Closing Stock Market SummaryThe stock market opened on a high note and extended its gains the whole session, closing at or near session highs. The S&P 500 logged its fourth consecutive winning week and closed above the 4,231 level, which marked a 50% retracement of the losses the market incurred from the Jan. 3 closing level (4796.56) and June 16 closing level (3666.77). Falling oil prices and the better-than-expected preliminary August University of Michigan Consumer Sentiment reading underpinned today's buying efforts.
Also, the Import-Export Price Index for July piled on to the CPI and PPI reports this week, pointing to possible peak inflation.
The S&P 500 was up 3.3% week-to-date; the Nasdaq was up 3.1% week-to-date; the Dow Jones Industrial Average was up 2.9% week-to-date. Including this week's gains, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are up 17.7%, 23.5%, and 13.7%, respectively, from their mid-June lows.
The buying effort today was broad based with all 11 S&P 500 sectors closing in the green with gains ranging from 0.8% (energy) to 2.3% (consumer discretionary).
Energy brought up the rear amid falling oil prices. WTI crude oil futures settled the session 2.1% lower to $92.34/bbl. Natural gas futures fell 1.3% to $8.86/mmbtu. Unleaded gasoline futures fell 0.02% to $3.06/gal.
Meanwhile, consumer discretionary (+2.3%), information technology (+2.1%), and communication services (+2.0%) rose to the top of the leaderboard thanks to their outperforming mega cap components. Information technology was also boosted by its semiconductor related constituents, which had a strong showing today. The PHLX Semiconductor Index closed up 3.0%.
Mega caps led the market higher with the Vanguard Mega Cap Growth ETF (MGK) up 2.0% at the close versus a 1.6% gain in the Invesco S&P 500 Equal Weight ETF (RSP). Small and mid cap stocks were not left out of the rally, however. The Russell 2000 (+2.0%) and S&P Mid Cap 400 (+1.5%) closed with sizable gains.
Two names that were left out of the rally effort were Alibaba (BABA 94.77, -0.10, -0.1%) and Pinduoduo (PDD 48.80, -0.82, -1.7%) following news today that five other Chinese ADRs plan to delist at the NYSE.
Separately, the Treasury market was mixed today with the 2-yr note yield rising six basis points to 3.25% while the 10-yr note yield fell four basis points to 2.85%.
Looking ahead to Monday, market participants will receive August Empire State Manufacturing Index (consensus 5.0; prior 11.1) at 8:30 a.m. ET, August NAHB Housing Market Index ( consensus 55; prior 55) at 10:00 a.m. ET, and June TIC Net Long-Term Transactions (prior $155.3 billion) at 4:00 p.m. ET.
Reviewing today's economic data:
- August Univ. of Michigan Consumer Sentiment - Prelim 55.1 (consensus 52.1); Prior 51.5
- The key takeaway from the report is that consumers' inflation expectations were little changed, dipping to 5.0% from 5.2% for the year ahead (but above 4.6% seen a year ago) and edging up to 3.00% from 2.9% for the five-year outlook.
- July import prices fell 1.4% after the revised increase of 0.3% in May (from 0.2%). Import prices, excluding oil, fell 0.5% after the revised decrease of 0.6% in May (from -0.5%). Export prices fell 3.3% after the 0.7% increase in May. Export prices, excluding agriculture, fell 3.3% after a revised 0.8% increase in May (from 0.9%)
Dow Jones Industrial Average: -7.1% YTD
S&P 400: -7.9% YTD
S&P 500: -10.2% YTD
Russell 2000: -10.2% YTD
Nasdaq Composite: -16.6% YTD
Luxury watch prices plummet on weak Chinese consumer confidence
Second-hand market for high-end goods battered by Beijing’s strict adherence to zero-Covid
The prices of second-hand luxury goods have fallen rapidly in China over recent months, as even the wealthy cut back on their discretionary spending and sell their Rolex watches and Hermès bags to raise cash.
More than a dozen popular brands of luxury watches and bags have lost between 20 per cent and 50 per cent of their value on the secondary market since Shanghai, China’s financial and commercial capital, imposed a strict lockdown in March to crush a Covid outbreak.
