23rd September 2023 – 29th September 2023 | Another week in the markets
This week, the US government nears shutdown, crude oil prices surge on extended supply cuts, and the Federal Trade Commission files a landmark antitrust case against Amazon.
- Congress is yet to pass the 12 appropriation bills for the new fiscal year starting October 1, failing which the US government would shut down – minimal impact on the market expected
- US oil inventory falls more than expected and intraday oil prices surge to $94.04 a barrel amidst extended supply cuts by Saudi Arabia and Russia
- The Federal Trade Commission sues Amazon for illegally maintaining monopoly power and harming customers and sellers in a long-awaited antitrust case
- China’s top developer, Evergrande Group’s shares are suspended as the Chairman is placed under police watch, exacerbating the embattled firm’s issue
- Taliban-controlled Afghanistan’s currency, afghani, emerges as the best-performing global currency for the current quarter
Taking stock | Shutdown, not meltdown | Oil is not well | Trust issues | Chinamite | Afghani impetus | Invest wisely
Wall Street wrapped up the month of September with all the three major indices logging quarterly declines. The S&P 500 and the Nasdaq also posted their biggest monthly percentage declines of the year this month. For the week, the S&P 500 dropped 0.74, while the Dow lost 1.34%. The Nasdaq climbed 0.06%.
Just another shutdown
The US government has less than two days to avoid a shutdown, and panic looms in a market that is already uncertain. The US fiscal year ends on September 30, and Congress has yet to pass the 12 appropriation bills to fund government operations in the new fiscal year starting October 1. The Republicans want the Democrats to cut back on certain spending they believe is unnecessary, and unless they come to an agreement, the US government would ‘shut down’. However, it is not as severe as it sounds. It’s not the first time this is happening either.
The US government has shut down about 20 times in the last four decades, and the impact on both, the economy and the stock market has been minimal. With the exception of the hours-long shutdown in 2018, the performance of the S&P 500 across these 20 shutdowns has been typically flat, with an average return of 0.04%. Also, in the most recent government shutdown in 2019, the index rose more than 10%.
According to economists, a government shutdown will also barely have any impact on the GDP. However, several factors are at play, impacting investor sentiment and testing the resilience of the economy — surging oil prices, a possible interest rate hike in the next policy meeting, and the restart of student loan repayments in addition to the looming government shutdown.
Oil is not well
On Wednesday, US crude prices surged up to 4% to $94.04 a barrel before closing at $93.68 a barrel. This is the highest intraday price in over a year since August 30, 2022. Surging oil prices is bad news for an economy already struggling with high inflation. But why is this happening?
Earlier this month, Saudi Arabia and Russia, two of the world’s biggest oil exporters, announced they would extend voluntary oil cuts to the end of the year. Combined, the oil supply cuts translate to 1.3 million barrels a day, which severely tightens the oil market, putting upward pressure on prices. Some experts believe this move could increase oil prices to $100 a barrel.
This week, federal data revealed that US crude inventories fell by more than expected last week, causing some nervousness and sending oil prices up. Inventory at the key Cushing, Oklahoma storage hub has also dropped to nine-year lows on account of strong refining and export demand.
This week, the Federal Trade Commission (FTC), along with 17 US states, filed a long-awaited suit against the online retail giant Amazon.com, accusing it of illegally maintaining its monopoly power and harming fair trade.
This landmark antitrust case comes after years of investigation into complaints that Amazon and other Big Tech companies abuse their dominance of search, online retailing, and social media to gatekeep profitable aspects of the internet, harming both sellers and customers.
In the 172-page complaint, the FTC accuses Amazon of several unfair monopolistic trade practices. For instance, it accuses Amazon of using a network of web crawlers to identify its sellers who sell their products at lower prices on platforms other than Amazon and then punishes them by making it harder for customers to find their products on Amazon. It also accuses the company of forcing sellers to use its logistics and delivery services instead of cheaper alternatives that the sellers would prefer. The FTC also alleges that between 2020 and 2022, Amazon raised its average fulfilment fees to sellers by about 30%.
The FTC has asked the court to consider forcing Amazon to sell parts of its business to remedy its monopoly of the most lucrative parts of the internet. This lawsuit could present an upside for investors either way the court rules. If the company does break up its business, analysts believe that the value of the sum of its parts will be greater than the whole.
Evergrande Group used to be one of the top developers in China. But the company has been bankrupt for the last 18 months, halted construction on more than 1.5 million unfinished homes, and defaulted on its offshore debt. And now, this week, the chairman, Hu Ka Yan, was put under police surveillance over suspected crimes, and trading in the company’s shares was suspended. The shares will remain suspended until further notice.
Investors fear the impact of this on the company’s ability to get a debt recovery deal and avert a possible liquidation. This is not good for China’s already struggling and debt-laden property sector. China’s property market, which accounts for a third of its economy, has been in deep trouble for the past two years. Since mid-2021, companies accounting for 40% of the home sales in the country have defaulted. The government has been trying to stimulate its sluggish economy. Still, now investors worry that the deepening property crisis may spill over into China’s banking system, further threatening the struggling economy.
Conflict-ridden Afghanistan’s currency, afghani, has emerged as the best-performing global currency this quarter. As of this week, afghani was trading at around 78 against the US dollar. For the quarter, it has climbed 9%, outperforming the Colombian peso.
The primary reason behind this strong performance is the inflow of billions of dollars in humanitarian aid along with the currency control measures imposed by the Taliban. Since 2021, when the Taliban took over, the UN has assisted with $5.8 billion in aid and development. On a yearly basis, afghani is the third-best performing currency after Colombian peso and Sri Lankan rupee, having climbed 14%.
Despite events like a temporary government shutdown over political deadlocks, the US stock market tends to hold up well. That’s the kind of resilient market you want to invest your money in to maximise gains and build long-term wealth. Download the Appreciate App to gain seamless access to the US market today!
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