07th January 2022 – 13th January 2023 | Another week in the markets
|S&P 500||Nasdaq||VIX||DJIA||Russell 1000||NYSE|
|Nifty 50||Gold||Silver||Brent crude||USD-INR||EUR-INR|
This week US stocks rise as the earnings session kicks off, US Treasury Secretary warns of hitting the debt ceiling as soon as January 19, and investors expect inflation to ease soon.
- Oil company ConocoPhillips in talks to sell Venezuelan oil in the US years after its assets in the country were nationalised; this will help ease trade sanctions placed by the US on Venezuela in 2019
- US to hit debt ceiling of $31.4 trillion next week, increasing the urgency to raise the cap on government borrowing to avoid defaults and catastrophic economic impact
- Investors are not aligned with the Fed on inflation slowdown and interest rate hikes; while investors anticipate rate cuts to begin in the second half of 2023, Fed officials don’t have any cuts pencilled in for the year
- Contemporary Amperex Technology Co. (CATL), one of the largest EV battery manufacturers in the world, said it expects its 2022 net profit to increase between 83% and 98%
- Microsoft is in discussions with ChatGPT’s creator, Open AI, to invest up to $10 billion; previously Microsoft has invested $1 billion in Open AI and is looking to add the chatbot to its Bing search engine
Taking stock | Venezuoila | Don’t debtonate | You’re not listening! | CATL call | Bing the house down! | Invest wisely
Wall Street ended higher this week as banks’ quarterly results kicked off the earnings season with most beating estimates. Both S&P and Nasdaq posted their second consecutive positive week and rose 2.67% and 4.82%, respectively. The Dow also ended the week in the green and added 2%. Shares of all major US banks jumped, including JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup.
ConocoPhillips, a Houston-based oil company, is reportedly in talks with Venezuelan representatives to sell Venezuelan oil in the US. This would serve as a way to recoup the $10 billion it lost in 2007 when its assets in Venezuela were nationalised. If this deal goes through, it would be helpful for both countries. For the US, it would help meet energy demand, while for Venezuela, it would end the commercial isolation caused by US sanctions in 2019. Before the sanctions, the US had been Venezuela’s biggest oil market for the longest time.
Currently, in addition to ConocoPhillips, several US oil companies are exploring deals with Petróleos de Venezuela SA (PdVSA), the Venezuelan state oil company. This comes after the first major easing of the sanctions after the Biden administration issued a license to Chevron Corp. in November, allowing the company to restart oil production and exports from PdVSA.
The US may be hitting the debt ceiling soon, and that doesn’t look good for its economy at all. As a country, the US runs budget deficits, which means that the government spends more money than its revenue through taxes and other sources. The debt limit or the debt ceiling is the maximum amount of money that the federal government is allowed to borrow in order to meet its obligations, such as funding social net programs, salaries for troops, and interest on the national debt.
This week, Treasury Secretary Janet L. Yellen warned that the US is most likely to hit its $31.4 trillion debt limit on January 19. While the US Treasury can launch extraordinary cash management measures to avoid default, this can only last until June. Congress needs to increase the debt limit in time to avoid an economic shock. This is tricky business because there has always been a standoff between the Democrats and the Republicans over government spending and the debt ceiling.
In the past, every time the country has been close to hitting the ceiling, it has triggered sharp volatility in the stock market, sent up mortgage prices, made borrowing expensive for companies, and hurt consumer confidence. A debt limit breach would greatly hurt the economy – it would kill up to three million jobs, add $130,000 to the cost of an average 30-year mortgage, and balloon the national debt by another $850 billion, according to researchers at a think tank.
You’re not listening!
Last year the Federal Reserve raised interest rates seven times to curb record-high inflation. This year, the stock market is optimistic, expecting the Fed to begin cutting rates back down by the second half of 2023. Investors seem convinced of this despite the central bank saying the opposite. As of now, the Fed has projected interest rates to keep increasing through the year up to 5.1% and has not pencilled in any cuts this year.
Source: The Wall Street Journal
The S&P 500 has gained 11% from its October low, and much of this has to do with investors’ expectations of a Fed policy pivot. Investors are expecting inflation to slow a lot faster than the Fed and this is where there is a major mismatch. How investor expectations and the Fed’s policy end up aligning will greatly determine the fate of the stock market this year.
Contemporary Amperex Technology Co. (CATL), the world’s largest battery maker, saw its shares up over 4.4% in early trading Friday. This came after the company said on Thursday that it expects its 2022 profit to increase between 29.10 billion yuan and 31.50 billion yuan, which translates to a profit increase of 83% to 98%.
CATL has played a massive role in America’s Electric Vehicle (EV) market. Not only has CATL helped Tesla become one of the biggest EV manufacturers, but it has also entered into a partnership with Ford Motors last year to help with the company’s EV ambitions. Given the global transition to clean energy, CATL has been accelerating expansion across markets. It has signed deals with Mercedes-Benz and BMW to supply EV batteries and said it plans to invest as much as $7.1 billion to set up a plant in Hungary to serve as its second factory in Europe.
Bing the house down!
The coolest chatbot, ChatGPT, has fascinated users around the world with its conversational, smart, and quirky responses.
Want a joke?
Why did the finance student break up with their significant other? They realised they had no mutual funds.
Want a haiku on money?
Money flows away,
Effortlessly slipping through hands,
Eternal search for more.
Want investment info?
Okay, for that let’s stick with Appreciate.
But the point is everyone has their eyes on OpenAI, the company behind ChatGPT, including Microsoft, which is planning to invest up to $10 billion in the company. Previously, Microsoft invested about $1 billion in the company and is currently also working to add ChatGPT to its search engine Bing.
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