3rd February 2024 – 10th February 2024 | Another week in the markets
This week, Federal Reserve Chair Jerome Powell, in a rare television interview, says the central bank has shifted focus to cutting rates, Maersk calls off its share buyback proposal and deflation pains deepen in China
- In a rare TV interview, Federal Reserve Chair Jerome Powell said that the central bank has shifted its perspective to looking at cutting interest rates. He also cautioned that robust economic growth implied that officials could not hasten a rate-cut decision.
- Shipping giant Maersk pulled back from its share repurchase programme triggering a collapse in the share price. The Danish shipping company said that its withdrawal comes in light of the aftereffects of the escalating Red Sea conflict.
- Deflationary woes deepened in the Chinese economy as consumer prices registered their steepest fall in the last 14 years in January. Experts are indicating that China runs the risk of lengthening its disinflationary spell, the longer its consumer prices remain battered.
- Zomato delivers mind-boggling results: Net profit jumps 283% on a quarter-on-quarter basis
- British American Tobacco, the largest stakeholder in ITC, actively looking to monetise a stake worth ₹1.51 lakh crore
Taking stock | Television Teasers | Shipper at Sea | Deflationary debacles | Zomato zooms into orbit | Tobacco trades | Invest wisely | Another week in the markets
Big Tech stocks drove the S&P500 past the 5,000 points mark for the first time, helping the benchmark post another milestone. The Nasdaq composite index moved up by 1.2% this year, notching up a total of 6.5% returns this year. The Dow Jones industrial average shed 0.1% this Friday, but has gained 2.53% since the start of the year. This has been a wonderfully generous stretch for all three major indices. All three of them have moved up in 14 out of the last 15 weeks.
In a rare television interview with the CBS news show, ‘60 Minutes’, Federal Reserve Chair Jerome Powell put the spotlight on the difficult interest rate terrain the central bank is currently traversing in a bid to keep the American economy from derailing. In the interview, he emphasised that the Fed had shifted its focus to cutting the interest rates but its job was made all the more difficult by a robust economy.
“There is no easy, simple, obvious path” the Fed Chief said, simultaneously highlighting the fact that Fed officials were trying to balance the risks of leaving rates too high for too long and cutting them too soon.
Currently, the Federal Reserve is holding the benchmark federal funds rate steady at the 5.25-5.5% range, the highest it has been in the last 22 years. Going back a year, several economists and analysts were anticipating the Federal Reserve to hold the repo rates higher for longer, which would lead to a recession in the economy. However, while wage and price increases have moderated, job and economy growth are still going strong indicating that with a little more concerted effort, the Fed’s goal of a soft landing might be within its reach.
The central bank intends to bring down inflation to below 2%. In January, the US labour department reported that the American economy added 353,000 jobs, almost double the estimates made by the economists. Meanwhile, core inflation, that is, inflation excluding food and energy prices slipped to 2.9% in December.
Last week, former President Donald Trump said that if he is re-elected in November, he would not re-appoint Powell as the Fed Chief.
Shipper at sea
Markets punished shipping giant A.P. Moller-Maersk when it retracted its share buyback scheme sending the stock in a 14% freefall. The Danish shipping giant also warned that earnings will take a toll this year, in light of the escalating crisis in the Red Sea and the segment overcapacity that is dragging down freight rates.
The shipping company had earlier chalked out a share buyback plan of $12 billion between 2022 and 2025. However, that plan has now been clawed back with Maersk’s cautioning that its profitability is under threat with increasing competition and a rise in industrial capacity.
In the aftermath of the pandemic, freight demand hovered at record high levels and existing shipping inventory was not able to service this demand. This led to massive investment in new ship-building capacity, which, unwittingly, has led to the current logjam where freight demand has considerably cooled down, while the number of ships plying on the seas remains elevated.
The impact of the freight demand collapse has been dramatic on the company’s income statement. Revenue accruing from the shipping business stream for the company fell by 46% to $7.18 billion on a year-on-year basis. Overall revenue for the company fell 34% to $11.74 billion.
In the final quarter of 2023, the company reported a net loss of $436 million vis-a-vis net profit of $4.95 billion posted in the same quarter last year.
China is in the grips of a disinflationary economic turn. Consumer prices in January registered the steepest fall in the last 14 years signalling that economic malaise is deepening and entrenching itself for the long run within the Chinese economy.
Disinflation in China does not bode well for the global economy. In the last few years, the resilience and strength of the world economy have repeatedly been tested by the strains developing between the US and the China camp. With disinflation raging in China, Chinese factories will attempt to flood other foreign markets with cheaper goods, which will further undercut the manufacturing prowess of other economies.
Currently, China seems to be caught in an economic whirlpool with no easy escape. Chinese economic growth rate is slated to slow down compared to the scorching pace it set last year. The long-drawn overhang of the Evergrande crisis has brought the country’s real estate market to a near standstill, and foreign investors are reluctant to pool their funds into the country. In fact, a seismic stock market rout in the past few days has forced the central government to step in and replace the country’s equity market regulator.
Consumer prices slumped by 0.8% in January, one of the biggest declines since September 2009. Fruit, vegetables and meat prices all took a beating last month. Prices for pork, which is a staple of the Chinese diet, also went down by 17.3%.
Zomato zooms into orbit
Zomato posted spellbinding numbers for the third quarter of FY24. The food delivery company reported a four-fold jump in net profit to ₹138 crore, on a quarter-on-quarter basis. In the third quarter of the previous FY, the company had posted a loss of ₹347 crore.
Zomato scripted the turnaround on the back of strong growth in the food delivery and hyperpure business. Overall revenue also witnessed a substantial increase of 69% year-on-year to ₹3,288 crore.
The Gross Order Value (GOV) of the food delivery business grew at a healthy rate of 27% on an annual basis. The company has given the guidance of a robust 20% growth in the GOV of the food delivery business. Zomato said that it could exceed this expectation if it witnesses a larger market share gain and pick up in the macro consumer demand.
The GOV of the quick commerce segment more than doubled on an annual basis. The food delivery company said that losses in Blinkit continue to decline, and its business will reach breakeven on Adjusted EBITDA by or before Q1FY25.
Zomato has delivered returns of 175% in the last one year
Source: Google Finance
British American Tobacco, the largest shareholder in ITC, is actively looking to monetise its stake in ITC. BAT’s 29% stake in ITC is valued at ₹1.51 lakh crore. The tobacco major is looking to bring down its stake from 29% to 25%.
Chief Executive Tadeu Marroco told the media in December that his company does not need more than 25% shareholding in ITC to wield a strategic influence. However, the company is facing two roadblocks in its bid to dilute its shareholding, as per Marroco.
Firstly, India’s FDI rules bar international companies from investing in India’s tobacco market. Secondly, the central bank, that is the RBI has mandated certain approvals when it comes to selling off shares for BAT.
In December, ITC scaled past a momentous market hurdle by becoming the third-most valuable tobacco company in the world. BAT has held a share in ITC since the early 1900s.
Patience is the name of the game when it comes to investing in Indian as well as overseas markets. Several market participants who were counting on a rate cut relief by Fed Chief Jerome Powell were in for a rude shock, when he hinted that the Fed might not consider the possibility of a rate cut by March. Jumping the gun on the expectation of a monetary event is a sure-shot way of burning valuable capital. Wealth is built with patience, foresight and abundant precaution. Only a partner like the Appreciate app can help you take on the ups and downs with practised ease. Rely on us to grow your wealth.
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