slashed 2024 guidance.
• Etsy (-11.8% last 5 days) - Stocks fell as US discretionary spending fall: Revenue grew just 0.6% to $646m, in line with estimates, while EPS of $0.48/share missed consensus by 1 cent. This is an indication that US consumerism is declining as discretionary spend i
• Huawei's discreet funding of research at US universities: Huawei, a US blacklisted tech company, has been found funding cutting-edge research at top US universities including Harvard via a independent Washington-based foundation.
• WeWork restructuring: WeWork secured $450m in equity funding to facilitate its exit from bankruptcy and intends to clear its $4b debt. The majority of WeWork's debt holders support the plan. $337m of the funding will be provided by Cupar Grimmond, the investment arm of software services provider Yardi. Notably, the plan excludes involvement from co-founder and former CEO Adam Neumann, who submitted a $650m bid for WeWork.
• UMG and TikTok dispute resolved: Following a licensing dispute over royalty payments, AI duplication protection, and online safety, UMG struck a new deal with TikTok to restore its artists' music to the platform.

🇸🇬 Singapore related

• Singapore to consider more safeguards around execssive screen time for children: Singapore is contemplating increased measures to protect children due to concerns over excessive screen time and its potential impact on mental health. DPM Lawrence Wong emphasized the prevalence of digital device usage among young people and proposed strategies to support youths in managing this issue during his speech at Samaritans of Singapore's 55th anniversary.