US hits its debt ceiling

14th January 2023 – 20th January 2023 | Another week in the markets

S&P 500	Nasdaq	VIX	DJIA	Russell 1000	NYSE
3,972.61	11,140.43	19.85	33,375.49	2,184.83	15,777.55
-0.66%	0.55%	8.17%	-2.70%	-0.59%	-0.88%
Nifty 50	Gold	Silver	Brent crude	USD-INR	EUR-INR
18,027.65	$1,927.70	$24.06	$87.66	80.97	87.91
0.40%	0.24%	-1.45%	2.61%	-0.38%	-0.18%

Source: MarketWatch 

Hello Saturday,

This week the US hits its debt ceiling sparking economic worries, crypto winter continues as another company files for bankruptcy, and global leaders discuss the way forward in Davos. 

• The 2023 World Economic Forum meeting held in Davos, Switzerland this week saw hundreds of political and business leaders discuss inflationary pressures and recession, climate change, energy crisis, and more
• Swiss company Climeworks successful in removing carbon dioxide from the air and storing it away in the ground permanently; companies like Microsoft and Stripe buy future carbon removal services
• Procter & Gamble reports a decline in quarterly sales growth for the first time since 2017 given a cutback in consumer spending due to inflation
• Crypto lender Genesis files for bankruptcy in the wake of the collapse of FTX and a series of bad debt linked with Three Arrows Capital and Alameda Research
• Uber is working with EV automakers to design low-cost cars that are suitable for its ride-sharing and delivery businesses; the company plans to electrify its fleet by 2030 in developed countries

Taking stock | Davosing the flames | See ya, CO2! | Poorer&Grumbling | Cryptonite | Leading the charge | Invest wisely

Taking stock

Earlier this week stocks lost some momentum but ended Friday stronger. Nasdaq rose 0.55% and closed its third week in the green while the S&P 500 dropped 0.66% and the Dow posted a loss of 2.70%. Mixed economic data kept investors on the edge this week. Retail sales fell 1.1% in December, heightening recession concerns. However, Consumer Price Index (CPI) grew at a slower-than-expected pace in December and showed a 0.1% decrease over the previous month. Given the declining inflation data, economists expect the Fed to downshift to a 25-basis-points hike in its next meeting. While this could be news to celebrate, the US hitting its debt ceiling and the standoff between Republicans and Democrats is a cause for economic concern, which could lead to a fiscal crisis over the next few months. 

Davosing the flames

This week, political and business leaders from around the globe convened in Davos, Switzerland, for the World Economic Forum’s annual meeting. This included over 600 CEOs, 51 heads of state, 5 finance ministers, 19 central bank governors, 30 trade ministers, and 35 foreign ministers. 

 Here are some of the key takeaways: 

• This year’s theme, Cooperation in a Fragmented World, aimed to address the massive changes in global markets and geopolitics since the pandemic.
• Climate change was one of the most prominent themes and others included the cost of living, the energy crisis, a tight labour market, the prevention of a global recession in 2023, the return of COVID-19, and the Russia-Ukraine war.
• Swiss central bank chief said that the monetary policy across the globe was too expansionary in the previous years and inflation is not yet under control.
• China’s reopening, while good news for overall global economic growth, the increasing demand from Chinese households and factories may only increase inflationary pressures on commodity prices globally. Which may in turn force the Fed to continue being hawkish.
• Pharma giant Novartis’s CEO warned that future pandemics are inevitable and leaders around the world need to focus on and sufficiently finance pandemic preparedness. COVID-19 will soon settle into an endemic phase.
• The threat of a transatlantic trade war in light of the US’s Inflation Reduction Act offering subsidies and tax credits for promoting clean energy is real. Europe’s concern is that businesses will invest in the US rather than Europe to benefit from financial support and blames the US for breaching international trade rules.
• International Energy Agency (IEA) believes that China and India’s crude oil purchases won’t be able to offset Russia’s loss of shipments to Europe making Russia lose its energy war with the west over the next few quarters.

