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Market Update: Inflation Goes Down, but So Does Growth?

The effects of prolonged hikes in interest rates are beginning to manifest themselves, impacting both inflation and economic growth. In the Eurozone, inflation has reached its lowest point in two years. French GDP experienced a modest 0.1% increase quarter-on-quarter, Italy remained stagnant, and the German economy contracted. According to Bloomberg, the likelihood of further rate hikes in Europe this year is highly improbable.


Across the Atlantic, the United States saw the opposite scenario unfold. The U.S. economy grew at an impressive 4.5% pace, with the primary driver of this growth being the consumer sector, responsible for a significant 2.7% percentage point contribution to the GDP. One possible explanation for this surge could be the reduction in credit card debt during the COVID-19 isolation period when spending was constrained. Subsequent stimulus efforts lowered the overall credit card debt, providing consumers with available funds to spend. However, credit card debt has now returned to pre-pandemic levels.


PCE is expected to be around 3.4%, providing the Federal Reserve with a reason to maintain interest rates.

Turkey has raised its interest rate by 5 percentage points to 35%. This move further solidifies the shift in Turkish monetary policy since the appointment of the new central bank chief, Hafize Gaye Erkan, who has promised to tighten monetary policy to combat inflation.

Russia's central bank has increased interest rates by 200 basis points to 15%, citing inflationary pressures. Ukraine has reduced its rates from 20% to 16%.


Earnings Update

As the third-quarter earnings season reaches its midpoint, companies within the S&P 500 index are currently on track to report a 2.7% year-over-year increase in profits, as reported by FactSet. However, the outlook has grown increasingly uncertain. Analysts have been revising their estimates for this quarter downwards by 1.9% since the beginning of the season. This shift in sentiment has sparked concerns that the S&P and Nasdaq may be overvalued, with a growing sense that a correction is looming. Last week, the S&P experienced a 2.53% decline, while the Nasdaq Composite saw a 2.624% decrease, and the FTSE 100 dropped by 1.50%.

At the individual stock level, here's a snapshot of recent developments:


  • BP recorded a decline in profits due to weak gas trading. Despite this, the company has decided to maintain its buybacks at $1.5 billion.

  • Pfizer reported disappointing results, primarily due to a further drop in Covid-related sales, resulting in a quarterly loss for the company. As a consequence, the stock price fell.

  • Amgen raised its revenue guidance after successfully completing its acquisition of Horizon.


On the European earnings front:


  • Reckitt Benckiser announced a £1 billion share buyback program following sales that fell short of expectations.

  • Lloyds reported results that suggest pressure on net interest margins.

  • Heineken saw a rise in its stock price on the back of steady guidance.


Commodities

Bloomberg Intelligence suggests that oil markets could face turbulent price swings in the first half of the year, driven by the impact of rising U.S. interest rates and uncertainties surrounding China's economic recovery.

Fortescue Metals remains optimistic about the continued strong demand for Australian iron ore from the Chinese market. However, there have been recent indications of demand weakness, as China's steel industry PMI showed a slight dip in October.

In an effort to address overcapacity and emissions concerns, there are reports that China is considering implementing restrictions on copper smelters. Sources familiar with the matter have indicated that one possibility is requiring smelters to complete their ongoing projects before introducing new restrictions, which might come into effect around the middle of this decade.

WTI Crude $81.67 Brent Crude $85.79 Natural Gas $3.41

Corporate news

Jamie Dimon, the CEO of JPMorgan, intends to sell one million of his current 8.6 million shares 'for financial diversification and tax-planning purposes.' This would be his first sale of JPMorgan stock.

Brookfield's $12 billion acquisition of Origin Energy faces opposition from AustralianSuper, the target's biggest investor.

Private equity giant Silver Lake said it is working on a proposal to take private Endeavor Group Holdings, the owner of talent agencies WME and IMG.

KKR is raising a second Asia real estate fund, targeting as much as $2.5 billion, people familiar said. The fund has amassed about $600 million since late 2022.


ESG

In the 2023 proxy season, financial firms once again emerged as the largest sector for climate-related proposals, totaling 20 proposals year to date, a significant increase from just two in 2021, with none being approved

Centrica has announced plans to commence the burial of carbon emissions generated from its own gas processing operations in 2025. However, for this endeavor to succeed, the company requires approximately £1 billion in investment, along with government support to demonstrate its feasibility and subsequently offer the service to other industries.


AI

Invesco conducted a survey among systematic investors managing a total of $22.5 trillion in assets. The survey revealed that 62% of respondents believe that artificial intelligence (AI) will be just as essential as traditional analysis in the financial industry in the coming decade. - According to Bloomberg

Siemens and Microsoft have jointly introduced an AI-powered assistant aimed at enhancing collaboration between humans and machines. Additionally, they have plans to develop more AI co-pilots for various sectors, including manufacturing, infrastructure, transportation, and healthcare.

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