Ormiga Weekly Market Update: 26th January 2024

US

In the stock market, the S&P 500 ended a five-session streak of record highs on Friday closing the week up 1.06%, the Dow Jones Industrial Index closed up 0.65% with the tech-heavy Nasdaq closing almost 1% up. Bond yields rose on bets that the Federal Reserve will signal patience before deciding to cut interest rates.

Netflix's stock jumped over 17% this week following the company's announcement that it added a record 13.1 million subscribers in the fourth quarter of 2023. This news exceeded Wall Street's expectations and boosted investor confidence in the streaming giant's growth prospects. In addition, Netflix's projected first-quarter 2024 earnings of $4.49 per share came in above the $4.10 figure, and the company bumped its full-year 2024 operating margin forecast to 24%, up several percentage points from its prior guidance of 22% to 23%. American Express Co. forecast earnings for 2024 that topped analysts' estimates and said it would stick to its long-term profit and revenue targets.

The U.S. economy grew at a 3.3% annual rate in the fourth quarter of 2023, exceeding expectations and boosting optimism about avoiding a recession. The growth was driven by several factors including; consumer spending, which increased by 2.8% for the quarter, accounting for about 70% of the total economy, government spending rose by 3.7%, and greater control over inflation boosting investor confidence. The U.S. economy grew at a 2.5% annualized pace for all of 2023, well ahead of the Wall Street outlook at the beginning of the year. This growth can be attributed to the resilience of the world's largest economy, which has remained strong despite the challenges posed by the pandemic and the ongoing economic recovery.

Mexico

As Mexico approaches its presidential election in five months, a recent survey of business executives conducted by KPMG unveiled their primary concerns, with 58% identifying the election outcome as the most significant variable affecting their operations. This supersedes concerns about a potential economic slowdown, reflecting the pivotal role the election plays in shaping the country's business landscape. Ruling party candidate Claudia Sheinbaum and opposition hopeful Xochitl Galvez present contrasting approaches, with Sheinbaum enjoying an edge in popularity, largely attributed to outgoing President Andres Manuel Lopez Obrador's endorsement. Among the executives surveyed, almost half expressed apprehension about the deteriorating rule of law and escalating insecurity, identifying these factors as the most pressing risks for Mexican companies.

In another development, a US appeals court has revived a $10 billion lawsuit filed by Mexico against US gun manufacturers, reigniting a protracted legal battle. The Mexican government contends that the influx of illegal guns across the border is a result of deliberate business practices by US gunmakers. The lawsuit targets prominent manufacturers like Smith & Wesson, Glock, Beretta, Barrett, Sturm, and Ruger. Mexico alleges that these guns, numbering in the tens of thousands annually, contribute to the drug cartels' access to substantial arsenals. The case continues despite previous dismissal attempts by the gun industry's trade association, which denies any wrongdoing.

On a different note, Mexico City recently garnered attention as the 16th most expensive city globally, surpassing Washington D.C. and Milan, according to The Economist's Worldwide Cost of Living Index. However, the seemingly incongruent reality of a city where inhabitants earn an average of 4,600 pesos a month living in such opulence is explained by the study's focus on compensation calculations for "expatriates and business travelers." The methodology, incorporating a weaker dollar against the 2023 'super peso,' gentrification, and Mexican inflation, accounts for the city's elevated position in the cost of living index, according to experts.

Europe

As Britain navigates the complexities of post-Brexit trade negotiations, it is discovering the challenges even in dealings with close allies like Canada. After nearly eight years since the Brexit vote, the UK government has walked away from talks aimed at replacing its existing EU trade deal with Canada, citing disputes involving beef, cars, and cheese. The negotiations began in March 2022, two years after the UK officially left the EU, seeking to improve upon the terms of the existing EU-Canada free trade agreement. While goods and services have continued under the current terms, the UK's attempt to negotiate a more favorable deal has faced obstacles.

In another development, the pound demonstrated strength against the dollar, propelled by a survey indicating that business activity in the UK is surpassing that of major European economies. The S&P Global/CIPS UK Composite PMI for January reached a seven-month high, showcasing resilience and outpacing expectations. This positive economic indicator adds weight to the argument for higher British interest rates, contrasting with the eurozone's flash reading, which revealed a contraction in business activity for the eighth consecutive month.

Meanwhile, a French regulator has imposed a €32 million ($35 million) fine on Amazon's local warehouse operator for utilizing an "excessively intrusive" surveillance system to monitor employees. The French Data Protection Authority (CNIL) criticized Amazon France Logistique for providing warehouse staff with scanners that meticulously recorded periods of inactivity and task completion speed. The CNIL deemed the system excessive, highlighting concerns about its potential impact on employees' breaks and interruptions, emphasizing the need for a more balanced approach.

Asia

India's economic landscape is showing signs of vibrancy as business activity expanded at its fastest pace in four months in January. A private survey highlighted robust demand and an uptick in input costs, suggesting that Asia's third-largest economy is poised to maintain its status as the fastest-growing major economy. Projections indicate a growth of 6.9% in the current fiscal year, reinforcing India's resilience despite global economic uncertainties.

In contrast, China has implemented a series of policies to rejuvenate its financial markets and stimulate growth. The country's leaders introduced measures to support lending and spending, injecting fresh cash into the economy. These actions, including a central bank cut in bank reserve requirements and new rules encouraging increased lending to property companies, aim to address challenges posed by the real estate market's downturn. While China exceeded its 2023 economic growth target with a 5.2% annual pace, concerns persist about a potential slowdown in the coming years, impacting global growth dynamics. Chinese stock markets have faced setbacks since late 2023, contributing to significant losses.

Meanwhile, Japan's economic performance is marked by a surge in exports, rising nearly 10% in December year-on-year. Revitalized trade with China and strong demand for vehicles, machinery, and computer chips contributed to this growth. The weakened Japanese yen has supported export manufacturers, even as it increased costs for key imports like oil and gas. A decline in oil prices helped alleviate the burden of energy imports in December, resulting in a trade surplus. The recovery in demand from China, coupled with other positive factors like increased tourist arrivals, has contributed to Japan's favorable trade dynamics.

[Disclaimer: The information provided in this blog post is for educational and informational purposes only and should not be construed as financial advice. Consult with a qualified financial professional before making any investment decisions.]