The restrictions in Shanghai and dozens of other regions have dealt a heavy blow to small business owners, many of whom accumulated large collections of luxury goods in better times. But the repeated lockdowns have damaged their cash flows.
Last week tens of thousands of tourists in Hainan, an island province billed as “China’s Hawaii”, were prevented from returning home to stem an outbreak there.
The government is promoting Hainan as a duty-free paradise where Chinese consumers can buy the same luxury goods they used to snap up in cities such as Paris, Rome and London before President Xi Jinping’s controversial zero-Covid policy made it practically impossible to travel abroad for short trips.
Watcheco, an industry portal for used luxury watches, reported that the price of second-hand Rolex Submariners — a model coveted by connoisseurs and collectors — had fallen 46 per cent since March
Luxury bag dealerships in Shanghai and Hangzhou have also cut prices of classics such as Hermès Birkin bags by up to a fifth over the same period.
Pawnshops and other luxury goods resellers said there had been a big increase in customers, led by cash-strapped business owners who were struggling to raise capital to pay down debt and keep their operations afloat.
“The boom time is over,” said James Wang, a seller of second-hand luxury watches in the eastern city of Nanjing. “We are entering a correction period that could last for a long time.”
Wang said he bought six Patek Philippe and 29 Rolex Submariner watches from distressed owners in July alone, compared with no Patek Philippes and five Rolex Submariners in the first quarter of this year.
“Patek Philippe says you never actually own its watch, but merely look after it for the next generation,” said Wang. “That’s not the case in a business crisis.”
Shaun Rein at China Market Research, a Shanghai-based consultancy, said the sudden rise in supply and resulting price drops of second-hand luxury goods were evidence of “very weak consumer confidence”.
“It’s probably the weakest I’ve seen in my 25 years in China,” he added.
Some luxury goods investors argued that the recent price falls were inevitable after an unsustainable surge prior to March.
In the six months leading up to Shanghai’s lockdown, the price of second-hand Rolex Submariners rose by 240 per cent. The same bag dealerships that recently cut their asking prices in Shanghai and Hangzhou did so just months after raising prices at the start of the new year.
Sam Xue, a watch investor who owns an electric heater factory in the eastern city of Wuxi, said the price rises were “pure speculation” and unsustainable.
“The weak economy can’t support a luxury boom,” Xue said, adding that he would not buy luxury watches again unless prices fell by another 30 per cent.
>>> Up
* Beazley Raised to Overweight at Morgan Stanley; PT 678 pence
* Fresenius SE Raised to Buy at HSBC; PT 35 euros
* Holmen Raised to Buy at Nordea; PT 480 kronor
* Sanofi Raised to Hold at Deutsche Bank; PT 90 euros
* SMA Solar Raised to Hold at Jefferies; PT 52 euros
* Sodexo Raised to Outperform at Exane; PT 90 euros
* Stroeer Raised to Equal-Weight at Barclays; PT 53 euros
* UPM-Kymmene Raised to Buy at Jefferies; PT 37.25 euros
>>> Down
* Alcon Cut to Hold at SocGen; PT 73.60 Swiss francs
* BCP Cut to Neutral at Grupo Santander; PT 20 euro cents
* Dufry Cut to Neutral at Goldman; PT 44 Swiss francs
* Equinor Cut to Underperform at Grupo Santander; PT 270 kroner
* Eutelsat Cut to Underweight at JPMorgan; PT 8 euros
* Fractal Gaming Group Cut to Hold at ABG; PT 25 kronor
* Kahoot Cut to Sell at DNB Markets; PT 21 kroner (+)
* K+S Cut to Sector Perform at Scotiabank; PT 26 euros
* McPhy Cut to Hold at Panmure Gordon; PT 15.30 euros
* Mowi Cut to Neutral at Exane; PT 240 kroner
* Nel Cut to Hold at Panmure Gordon; PT 15.60 kroner
* Netcompany Cut to Buy at Jyske Bank; PT 550 kroner
* SpareBank 1 Nord Norge Cut to Hold at DNB Markets; PT 102 kroner (+)
* Telenet Cut to Neutral at Goldman; PT 16.50 euros
* TF1 Cut to Underweight at Barclays; PT 6.50 euros
>>> Initiation
* 3i Infra Rated New Buy at Numis; PT 1,940 pence
* Johnson Matthey Resumed Neutral at Citi; PT 2,200 pence
* Lhyfe SAS Rated New Buy at Bryan Garnier; PT 14.30 euros (+)
* Oracle Rated New Buy at Guggenheim; PT $107
>>> Call
* Bayer Narrative Improving, Glyphosate Provisioning Ample: Citi
* Beazley Upgraded at MS After Robust 1H for Lloyd’s Insurers
* IG Group Up to Buy at Liberum as ‘Promising’ Growth Seen Ahead
* SMA Solar Raised at Jefferies as Solar Boom ‘Lifting All Boats’
* UPM Upgraded to Buy at Jefferies on ‘Appealing’ Earnings Outlook
Next financial crisis likely to centre on private markets
The rush into the sector was predicated on the continuous availability of cheap capital
Just as US subprime mortgages were at the heart of the 2008 financial turmoil, a future crisis may centre around booming private markets.
