FTC continues to challenge BigTech

3rd December 2022 – 9th December 2022 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
3,934.38	11,004.62	22.83	33,476.46	2,157.26	15,291.05
-3.37%	-3.99%	19.78%	-2.77%	-3.51%	-3.02%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
18,496.60	$1,809.40	$23.68	$76.82	82.44	86.85
-1.07%	-0.11%	1.39%	-10.07%	1.25%	1.17%

Source: MarketWatch

Hello Saturday,

This week the Federal Trade Commission continues to challenge Big Tech, data reveals equity risk in mortgaged homes, and oil prices plunge drastically. 

• The number of mortgaged houses bought in 2022 in the US that are now underwater has been increasing as has the early payment default rate, especially in the Federal Housing Administration loans segment
• Median household savings and checking account balances in the US remain above pre-pandemic levels showing consumer resilience throughout the volatile year of 2022
• The Federal Trade Commission sues to block major acquisition deals of Big Tech including Meta and Microsoft in an effort to maintain competition and avoid monopoly 
• China pivots from its zero-COVID policy and reopens cities but the economy continues to face sluggish demand and may not see accelerated economic activity anytime soon 
• Congress faces pressure to address the issue of increasing the US’s debt ceiling during its lame duck session before the balance of power shifts in 2023 as the Republicans gain control of the House 

Taking stock | Underwater diving | A-spending we will go | Monopolice | Qua-run-time | Ceiling the deal | Invest wisely

Taking stock

Stocks finished Friday lower with all major indices posting losses for the week. S&P 500 tumbled 3.37%, Nasdaq shed 3.99%, and the Dow dropped 2.77%. While investors were hoping that the producer-price data released on Friday would show signs of easing inflation, it came in higher than expected. This increased worry among investors about the Fed’s meeting next week.

Underwater diving 

Recent data by Black Knight shows that of all homes purchased with a mortgage in the US in 2022, 8% are now underwater, while almost 40% have less than 10% equity left to tap. But what does this mean? When a homebuyer takes on a mortgage to buy a house, the equity stake they have in their house is based on the difference between the home value and the mortgage they owe. For instance, if a homebuyer buys a home worth $300,000 with a $25,000 downpayment and a mortgage of $275,000, at the time of buying, their equity stake is $25,000 (or the amount of the downpayment). Over time, their equity stake can increase in two primary ways. First, as they keep paying their dues and their mortgage decreases. And second, as their home value appreciates. 

When a mortgage is underwater, the money the homebuyer owes is more than the home’s worth. Currently, 1 in every 12 mortgaged homes bought in the US in 2022 is underwater as home prices keep dropping across the country. Most of these loans are concentrated in the Federal Housing Administration (FHA) loans segment. Over 25% of 2022 FHA mortgage holders are now in the negative equity territory, with 80% having less than a 10% equity stake in their home. Also, among FHA borrowers, the early payment default rate, which captures how many loans become delinquent within six months of origination, has risen over the past year. It has now reached its highest level since 2009, excluding the first few months of the pandemic. 

A-spending we will go

Despite surging inflation, job layoffs, and a looming recession, consumers in the US have proven resilient in 2022 and are set to ring in 2023 in good financial health overall. Median household savings and checking balances are well above the pre-pandemic levels across all income groups. Moreover, most consumers have not increased their reliance on credit cards over debit cards.

As for consumer spending, despite the soft retail spending at the start of November, holiday shopping picked up towards the end of the month. The growth in total card spending per household across retail and services in November was 1.7% year-over-year. While this is a slower growth pace than October’s 3.1%, the growth continues. Another thing to note is that the use of Buy Now Pay Later (BNPL) options have increased, which means the repayment of holiday spending may be spread over the next few months. While card payments to BNPL companies only accounted for about 2% of total online card spending value as per Bank of America’s data, this is a significant increase from the 2019 annual average of 0.3%.

Monopolice

The US Federal Trade Commission (FTC) continues its attempts to keep the power of Big Tech in check by challenging acquisitions that harm competition in the market. This Thursday, the FTC sued to block Microsoft’s $69 billion acquisition of the video game company Activision Blizzard. If this deal were to go through, Microsoft would become the third-largest video game publisher in the world. This could negatively impact not only the prices of video games, but also the quality and user experience. The FTC also kicked off a high-profile trial this week to prevent Meta from taking over the Virtual Reality (VR) company Within Inc. This is to prevent Meta from having a monopoly in the VR fitness apps market. Currently, Apple too is being investigated over its App store monopoly in its antitrust battle against Fortnite maker Epic Games.  

Qua-run-time

In the wake of nationwide protests, China has dropped a majority of its zero-COVID policy measures, such as quarantine and testing requirements. While this may have calmed the protesters and reassured markets, it hasn’t done much to help the economy and its sluggish demand. While most countries in the west saw an almost immediate acceleration in economic activity after reopening, that is not the case with China at the moment. 

Given the repeated lockdowns and overall financial volatility in the country, citizens added more than 13 trillion yuan to their savings in 2022. It seems unlikely that the country will see a shopping boom where citizens will draw on their savings because there is a possibility and a fear of another major outbreak due to looser restrictions. So, getting the citizens out and spending may be a challenge. 

Source: Reuters l Refinitiv Datastream

Ceiling the deal 

US federal debt is soon going to reach its statutory limit or debt ceiling (the maximum amount the government can borrow by issuing bonds) in the next few weeks. Congress has raised the debt ceiling several times in the past to avoid a default on US debt. However, this time around, it will likely trigger a political showdown between the Democrats and the Republicans in Congress. That is why there is increased pressure on the Democrats to get the debt ceiling extension done during the end-of-year ‘lame duck’ session of Congress. This is the period after the successor is elected but before the successor’s term begins. Come January, the balance of power will shift, and the Republicans will take over the House, having veto power over much of the Biden administration’s agenda. A battle over the debt ceiling could cost not only the US its AAA credit score but also hurt Wall Street. A similar showdown in 2011 triggered one of the most volatile weeks for the stock market since the 2008 financial crisis. 

Invest wisely 

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Warm regards,
Another week
in the markets