Per reporter: Wen Qiao Tan Yuhan
The U.S. released January inflation data, the largest increase in more than 40 years, which then triggered a sharp shock in US stocks and pushed US Treasury yields soaring. The analysis believes that the trend of high inflation in the short term is unlikely to weaken, but inflation is expected to slow down this year.
In addition, global commodities have shown extremely strong trends in recent times, with tight supply shortages at least in 1997. Has the new "commodity super cycle" arrived? Analyst at BCA Research, a global investment consulting firm.
This week, Nvidia's acquisition of ARM was officially terminated, and ARM is about to start the IPO process. The failure of the world's largest semiconductor acquisition reflects the increasingly stringent regulatory environment around the world, and may also be a warning for large technology companies.
More content, all in the "Week of International Finance".
The U.S. CPI in January continued to brush a 40-year high
Investment banks expect the Fed to raise interest rates 3-4 times this year
Image source: Visual China-31N1236518376
On February 10, 2022, local time, the U.S. Bureau of Labor Statistics released data showing that the U.S. Consumer Price Index (CPI) rose 7.5% (expected 7.3%) year-on-year in January, the largest increase since March 1982, and the data reached or exceeded 5% for nine consecutive months.
Looking at the main segments, housing costs, which account for about a third of the CPI, rose 4.36% year-on-year, the highest since June 1991; rental costs rose 3.76% year-on-year, the highest since July 2019; and food costs rose by 7%.
Andrew Hunter, senior U.S. economist at Capital Economics, believes that rising food and housing prices suggest inflation is accelerating cyclically, and that the trend is unlikely to weaken in the short term due to unusually tight labor market conditions.
After the release of the CPI data in January, the three major U.S. stock indexes opened sharply lower, the S&P 500 index and the NASDAQ both fell more than 1% at the opening, and the Dow quickly fell 250 points, after which the decline narrowed. Meanwhile, Treasury yields soared, with 10-year Treasury yields breaking 2 percent to their highest level since August 2019. However, the indicator closed at 1.918 percent on Friday as U.S. National Security Adviser Jack Sullivan urged U.S. citizens to leave Ukraine.
As a result, market expectations for future rate hikes have also become more aggressive. According to the Chicago Mercantile Exchange, the probability of a 0.5 percentage point rate hike by the Fed in March rose from 25% to 44.3% after the release of inflation data in January; the probability of a six-time rate hike this year (25 basis points each) rose from 53% to about 63%.
BCA Research, a global investment consultancy, told the Daily Economic News, "We expect inflation to slow down this year, so it seems that the market has overreacted this time." In particular, the 5-year/5-year forward TIPS break-even inflation indicator also shows that long-term inflation expectations are stable and not out of the central bank's inflation target range.
In addition, the investment bank said that the tightening financial environment will eventually lead the Fed to slow down the pace of interest rate hikes this year, which is expected to raise interest rates 3-4 times this year, so it is recommended that investors go long on 2-year Treasuries instead of a lot of cash and 10-year Treasuries.
Note: The above interview content only represents the views of the interviewee, does not represent the position of the Daily Economic News, and does not constitute investment advice.
Has the 10-year super cycle arrived?
Analyst: It's just a commodity bull market
Image source: Daily Economic News Lan Suying photo
Global commodities have shown extremely strong trends in the recent past, and the futures prices of many commodities, including oil, have shown strong spot premiums in the recent past, indicating the current tight supply in the market.
According to the website of Refinitiv, a global provider of financial market data and infrastructure, the Refinitiv Core Commodity CRB index, a composite measure of commodity prices, rose 46% year-on-year at the end of January, the largest year-on-year growth since comparable data in 1995.
"About two-thirds of commodities are currently in the price structure of the forward premium, which indicates that the supply of commodities is very tight." Edward Moya, senior market analyst at online trading service provider OANDA, said in an interview with the Daily Economic News, "Demand for many metals, crops and energy will continue to remain strong in the first half of this year, and this spot premium phenomenon will continue to strengthen." ”
Goldman Sachs has previously said that this tight situation highlighting supply shortages has reached its highest since at least 1997, and that 2022 may open a new commodity "super cycle".
Bob Ryan, chief strategist of commodity and energy strategy at BCA Research, told every reporter, "We are as bullish on industrial commodities as Goldman Sachs. However, we don't see commodity supercycles taking shape. ”
"Society and governments are encouraging efforts to decarbonize the global economy by encouraging the reduction in the production and consumption of hydrocarbons and increasing the supply of renewable energy. As a result, the production of coal, oil and natural gas is being suppressed, while the production of base metals – mainly copper and aluminum – is being positively encouraged. This is not a commodity super cycle, this is a commodity bull market. "Coal, oil and gas prices will rise because the level of supply will be lower than the level of demand." Base metal prices will rise as demand is positively stimulated, but supply cannot keep up with this demand. ”
Edward Moya believes that this commodity rally cycle may continue into the summer. In terms of energy markets, the situation in Ukraine and the geopolitical risks posed by the Iran nuclear negotiations are the biggest factors affecting energy prices.
"Crude oil demand is expected to exceed supply in the first half of this year, so energy production remains the focus of market attention. Until the oil market truly finds equilibrium, energy prices will remain highly volatile. Energy prices are likely to remain high in the first and second quarters, but [energy prices] should start to fall as output increases and the weather warms up. He analyzed.
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Nvidia's acquisition of ARM is a bargain
ARM is about to start its IPO process
Image source: Visual China - 111295784555
On February 7, local time, Nvidia and SoftBank Group officially issued a statement announcing the termination of Nvidia's previous acquisition of ARM from SoftBank Group.