Believing they had found the latest formula for success, investors have ploughed about $9.8tn into unlisted equity, private credit and early stage or new venture funding. Alongside well-known problems — overvaluation, optimistic assumptions, aggressive accounting and high debt levels, there are additional concerns.
First, as private investments are inherently illiquid, investors cannot cauterise losses easily. Monetisation, largely reliant on initial public offerings and trade sales, is now difficult, especially at previously anticipated prices.
Where investments are made through funds, there may be mismatches between the redemption rights granted to ultimate investors and the ability to realise underlying assets. In such scenarios, investors can become exposed to forced distressed sales or trapped by restrictions on withdrawals resulting in opportunity costs.
Second, the lack of market prices means opaque valuations, which frequently misstate investment or fund values. Unlisted equity valuation models rely on comparable traded companies and private financing rounds. The discrepancies between these values and market prices can be large. After being valued in 2021 at $46bn, a 2022 $800mn funding round valued Klarna at $6.7bn (an 85 per cent fall). As the disappointing initial public offerings of Uber and WeWork highlight, the case is not isolated.
Private real estate or infrastructure, generally treated as leveraged bond-like investments, are sensitive to growing uncertainty over once predictable revenues, assumed “terminal” values at a point in time, funding costs and the often complex options embedded in the investment structures.
Subjective approaches and difficult to verify inputs can result in large variations in private investment valuations. Values derived from transactions between different in-house managed funds or with other asset managers are affected by potential conflicts of interest as manager remuneration is based on investment values and performance. Infrequent valuations mean prices lag behind changing market conditions, resulting in real gains and losses for investors buying into or withdrawing money from funds.
Third, private equity originally focused on long holding period investments purchased with substantial borrowings in traditional industries that offered undervalued shares, strong cash flows, low operating risk and the potential for business improvements. Today, many of these elements, other than leverage, are frequently absent.
Consistent with industrial shifts outside of property and infrastructure, transactions are not secured by hard assets such as real estate, plant or equipment but supported by intellectual property such as internet platforms or software.
The latter are harder to value and more exposed to economic cycles. Asset recovery values under distressed conditions are less predictable as the replacement cost of tangible items no longer provides a price floor. Limited covenant protection in many transactions increases the risks.
Fourth, for non-profitable or cash-flow-negative enterprises, availability of follow-on funding necessary for operations is presumed. Other private investments, typically with sizeable borrowings, face refinancing risks. All are vulnerable to market disruptions, especially if prolonged.
Finally, private markets exhibit complicated layers of risk. After 2008, when securitised debt and off-balance sheet structures aggravated shocks, the so-called shadow system of banking outside traditional lenders regrouped.
Today, investments are frequently held through tiers of funds, some with borrowings from banks or private providers. Securitisation of private equity loans and non-bank credit display familiar opacity and exacerbate leverage in the system. Falls in asset value anywhere can create instability elsewhere within the financial system.
The recent history of highly managed money supply, low interest rates and artificially suppressed volatility encouraged investors to take on often unquantifiable and poorly understood hazards. The rush into private assets was predicated on the continuous availability of cheap capital as a sustainable investment strategy. It also ignored the immutable positive correlation between risk and return.
