Market 01/22: Retails long, hedgefunds short

US stocks explode but Hedge Funds cautiously take profit

• After rising 11 out of the past 12 weeks, S&P finally hit all-time high after more than 746 days.

• US stocks now account for up to 64% of the global stock market

• Although stocks hit record levels, order flow data from Goldman's Prime Brokerage service, which specializes in serving institutional clients, declined last week

• Short orders outperform long orders at a ratio of 2:1 last week and 3:1 since the beginning of the year, according to Goldman Sachs statistics

• Overall, net flow is negative from GS's institutional client base

Debt market: companies issuing debt at record levels

• High-graded companies have issued more than 150 billion USD in bonds in the first 18 days of the year

  • - the highest amount in history at this point in the year.

• Yield spread between high-grade bonds and US Treasuries falls to 2-year low.

  • Either Treasury yields are rising too high, or the market has strong demand for high-grade corporate bonds (or both).

• In the government bond market: hedge funds are currently selling over 889,000 10-year Treasury contracts — the highest short position in history.

China: Stocks continue to slide - state-owned banks defend CNY

Macro news update in China:

1. China is considering issuing new debt worth 139 billion USD in the form of “special bonds” to stimulate the economy.

• FYI: China's special government bonds have been issued on rare occasions to raise cash for specific purposes.

  • These - unlike general bonds - are not included in the country's deficit calculations.

2. Real estate market in Shanghai - China's largest city continues to stagnate:

• BlackRock is seeking to sell an office complex in Shanghai at a price 30% lower than the purchase price.

• Shanghai: office rental prices have fallen to the lowest level in nearly a decade and may continue to decline due to supply > demand (Colliers International Group).

3. The banking system stubbornly maintains high interest rates but begins to defend the CNY position by selling foreign exchange reserves.

• China's commercial banks have kept lending rates unchanged, in line with PBOC's decision to maintain rates amid concerns about pressure on the renminbi

• China's major state-owned banks have sold USD in the domestic market to support CNY price, as domestic stocks plunged this morning after PBoC decided to keep LPR rates unchanged.

  • Many banks have shifted to cutting lending activities to tighten RMB liquidity in offshore markets, aiming to prevent short-selling.

4. Chinese stocks listed in Hong Kong continue to slide: international investors increasingly pessimistic about China's economy

• Hang Seng China Enterprises Index falls 2.4%, moving closer to the level last seen nearly two decades ago

• HSI index drops below 15,000 — equivalent to levels commonly seen in 1997

• India is likely to soon surpass Hong Kong to become the world's fourth largest stock market.

Davos 2024: AI - the next technology trend of the 21st century

2024 will be the year AI dominates the workplace and the Internet.

• Tech giants like Microsoft, Alphabet, or Amazon are becoming more powerful and have strong profit growth thanks to AI advancements.

Summary of views on AI from some CEOs at the World Economic Forum,Davos 2024:

• Co-CEO Workday Carl Eschenbach:

  • AI copilots will become increasingly advanced

  • AI will support career development, suggest skills and career paths, improve recruitment and internal personnel mobility.

• CEO HP Enrique Lores:

  • AI PC will launch this year — one of the biggest changes since the PC was invented more than 20 years ago.

  • Allows customers to run AI applications offline, saving costs, faster speeds, and improved security

• CEO Qualcomm Cristiano Amon:

  • Integrating AI into devices across various industries, especially emphasizing natural language communication in cars.

• Tech investor and Black Eyed Peas band star will.i.am:

  • AI can be used in creative ways, such as the "Sound Drive" project that generates music based on car sensors, changing the driving experience.

• Read more about AI and NVIDIA's prospects at here

FYI: Super Micro Computer stock, $SMCI, has risen +60% from the beginning of the year, adding ~12 billion USD in market cap in just 3 weeks, after the company raised its revenue forecast for the quarter ending 12/31 to 3.6 billion USD. N

• Demand for AI-based servers is the main driver of the revenue surge. The stock is now up 500% from last year.

Leading Economic Index (LEI) continues to decline

Leading Economic Index (LEI) continues to decline -0.1% m/m, though less than forecast (-0.3% m/m) and previous month (-0.5%).

• This indicates that LEI is still signaling recession risks for the US economy.

Key events for the week 22-26/01/2024

1. Bank of Japan BoJ meeting

2. Manufacturing PMI data - Wednesday

3. European Central Bank ECB meeting

4. Core durable goods orders - Thursday

5. Q4 2023 GDP data - Thursday

6. New home sales data - Thursday

7. December PCE inflation data - Friday

~20% of S&P 500 companies report earnings this week

Fed has entered blackout period (Fed members will not comment further on policy from now until FOMC)….

• and 1 more week until the first FOMC of 2024.

Other news

1. US Federal Aviation Administration (FAA) requires operators of Boeing 737-900ER aircraft to thoroughly inspect emergency exit latches.

   • New proposal issued after recent operational incident with the Boeing (US)-made 737 MAX 9 aircraft line.

2. Archer-Daniels-Midland ($ADM) stock down ~21% today.

• The agriculture giant fired its CFO and cut profit forecast amid SEC-requested accounting investigation.

$ADM now down 40% since August 2023.

3. Alphabet's Moonshot X tech lab lays off dozens of employees, seeking external investors to fund its projects.

4. Russia has surpassed Saudi Arabia to become China's largest oil supplier for the first time since 2018, showing how ineffective US sanctions against Russia are.

5. New tenant rent price index records historic decline

6. Apple pays $12.3 million fine to Moscow antitrust regulator: after a Moscow court found the US tech giant abused its dominant market position on App Store

• On the other hand, Apple sold out ~80,000 Vision Pro units in the first preorder hour. Apple expects to sell about 300,000 - 400,000 Vision Pro units in 2024

7. Amer Sports IPO - the first major IPO event of 2024.

• Ticker: $AS

• Shares: 100 million.

• Price range: $16-$18

• Valuation: Up to $8.7 billion

• Amer Sports is seeking to raise up to $1.8 billion in this IPO

8. Gilead shares fall after Trodelvy - lung cancer drug, failed to improve survival in late-stage lung cancer patient trial

9. Japanese leaders meet to urge small businesses to raise wages

10. Natural gas prices have been falling consecutively since Thursday afternoon.

11. Retirees will receive more benefits than the taxes they paid.

12. P/E update for S&P 500 companies. UBER has P/E up to 131.43!

13. 10-year government bond yield spread between Italy and Germany is narrowing. ECB may feel confident it's on the right track and continue to act hawkish

14. December leading economic index down -0.1% M/M, less than estimated -0.3% & previous month's -0.5% - smallest decline since March 2022

15. Consumer expectations of higher unemployment rate next year continue to decline

• However, layoffs surged in January, now at 50,702 and on track to rise to 65-75,000 jobs/month.

16. Market-implied probability of Fed rate cut in March now significantly lower

17. December new home starts up 0.1% M/M, lifting Y/Y gain to 2.7% (largest increase since July 2021)

18. Nikkei 225 up 1.4% above 36,400 while Topix up 1% to 2,535 on tech stock gains

19. ECB President Christine Lagarde is unpopular with staff at the world's 2nd largest central bank in internal survey:

    • Lagarde is rated as “poor” and “very poor” (poor & very poor).