Asian stocks steady as AI rebound offsets oil, rate and bond-market pressure
Market scorecard
US stocks slipped last night, with oil and gas companies ending notably lower. Treasury yields and the US Dollar made small gains, perhaps due to Jerome Powell's testimony to Congress today. In addition, signs of continued economic weakness in China weighed on sentiment. The tech-heavy Nasdaq Composite broke an eight-day green streak.
The strongest part of the market was home builders, as US housing starts data for May came in higher than expected, driven by both single-family and multifamily projects. Pulte and D.R. Horton gained 1.9% and 1.6%.
In company news, economic bellwether FedEx (NYSE:FDX) tumbled 3.1% in extended trading after its outlook fell short of expectations on weak demand. Elsewhere, US-listed Chinese tech giants slipped with JD.com (NASDAQ:JD), Pinduoduo (BVMF:P1DD34) and Alibaba (NYSE:BABA) falling 6.7%, 7.0% and 4.5%, respectively.
In summary, the JSE All-share closed down 1.60%, the S&P 500 fell 0.47%, and the Nasdaq shifted 0.16% lower.
One thing, from Paul
Physicist John Wheeler has a good line about being an expert: "As your island of knowledge grows, so does the shoreline of ignorance."
Considering the chart below, I suspect that this is how the US Federal Reserve research staff must feel. It shows their ongoing inflation forecasts, issued at meetings since July 2021 (the last two years), compared to what actually happened.
If you are confused by economic data, don't worry. So are the very clever people with economics PhDs, who work at the Fed. Also, making predictions is very hard.
Byron's beats
Apple (NASDAQ:AAPL) has not really spoken much about AI. At their latest Worldwide Developers Conference, they did not mention it once which is almost unheard of at the moment. But in reality, AI is all over their products and software.
For example the Apple keyboard autocorrect function has been rebuilt. It now uses an AI "transformer" model which is far more receptive to the way you type. For example, autocorrect will no longer change your words back to 'what the duck' . The new Vision Pro headset is also full of AI capabilities such as eye and hand tracking. You can literally move stuff with your eyes.
Only Apple can get away with not chasing the hottest topic in tech in decades. Apple knows that we know that they are already at the forefront.
Michael's musings
Nigeria has abandoned the Naira's currency peg, resulting in an immediate loss of 40% in its official value. Previously, the central bank set a daily exchange rate which gave a few well-connected companies and individuals in Nigeria access to US Dollars at subsidised rates. Everyone else had to make do on the black market at much worse rates. It also meant that large corporations, like MTN (JO:MTNJ), struggled to get money out of Nigeria because there was a shortage of foreign currency available for transfers.
In reality, the Naira didn't lose 40% of its value, it merely started trading at the black market rate, its true value. The new market is still finding its feet, but I wouldn't be surprised if the currency strengthens a bit from here, as normality settles in and the risk factor of holding the Naira disappears.
I have already seen analyst notes that are positive about Nigerian assets. If companies can get their money out of Nigeria when needed, that lowers their risk and they are more likely to invest into the country.
The Nigerian economy is going through a massive shift under the leadership Bola Tinubu, a former Governor of Lagos State who was elected President in February. The weakening of the currency will most likely lead to a spike in inflation and this will come on top of the shock of higher fuel prices introduced last month when long-running fuel subsidies were cut. Will these free market changes take hold or will people push back against these massive shifts? We shall see.
Bright's banter
Exchange operator Nasdaq has agreed to acquire Adenza, a software provider for banks and brokerages, in a $10.5 billion cash-and-stock deal. This is the largest acquisition in their history and is part of CEO Adena Friedman's strategy to transform the company into a more technology-focused and diversified entity.
Adenza's software helps manage trading, risk management, and regulatory reporting for financial institutions. Not everyone is thrilled about the hefty price tag. Nasdaq's shares took a 12% dive after the announcement 10 days ago, making it the worst-performing stock on that day.
The transaction includes private equity firm Thoma Bravo receiving a 14.9% stake in Nasdaq, making it one of the company's largest shareholders. The Adenza acquisition is expected to decrease trading's contribution to net revenue from 28% to about 23%.
Signing off
Asian markets are mostly lower this morning as Chinese stocks continue to falter. The Hang Seng Index dropped about 2% as it headed for a third straight day of losses before a holiday in Hong Kong and mainland China. The Shanghai Composite and the South Korean KOSPI Index are also in the red, but the Japanese Topix rose.
Chinese banks trimmed benchmark interest rates on loans to households and businesses in their latest move to try and revive the economy.
US equity futures are modestly lower in early trade. The Rand is trading at R18.39 to the US Dollar.
Today we'll see an update on UK inflation, which has been uncomfortably high lately. This afternoon you can watch Jay Powell being asked dumb questions by US Congressmen and women.
Enjoy the day, we'll be back in your inbox tomorrow.