To crib from US actor and humourist Will Rogers, it seems that financial markets advance by finding new ways to lose money, which is surprising given that the old ways continue to work just as well.
- Rio Tinto (RIO1 TH) +2.5%
- GSK (GS71 TH) +2.2%
- GSK Says It Will Vigorously Defend All Zantac Claims
- Sanofi, GSK Selloff on Zantac Viewed as ‘Overdone’: Street Wrap
- Freenet (FNTN TH) +1.3%
- Freenet Raises FY Ebitda Forecast
- Reckitt (3RB TH) +1.3%
- GSK Must Regret Passing on Unilever’s £50 Billion: Chris Hughes
- BAT (BMT TH) +1.1%
- Thyssenkrupp (TKA TH) +1.1%
- Fresenius SE (FRE TH) +1%
- Fresenius SE Raised to Buy at HSBC; PT 35 euros
- Sandvik (SVKB TH) +0.6%
- L’Oreal (LOR TH) +0.5%
- Novo Nordisk (NOVC TH) +0.4%
- Pharma On Track as Sanofi Stands Tall, Price Reforms Disappoint
- Sanofi (SNW TH) -0.6%
- Sanofi, GSK Selloff on Zantac Viewed as ‘Overdone’: Street Wrap
- Verbund (OEWA TH) -0.8%
- Siemens Energy (ENR TH) -0.8%
- Siemens Healthineers (SHL TH) -0.9%
- Knorr-Bremse (KBX TH) -0.9%
- Knorr-Bremse 2Q Ebit EU162M Vs. EU244M Y/y
- Aixtron (AIXA TH) -0.9%
- Alstom (AOMD TH) -1%
- TUI (TUI1 TH) -1%
- OMV (OMV TH) -1.2%
- Aviva (GU81 TH) -1.4%
DAX:
- Fresenius SE (FRE TH) +1.1%
- Fresenius SE Raised to Buy at HSBC; PT 35 euros
- Covestro (1COV TH) +0.4%
- RWE (RWE TH) +0.4%
- BASF (BAS TH) +0.4%
- Rhine River Set to Shrink to Critical Threshold for Navigability
- BMW (BMW TH) +0.2%
- BMW to Launch Fuel Cell SUV as Soon as 2025: Nikkei
MDAX:
- Freenet (FNTN TH) +1.8%
- Freenet Raises FY Ebitda Forecast
- Thyssenkrupp (TKA TH) +1.7%
- Rhine River Set to Shrink to Critical Threshold for Navigability
- Encavis (ECV TH) +1.3%
- Uniper (UN01 TH) +0.7%
- Rhine River Set to Shrink to Critical Threshold for Navigability
- Evonik (EVK TH) +0.4%
- Jungheinrich (JUN3 TH) -0.2%
- Jungheinrich 2Q Revenue Beats Estimates
- ProSieben (PSM TH) -0.5%
- K+S (SDF TH) -0.5%
- K+S Cut to Sector Perform at Scotiabank; PT 26 euros
SDAX:
- VERBIO Vereinigte (VBK TH) +1.2%
- Ceconomy (CEC TH) +1.1%
- Bilfinger (GBF TH) +1%
- Bilfinger Shares Turn Negative; UBS Says 2Q ‘Slightly Weak’
- SAF-Holland SE (SFQ TH) +0.5%
- Saf-Holland Bought 2.23m Haldex Shares From Kite Lake
- SMA Solar (S92 TH) -0.4%
- SMA Solar Gains on Revenue Results Despite Macro Headwinds
- Metro (B4B TH) -1%
An Asian stock gauge and US equity futures rose Friday as investors assessed whether signs of cooling inflation will enable the Federal Reserve to pivot to less pugnacious interest-rate increases. MSCI Inc.’s Asia-Pacific equity index rose more than 0.5%, propped up by a catch-up rally in Japan following a holiday there. S&P 500 and Nasdaq 100 contracts advanced, while European futures were steady. The 30-year maturity led a dip in Treasury yields. A dollar gaugeslipped, gold pushed higher and Bitcoin oscillated around the $24,000 level. In the latest US central banker comments, San Francisco Fed President Mary Daly said inflation is too high, adding she anticipates more restrictive monetary policy in 2023. She said her baseline is a