The Fed hits pause on rate hikes

10th June 2023 – 16th June 2023 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
4,409.59	13,689.57	13.54	34,299.12	2,414.60	15,795.12
2.58%	3.25%	-2.10%	1.25%	2.59%	1.90%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
18,826.00	$1,970.70	$24.27	$76.26	81.94	89.64
1.41%	-0.25%	-0.51%	1.63%	-0.58%	1.17%

Source: MarketWatch 

Hello Saturday,

This week, the Federal Reserve hits pause on rate hikes, tech companies continue shutting down non-lucrative business activities for cost efficiency, and the Chinese government pivots to a stimulus package for economic recovery. 

• Fed officials leave interest rates unchanged, hitting pause on rate hikes; while inflation in the US is cooling, it’s still beyond the target level, and hikes in the future are possible.
• Intel plans to invest $4.6 billion in setting up a semiconductor facility in Poland in order to benefit from the European Commission’s subsidies and diversify its supply chain. 
• Tech companies continue focusing on cost-efficiency by exiting non-lucrative markets; Uber to stop food delivery service in Italy and exit Israel, while Alphabet sells its domain business to Squarespace for $180 million. 
• The Chinese government undertakes stimulus efforts instead of waiting for the economy to recover on its own to avoid the risk of a bigger slump.
• Bud Light is no longer America’s favourite beer; it has lost the top spot to Modelo Especial after a boycott over the former’s partnership with a trans influencer. 

Taking stock | Pausitive signs | Techward Scissorhands | Intel outside | Dragonball Xi | Bud Lights Out | Invest wisely

Taking stock

While stocks closed lower on Friday, the S&P 500 notched its best week since March, climbing 2.58%. It’s the benchmark’s sixth consecutive positive week, and it’s now up more than 26% from its bear market low. The Nasdaq and the Dow also posted gains for the week, rising 3.25% and 1.25%, respectively. 

Pausitive signs

After ten consecutive rate hikes, the Federal Reserve did not raise interest rates in its meeting this Wednesday. Such a pause was highly anticipated by economists and investors. While using interest rates as a measure to bring down inflation levels tends to work, there’s a lag in its impact, and with that kind of uncertainty, Fed officials couldn’t have kept raising rates indefinitely. 

The Consumer Price Index (CPI) stood at 4% in May, which shows that inflation is cooling. Not only did it come down from April’s 4.9%, but was also slightly lower than the 4.1% economists were expecting. Indeed, inflation has been cooling steadily over the past year — the CPI was at a four-decade high of 9.1% last June. 

However, even with the latest May numbers, the annual inflation rate still remains well above the Fed’s target of 2%. Thus, the decision to leave rates unchanged this week is not an end to rate hikes, but simply a pause. Fed officials said they might raise rates twice more in 2023, and the median expectation of the members of the Federal Open Market Committee (FOMC) for the end-of-year rate is 5.6%.

Source: The New York Times

Intel outside

To benefit from the European Commission’s subsidies and eased funding rules, last year Intel announced its multi-billion-dollar investment plan to build facilities in Europe and increase its chip capacity. As part of this plan, the US chipmaker is already working on building facilities in Germany, Ireland, and France. This Friday, the company announced its plans to invest $4.6 billion to set up a semiconductor assembly and test facility near Wroclaw, Poland. 

Several European countries have been trying to interest Intel to invest in a facility in their region. Such a facility would not only employ workers once built but also create thousands of jobs during the construction phase. Intel said it chose Poland because of its talent, infrastructure, and proximity to the sites the company is building in Germany and Ireland. Another reason for Intel to invest heavily in Europe is to cut its reliance on its American and Asian supply chains.

Techward Scissorhands 

Stocks of tech companies have been performing well this year compared to the broader market. One of the things that have massively helped is efficient cost-cutting, from employee layoffs to a renewed focus on strategic business units. And this still continues. 

This Thursday, Uber announced its plans to shut down its food delivery business in Italy and completely exit Israel. The company has not been able to capture a sufficiently high market share there, and Uber wants to focus only on those markets where it can be the largest or second-largest player. 

Alphabet, too, has pulled the plug on a lot of its products over the past year. For instance, it shut down Grasshopper, a mobile and web app for aspiring programmers, earlier in the week. The company also announced its exit from its domain business this Thursday — Google Domains is being sold to Squarespace for $180 million. 

Ximulus

After three years of strict COVID-19 restrictions, the Chinese economy was expected to rebound this year. And while it did well in Q1 2023, economic reports for April and May seem to indicate that the economy is struggling again.

This has prompted China’s central bank to cut three policy rates this week in an attempt to increase lending. Chinese officials are planning to execute a range of measures and pivot to stimulus efforts instead of waiting and taking the risk of the slowdown worsening. For instance, the government is considering issuing special treasury bonds of about 1 trillion yuan to fund new infrastructure as a way to stimulate economic growth. While some economists believe that China’s stimulus efforts can help the economy pick up in the third quarter, others believe that the country will have to take more steps for recovery.

Bud Lights Out

Bud Light has been the top-selling beer in the US for over two decades. Not any more. As of May, Modelo Especial, a Mexican lager brewed by Constellation Brands, has taken over Bud Light’s top spot. Modelo captured 8.4% of US retail beer sales, while Bud Light only managed to snag 7.3%, falling to second place for the four weeks ending on June 3. 

There are a number of reasons for this. Firstly, Bud Light’s sales have been impacted since April due to certain groups boycotting the brand due to the company’s partnership with transgender influencer Dylan Mulvaney. Two company executives were put on leave after this controversy. Secondly, Modelo’s strong advertising, eye-catching packaging, and retail support have been boosting its sales, according to experts.

Invest wisely 

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Warm regards,
Another week
in the markets