Three things to watch this week - Military talks, US CPI and retail sales & the shopping frenzy
Military talks, US inflation and retail sales and the 'Fourfecta' shopping frenzy, are the key elements you need be across this week. We cover what you need to consider, with trading and investing implications
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Military talks at APEC summit
US-China military communication is a priority for both US President Biden and his Chinese counterpart Xi Jinping when they meet on Wednesday, given ties were severed a year ago. Not only is it the first time in a year since meeting, but its Xi's first trip to the US in six years. Keep an eye out for media announcements on military and trade for investing clues.
- So far we know the duo are expected to agree on banning the use of AI in autonomous weapons, and establishing a military hotline with top defense officials 'all the way down to the tactical and operational level'. That's a top priority for the Whie House. China previously suspended defense communication a year ago after Nancy Pelosi visited Taiwan. But after China fired its defense minister a month ago, low-level US-China military ties resumed.
- What else to consider? The US is looking to tighten sanctions against Iran, which is a key source of oil for China, given Tehran supports Hamas, which carried out the Oct. 7 attack on Israel.
Military talk, investing and trading implications
Given the above, Artificial Intelligence $Artificial Intelligence (BK2548.US)$, Oil and Defense companies and ETFs will be on watch.
- Boeing $Boeing(BA.US)$ could finally see sales breakthrough for its largest source of revenue, the 737 Max aircraft in China, which would mark the end to the long commercial freeze in a critical overseas market. The Chinese government is considering unveiling a commitment for Boeing's 737 jetliner at the APEC Summit in San Francisco. If this occurs, it will be monumental as Boeing has not had any significant sales in China, since at least 2018, before two crashed led to a global grounding of the model.
- This shouldn't come as a surprise, as Boeing $Boeing(BA.US)$ has been readying itself to start deliveries with China, for the first time in four years after it pulled two aircrafts out of storage in August. Then in September Boeing said China will account for 20% of global plane demand over the next two decades, as its travel demand booms, domestically.
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US inflation and retail sales in focus
Investors will lean into key US data releases this week to justify if they should trim gains (with the S&P500 at seven-week highs, up 7.5% from October's low). Or if the data justify letting gains run. Or will the data results in investment managers adding to key positions? We know falling global energy prices will be reflected in US inflation and US retail sales prints for October - with their releases on Nov 15 and 16 (Sydney time).
- US inflation has continued to fall from its June 2022 peak of ~9% to 3.7% YoY as at Sept. This has supports markets rallying with Nasdaq up 31% this year and stocks like Nvidia $NVIDIA(NVDA.US)$ up 230%, Meta $Meta Platforms(META.US)$ 173% and Tesla $Tesla(TSLA.US)$ 74%, as the market expects the Fed to cut rates next year, which effectively strengths company profitability and household budgets.
- In October, gasoline prices alone are expected to shave 0.2% off headline inflation and should allow inflation to slow to 3.3% YoY (vs. 3.7% prior). This will be good for equites as the futures are pricing in Fed rate cuts in July, September November and December. If inflation is hotter than expected, equities will face pressure though.
- The same goes for US retail sales, which are expected to fall, as wages and credit card loans were flat in October, suggesting new car sales and gasoline sales fell.
- Also consider that S&P500 companies see mixed consumer spending behaviors ahead for Q4. We could have a pleasant surprise and an uptick in spending though as
US inflation and retail sales investing and trading implications
Be mindful that volatility is the lowest it has since September. However hotter than expected data could be a catalyst for volatility to rise.
- You could see short and medium-term investors and traders trim gains from the market and tech stocks and or add to key positions, should they correct (i.e. fall 10% from their peaks).
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'Fourfecta' shopping frenzy; Singles Day, Black Friday, a rate cut and Xmas
Chinese e-commerce giants are in the spotlight for several reasons this week; Singles Day closes off with orders hitting new records, and this is all ahead of Black Friday sales, China likely cutting its interest rates (which could further bolster spending), and Alibaba and Jd.com are due to report results. Plus, such businesses will likely see sales lift ahead of the western world ramping up to Christmas. Here are some factors to consider;
- China’s most popular sales event of the year closes off with a bang. The Singles' Day festival has drew to a close after Alibaba, JD.com and PDD offered steep discounts across their platforms for the last 3-4 weeks. In that time, ahead of Nov 11 Goldman Sachs said gross merchandise value (GMV) rose 1-3% at Alibaba and JD, but 20% at PDD, as it targets lower incomes and rural markets. Alibaba said its GMV is better than last years and JD.com said transactions and order volume hit new record highs. Both didn’t disclose their actual numbers for the second year.
- Chinese smartphone and consumer electronics company, Xiamoi gave some hints at how good sales were amid Singles day. It sold $3.11 billion of products on Alibaba, JD.com and PDD. Lululemon, a new brand to China, saw transaction volume through JD alone rose 260% up from a year ago.
- E-commerce festivities roll on. Black Friday sales get underway next week, following by the western world shopping for Christmas. This is at a time when brands such as Amazon are embarking on heavy cost cutting, with Amazon looking to further reduce costs.
- Rate cuts in China could boost sentiment. We think the People's Bank of China could cut its interest rates this week given business and industrial activity is still lackluster. Bloomberg expects the PBOC to cut its one-year rate by 0.1%, on Nov 15, after repeated holds, which will take the medium-term lending facility rate down to 2.4%. That should inject a little happiness into consumers pockets.
- Quarterly results are ahead: JD.com $JD.com(JD.US)$ is expected to report quarterly results in the US on Wednesday, with Alibaba $Alibaba(BABA.US)$reporting Thursday. Alibaba $Alibaba(BABA.US)$ could beat JD.com in reporting a stronger rise in customer revenue in the quarter, particularly as a result of its retail ads and fees from merchants. If this happens its means Alibaba is is regaining merchants and shoppers from rivals.
E-commerce giant investing and trading implications
Given the above it would be wise to keep an eye on Alibaba and Jd.com
- Alibaba $Alibaba(BABA.US)$ shares are down 32% from January, JD.com $JD.com(JD.US)$ is down 61%. If we see the companies report better than expected results, you'll likely see their shares lift with many investor managers thinking their margins could improve.
- That said, Chinese retail sales last rose 5.5% YoY in September, and if we see China's central bank cut rates, it could slowly marginally lift sales over time. So tactical traders, may be positioning their portfolios for this.
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13 Nov 2023