half-point September hike but that she’s open to another 75 basis-point move if necessary. Stocks this week have cheered the possibility that ebbing price pressures will take the pressure off the Fed to keep hiking rates sharply, making a soft economic landing more likely. Global shares are set for the longest streak of weekly gains since 2021, paring their retreat this year to about 14%. The bond market is more skeptical -- an ongoing Treasury yield curve inversion hints at concerns that only a recession can curb the cost of living. Swaps referencing the Fed’s September meeting point to some uncertainty over whether a half-point or another 75 basis-point rate hike is on the cards. Raw-material prices are adding to the complexity. Oil headed for a weekly gain that’s contributed to a more than 10% rebound in a commodity index from a July low -- a trend that could darken the inflation picture if it continues. US After Hours TOST +11.1% higher on earnings; OLO -29%, LAW -22.3%, ILMN -15.2%, EXFY -14.5% lower on earnings
Nikkei +2.52% Hang Seng +00.36% CSI -0.06% Shanghai -0.11% Shenzen -0.26%
Eur$ 1.0321 CNH 6.7358 CNY 6.7371 JPY 133.25 GBP 1.2194 CHF 0.9418 RUB 60.8987 TRY 17.9625 WTI$ 93.95 -0.40% Gold 1,7912.21 +0.08% BTC 23,935 -1.16% ETH 1,890.05 -0.65%
S&P +0.25% Nasdaq +0.35% EuroStoxx -0.03% FTSE +0.06% Dax +0.00% SMI -0.20%
Macro :
- China’s SMIC Warns of ‘Rapid Freeze’ as Smartphone Demand Skids
Keep an eye on :
- ANTO LN : A $1 Billion Cost Blowout Feeds Into the Bullish View on Copper
- BHG SS :BHG Group CEO Schatz Steps Down; Chairman to Become Acting CEO
- BMW GY : BMW to Launch Fuel Cell SUV as Soon as 2025: Nikkei
- COIN US : China Crypto Mogul Seeks to Sell Huobi Stake at $3 Billion Value
- SFER IM : Farfetch Gains After Reporting Salvatore Ferragamo Partnership
- FRAS LN : Frasers Says Completed Sale of Some Retail Parks for GBP205M
- FNTN GY : Freenet Raises FY Ebitda Forecast
- JAR LN : Jardine Matheson Slumps 9.6% as MSCI Cuts Co. Weight in Indexes
- JUN3 GY : Jungheinrich 2Q Revenue Beats Estimates
- KESKOB FH : Kesko July Sales From Continuing Operations EU920.8M
- KBX GY : Knorr-Bremse 2Q Ebit EU162M Vs. EU244M Y/y
- LOTB BB : Lotus Bakeries 1H Adjusted Net Beats Estimates
- NOVN SW : Novartis’ Tabrecta Gets Regular FDA OK for Some NSCLC Patients
- NOVN SW : *NOVARTIS SAYS 2 DIED FROM LIVER FAILURE AFTER GENE THERAPY:STAT
- PAT GY : PATRIZIA SE 1H Revenue EU158.5M Vs. EU140.2M Y/y
- PIHLIS FH : Pihlajalinna 2Q EPS Misses Estimates
- QQ/ LN : QinetiQ Holder to Sell About 25.4m Shares via Citi: Terms
- SAS SS : SAS Sells Trust Forwarding Unit for DKK26 Million, JP Says
- SFQ GY : Saf-Holland Bought 2.23m Haldex Shares From Kite Lake
- SIM DC : Simcorp 2Q Ebit Misses Estimates
- S92 GY : SMA Solar Gains on Revenue Results Despite Macro Headwinds
- SZU GY : Suedzucker Boosts FY Operating Profit Forecast
- VZN SW : VZ Holding 1H Operating Revenue CHF210M Vs. CHF187.8M Y/y
- WUW GY : W&W 1H Net Income EU96M Vs. EU196.2M Y/y
- ZURN SW : Zurich Airport July Passenger Traffic +84.7%