Microsoft under the glare

31st May 2024 – 7th June 2024 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
5,346.99	17,133.13	12.22	38,798.99	2,914.43	17,985.63
1.32%	2.38%	-5.42%	0.29%	1.10%	-0.54%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
22,290.15	$2,311.10	$29.27	$79.47	83.53	90.34
3.37%	-1.56%	-4.21%	-2.34%	0.11%	-0.17%

Source: MarketWatch 

Hello Saturday,

This week, US jobs report turns out to be a mixed bag, Federal Trade Commission zeroes in on a Microsoft and an AI startup deal and aviation consultancy CAPA signals good time ahead for the industry

• The US jobs report delivered mixed signals. The unemployment rate ticked up to 4% while adding a total of 272,000 new jobs in May.
• The Federal Trade Commission is investigating Microsoft’s acquisition of an AI startup called Inflection for anti-competitive activities. Under the deal, the software major hired Infection’s co-founder and almost all its employees for a sum of $650 million.
• Sustained robust demand for air travel bodes of a good time for the aviation industry; consultancy firm hints at a 35% rise in pre-tax profit.
• India’s leading automaker Maruti Suzuki chalks up plans of investing ₹450 crore in renewable energy across operations.

Taking stock | Conflicting signals! | Microsoft under the glare! | Flying high! | Renewable rush! | Invest wisely | Another week in the markets

Taking stock

An unexpectedly strong jobs data report triggered a fall in major stock indices and prodded bond yields to rise. The S&P 500 fell 0.1%, while the tech-heavy Nasdaq Composite slipped 0.2%. The Dow tumbled by 87 points. However, on a weekly basis, all three indices registered weekly gains.

Conflicting signals! 

The US jobs report delivered confusing signals for May – while employers added 272,000 jobs in the month, the unemployment rate ticked past the 4% mark. Over the last couple of months, the labour market has been cooling, but not at the rate that market analysts and economists have anticipated.

The 272,000 jobs added in May were higher than the April taly and well above the 190,000 new jobs addition projected by economists. While these jobs don’t include agricultural jobs, they do account for any extra hiring, especially during the holiday season. Average hourly earnings also exceeded economists’ expectations soaring 4.1% from a year earlier.

Analysts said that the hotter-than-anticipated jobs number signals resilience in the US economy. Employers have not been deterred from hiring more workers and customers are incurring extra spending even in the face of elevated borrowing costs and stubborn inflation. The jobs report, as per analysts, will serve as a dampener to the market’s expectation of an early rate cut this year.

One point that did deliver some comfort to the markets in the May jobs report was the unemployment rate, which ticked up marginally from its April reading of 3.9% in April. The unemployment rate has climbed to 4% for the first time in two years. Last May, the unemployment rate stood at 3.4%.

The conflicting signals emerging from the jobs report where the unemployment rate ticked up, while the economy added 272,000 new jobs could be attributed to the two different sources from which the data is collected. 

The Labour Department’s Bureau of Labour Statistics draws its jobs data from two surveys. One is a survey of about 119,000 businesses and government agencies, called the establishment survey. The other is a rotating survey of about 60,000 households, which is used to calculate the unemployment rate.

The data derived from these two surveys do not precisely match. However, recently, the difference between the two surveys has become, rather, extreme.

Microsoft under the glare!

The Federal Trade Commission is investigating whether Microsoft structured an acquisition deal in such a manner as to prevent the deal from coming under the scanner of antitrust activities. 

The deal concerns an artificial intelligence startup called Inflection, which is credited with creating one of the biggest Large Language Models and has also managed to launch an AI chatbot powered by a technology called Pi. Apart from OpenAI, the organisation behind ChatGPT,  and Google, Inflection is one of the select few companies to build and sell access to LLMs.

Microsoft in March hired Inflection’s co-founder and almost all of its employees and gave its nod to pay the startup around $650 million as part payment of the licensing fee to sell the technology. Microsoft assured Inflection’s shareholders that they would be repaid over time from the sales proceeds.

US law mandates that companies are required to report acquisitions valued at over $119 million to federal antitrust-enforcement agencies, which hold the prerogative to probe the deal’s impact on the competition in the marketplace. The FTC, or the Justice Department, which shares the antitrust mandate can sue the company in question to block mergers or other investments, provided the authority believes that the deal will negatively impact the competition or lead to a monopoly.

Recently, the FTC has been putting AI deals entered into by tech majors under the scanner. FTC Chair Lina Khan had expressed her reservations about tech giants eventually acquiring control over paradigm-changing AI applications, that would allow these companies to exercise control over AI capabilities like writing code, holding conversations or creating art.

Flying high!

The aviation industry is all set to fly high in FY25.

As per aviation consultancy, CAPA, the aviation industry is likely to report a 35% rise in pre-tax profit for FY25. The rise, as per the consultancy, will stem from sustained robust demand for air travel in the country.

Airports’ pre-tax profit is estimated to rise from ₹7,680 crore, a year ago to ₹10,370 crore in FY25, according to CAPA.

As one of the most populous nations in the world, India is expected to have over 350 airports by 2030, rising exponentially from 144 in 2019. Most airports in the country are operated by the state-owned Airports Authority of India. Other players like GMR Airports, which runs the busiest airport in New Delhi, the Adani group and Fairfax India are some of the leading private operators.

Pent-up demand in the aftermath of COVID-19 and record domestic passenger traffic have helped airports and airlines deliver better results in FY24 compared to the previous fiscal year.

Renewable rush!

Maruti Suzuki is pressing ahead with an investment of ₹450 crore in the renewable energy space. The amount will be utilised towards commissioning energy projects linked to solar power and biogas.

In FY24, the company had allocated close to ₹120.8 crore to this vertical.

In a statement released by the company, it said that it will be investing over ₹450 crore in a span of three years starting from FY25. “As we ramp up our production capacity from around 2 million to 4 million by 2030-31, we are also accelerating our efforts to increase the share of sustainable and renewable energy sources across our operations,” Maruti Suzuki Managing Director & CEO Hisashi Takeuchi said.

This shift comes in light of the company’s decision to make its operations greener. Maruti Suzuki said that it had commenced a pilot biogas plant at its Manesar facility in FY25, which aids it in harnessing the untapped potential of in-house food waste. The plant is capable of producing 0.2 tonnes of biogas daily, and the anticipated output is about 1 lakh standard cubic meters of biogas in FY25.

With the plant in operation, the company can offset around 190 tonnes of CO2 per year. The automaker is also expanding its solar capacity to 43.2 MW in FY24. 

Source: Google Finance

Invest wisely 

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Warm regards,
Another week
in the markets