Under the final agreement between the two parties, SoftBank will retain the $1.25 billion deposit previously paid by Nvidia, and Nvidia will retain the ARM license for 20 years. In addition, SoftBank and ARM will begin preparing for ARM's public offering by March 31, 2023.
Looking back at the sky-high deal, the time can be traced back to September 2020, when SoftBank announced that Nvidia would buy all of its ARM shares for $40 billion, and the transaction is expected to close within 18 months. At that time, ARM accounted for 90% of the market share in both the mobile processor and IoT processor markets, and was the global semiconductor IP leader. If the deal closes, it would be the largest merger ever made by the semiconductor industry.
As a result, the deal immediately attracted the attention of industry and regulators, and the acquisition was believed to affect the competitive landscape of the global semiconductor industry and disrupt the ecological balance of the industry. Tech giants such as Qualcomm, Google, and Microsoft are worried about not having fair access to ARM technology, and antitrust authorities in various countries have also opened censorship.
As of the termination of the acquisition, there was also no national regulatory approval. Behind the failure of the world's largest semiconductor acquisition is also a reflection of the increasingly stringent regulatory environment in the world.
Kevin Krewell, an analyst at TILLIS Research, a research and consulting firm, wrote in an article published in Forbes, "The termination of this deal does not change Nvidia's trajectory much, nor will it slow its growth, and now the company may seek other acquisitions." But for SoftBank and ARM, things will get trickier, especially when there is a market correction in 2023, and whether it can achieve SoftBank's profit-making goals through IPOs is still a question. ”
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Meta is caught in the European data security storm
The stock price has suffered another heavy decline
Image source: Visual China - 111352203593
After an epic plunge at the beginning of the month over earnings data, Meta Platforms shares were hit hard earlier this week by data privacy talks with the European Union.
On February 7, local time, Meta said in a document submitted to the US Securities and Exchange Commission that if the user data cannot be transmitted to the United States without legal guarantees, the company will withdraw important products such as Facebook and Instagram from Europe.
After the U.S. stock market opened on Monday, Meta's stock price fell all the way down, falling more than 5.1%. Although Meta denied threatening to withdraw from the European market on Tuesday, Meta's stock price continued to fall after the day's opening, falling more than 2% again. On Wednesday, the stock price began to stabilize, rebounding more than 5 percent. In the four trading days from February 3 to 8, Meta's total market capitalization evaporated by a total of $280 billion.
It is understood that the new data protection law of the European Union requires companies that collect user data within the European Union to save and process the data on servers in Europe. However, Facebook and Instagram's data is partly in U.S. servers. As a result, Meta and the European Commission are deadlocked over user data backhaul.
As early as 2020, Meta had proposed a similar possibility of exiting the European market. At the time, the European Court of Justice ruled that the data transfer standards between the Eu and the United States failed to adequately protect the privacy of European citizens.
Qian Wenying, a researcher at the Case Center of China Europe International Business School, said in an interview with the media, "According to Meta's business model, its main source of profit is the advertising business brought by user big data. Nowadays, the deepening of data protection law has become a trend not only in the European Union, but also in the world, and may have a deeper impact on global data security control. ”
Meta's challenges go far beyond that. Judging from the financial report released earlier this month, Mata's meta-universe business is still in the crazy cash-burning stage, and the loss is expanding, and the meta-universe business unit lost more than 10 billion yuan last year. In the future, how to revitalize the meta-universe business to achieve profitability will also be the focus of market attention.
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Encountered a geomagnetic storm Musk lost 40 "Starlink" satellites
Image source: Visual China - 111367690339
On February 8, local time, SpaceX, a space exploration technology company owned by Musk, issued a statement saying that 40 of the 49 "Starchain" satellites launched by the Falcon rocket on February 3 could not properly deploy the orbit due to the earth's magnetic storm caused by solar activity, declaring "scrapping", and these satellites will return to or have returned to the Earth's atmosphere.
The cost of SpaceX's Launch of the Falcon 9 rocket is reported to be about $15 million (perhaps $30 million if you add a portion of the overall development cost), of which the "scrapped" satellite is worth up to $12 million.
Space X said the deorbited satellites have zero risk of colliding with other satellites, and that after re-entering the atmosphere, the "starchain" satellites will burn up, produce no space debris, and will not have satellite parts hitting the Earth's surface.
Since launching the first Starlink satellites in 2019, Musk envisions launching more satellites to increase Internet service and plans to increase the number of Starlink satellites to 30,000. Musk tweeted on Jan. 15 that SpaceX has 1,469 working Starlink satellites and 272 more in their intended orbits.
In addition to Space X, The United States OneWeb has also laid out its own Internet satellites, and Amazon plans to start launching satellites this year.
The astronomical community has long expressed concern that the sheer number of satellites could affect astronomical observations. NASA said recently that the low-Earth orbit occupied by the Starlink satellite, if crowded, may affect the safety of the International Space Station, as well as NASA's science and manned space missions.
In fact, these concerns are not unfounded, with satellite and rocket wreckage launched by SpaceX repeatedly posing a threat to other national spacecraft in recent years. On September 2, 2019, the European Space Agency's Fengshen satellite and Starlink-44 nearly collided.
Some reports commented that if low-Earth orbit is occupied by dangerous space junk and satellites with failed evasion capabilities, the advancement and development of space exploration will become difficult for scientists in the next few hundred years.
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Reporter: Wen Qiao, Tan Yuhan
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