See ya, CO₂!

Given growing climate change concerns, what if a company could remove carbon dioxide out of the air and permanently lock it away in the ground? Climeworks, a Swiss company, that uses ‘direct air capture’ technology, has been successful in this exact process as certified by DNV, in an independent audit. 

Begun in 2009, the company has since been scaling the technology for direct carbon removal to reduce the level of greenhouse gases in the air. Over the last few years, companies including Microsoft, Stripe, and Shopify, have bought carbon removal services from Climeworks for the future. Because companies across industries can pay Climeworks to remove carbon dioxide in an attempt to offset their own carbon emissions, this can be a huge business. The company’s biggest carbon dioxide removal facility is in Iceland, and last year in June, it announced that it has begun construction of a second plant. 

While there are also other companies in the carbon capture space, this industry is still nascent. The new facility in Iceland will be able to capture and store about 36,000 metric tons of carbon dioxide per year – a very minute fraction of the total global carbon emissions. According to the International Energy Agency, in 2021, global carbon emissions hit a record high of 36.3 billion metric tons.

Poorer&Grumbling

Procter & Gamble (P&G), the consumer packaged goods companies behind Tide, Pampers, and Head & Shoulders, reported a decline in revenue and profit on Thursday for its second quarter ended December 31. This is the first time that the company’s revenue has shown negative quarterly growth since 2017. The company’s drop in sales volume is due to a fall in consumption as well as inventory reductions in Russia and China.

P&G sales slowdown:

Source: Reuters

Despite slowing demand, the company was forced to increase prices last year to cover surging commodity, labour, and transportation costs. Prices across the company’s product categories rose 10% on average in the second quarter compared to a year earlier. The company said it is going to continue raising prices. P&G’s shares were down over 5% this week. 

Cryptonite 

On Thursday night, crypto lender Genesis filed for Chapter 11 bankruptcy after suffering steep losses from the collapse of FTX and Three Arrows Capital. In its bankruptcy filing, the company listed over 100,000 major creditors with aggregate liabilities ranging between $1.2 billion and $11 billion. 

In 2022 the crypto industry imploded as investors lost faith and since last spring, Genesis is the fourth major crypto lender to file for bankruptcy. Customers have lost billions of dollars in deposits with major crypto lenders like Celsius Network and Voyager Digital, who had promised high returns on crypto holdings. While Genesis survived longer than the other crypto lenders, FTX’s collapse in November was the last straw. The company said that about $175 million worth of its assets were locked on FTX’s platform. 

Earlier in 2022, Genesis had suffered a series of bad bets as it had extended loans to Three Arrows Capital, which filed for bankruptcy in July, and Alameda Research, closely linked to FTX, which also filed for bankruptcy. The company had to halt withdrawals in mid-November as troubles kept mounting. Just last week, the Securities and Exchange Commission (SEC) filed charges against Genesis and crypto exchange Gemini for selling unregistered securities. With all the fraudulent activity and solvency issues in the industry, the crypto winter may be far from over.

Leading the charge

Uber is working with EV automakers in an effort to electrify its feet for its ride-hailing and delivery businesses. The goal here is to design low-cost EVs that are optimised for city use – for instance, cars with lower top speeds and seating areas that allow passengers to face each other. The vision is that since the top speeds of most EVs are not required for city driving and ride-shares, the specs can be reduced, which can ultimately reduce the cost. Uber aims to go electric in most parts of the developed world by 2030, and as early as 2025 in cities like London.

Invest wisely

If you want to benefit from significant capital gains over the long term, identifying the investment themes of the future to invest is the key. For instance, companies like Climeworks that are working in the carbon removal space and companies in the clean energy business are set to be huge in the coming years. Too bad it isn’t listed yet. But, you can invest in promising listed companies and industries around the globe by downloading the Appreciate App. Through Appreciate, gain easy and low-cost access to high-performing stocks across industries and meet your wealth generation goals seamlessly.

Warm regards,
Another week
in the markets