Alibaba flags US chip impact

On Thursday, the S&P 00 closed up 0.1%, and the Dow dropped 46 points, marking a pause in the recent upward trend. The S&P 500 had gained about 2% for the week and over 9% since 27th October, driven by positive inflation data and signs of economic resilience. Small-cap performance, notably the Russell 2000 Index, was up over 5% in the past week. Bond yields slid lower, with the 10-year Treasury rate below 4.5%. Walmart’s quarterly earnings report, indicating signs of weakening customer spending, and disappointing labour market data contributed to mixed equity performance, with Walmart shares sinking nearly 8%. The market appeared to be taking a breather and possibly entering a consolidation phase after a significant rally in late October. European equity markets closed modestly lower, with the Euro Stoxx 50 down 0.3%, driven by concerns over the impact of higher interest rates, while losses in consumer cyclical shares and a decline in oil futures contributed to subdued performance, offset by a 5.6% gain in Siemens after exceeding sales outlook expectations.

Summary for 17.11.2023

Asian markets saw mixed performance as most equities fell on Friday, influenced by weak leads from Wall Street and concerns over US chip export curbs impacting Chinese tech companies. The Hang Seng index was the worst performer, with Alibaba sliding 10% after scrapping its cloud unit spin-off due to chip supply uncertainties. Despite weak economic signals, the Nikkei 225 was set for its third straight week of gains, supported by the prospect of a dovish Bank of Japan and softer-than-expected US inflation data.

European shares are poised for a slight rebound, recovering from losses driven by disappointing results, while US equity futures show mixed signals.

Oil prices experienced a sharp 5% decline yesterday to their lowest in four months, driven by concerns over weakening global oil demand following lackluster data from the US and Asia. The negative sentiment was further fuelled by increased unemployment claims in the US, a drop in retail sales, and ample oil inventories despite earlier predictions of supply tightness by OPEC and the International Energy Agency.

The latest US data on initial jobless claims showed an increase to 231,000, the highest since mid-August, signalling potential weakness in the employment landscape and a 12% month-over-month rise. The higher continuing claims suggest increased difficulty for idle workers to find new jobs, reflecting a softening labour market, although conditions remain more supportive than destructive for consumer income and spending.

Alibaba announced plans to abandon the spin off of its cloud business due to uncertainties arising from US restrictions on semiconductor exports to China for AI applications, causing a $20 billion market value drop. The decision reflects broader challenges for Chinese tech firms amidst export curbs and regulatory crackdowns, impacting their ability to secure crucial chip supplies and navigate regulatory scrutiny.

Applied Materials reported Q4 2023 earnings with steady revenue at $6.72 billion and an increased non-GAAP EPS of $2.12, beating expectations. The revenue guidance for Q12024 was also above estimates. Nonetheless, shares fell 7.3% in after-hours trading after news broke that the company is under US criminal investigation for potentially evading export restrictions on China’s top chipmaker SMIC, with the Justice Department probing allegations that it sent equipment to SMIC via South Korea without proper export licenses, involving hundreds of millions of dollars of equipment.

Apple’s efforts to create an in-house modem chip for the iPhone are facing setbacks, with the company likely to miss its goal of shipping the component by the spring of 2025, delaying the release until at least the end of 2025 or early 2026. The complexity of replacing a crucial Qualcomm component has contributed to Apple falling further behind in its multibillion-dollar initiative.

ChargePoint Holdings, a leading electric vehicle charging network, witnessed a more than 20% drop in shares following a third-quarter revenue of $108-113 million, significantly below the expected $150-165 million range. Despite leadership changes and macroeconomic challenges impacting sales, the company maintains financial stability with $397 million in cash as of end of October and plans to release comprehensive results on 6th December.

Gap Inc posted better-than-expected third quarter results, reporting earnings of 59 cents per share compared to the expected 20 cents, driven by eased supply expenses and cost-control efforts. Despite forecasting holiday-quarter sales below estimates, Gap’s shares surged by 15% in extended trading, reflecting positive investor sentiment and confidence in the company’s turnaround efforts.

Greece successfully sold a 22% stake in National Bank, its second-largest lender, in an oversubscribed sale that raised over €1 billion. This divestment by the state-controlled bank bailout fund HFSF follows similar actions with other Greek banks, signalling positive investor interest in the country’s financial sector.

Burberry Group shares plunged 10.5% yesterday after the UK-based fashion retailer warned its full-year operating profit may be at the low end of forecasts as global luxury spending slows.

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