Mint Macro Review (Issue #2) covers record earnings from Saudi Aramco, BHP, SGX and ASX.
Reports of scorching inflation numbers in Germany and UK.
Economic slowdown in China. Both across its industry and residential markets.
Executive Summary
Fed Minutes point to continuing rate hikes as officials see “little evidence” of inflation easing (read more)
China announces monetary easing measures in response to weak economic indicators (read more)
Slowdown in Chinese Housing Markets with price slump breaking a 6-year consecutive price rise (read more)
Soaring oil in 1H propel Saudi Aramco to record earnings (read more)
BHP posts highest profits in 11 years (read more)
German economic pessimism worsens in August (read more)
UK CPI rises to 10.1%, highest level since 1982 (read more)
Tencent reports first ever drop in quarterly revenue (read more)
Asian Exchanges Declare Quarterly Results with SGX and Australia delivering record Billion+ dollars in revenue (read more)
Third best record European Summer Rally in Equity Markets (read more)
Broadest Monetary Tightening Cycle in Recent History and Yet we are witnessing solid equity market rebound (read more)
Private investments could be the source of the next financial crisis (read more)
Fed Minutes point to continuing rate hikes as officials see “little evidence” of inflation easing
Federal Reserve officials saw "little evidence" late last month that U.S. inflation pressures were easing. Fed steeled themselves to force the economy to slow down thereby control an ongoing surge in prices, according to the minutes of their July 26-27 policy meeting.
Fed sees “little evidence” that US inflation pressures were easing
The minutes also flagged what will be an important dimension of the Fed's debate in coming months - when to slow down the pace of rate increases. - "it would become appropriate at some point" to move from the large, 75-basis-point increases approved at the Fed's June and July meetings, to half-percentage-point and eventually quarter-percentage-point hikes.”
Participants generally judged that the bulk of the effects on real activity had yet to be felt given the length of time it takes for monetary policy to change economic behavior.
Source: CNBC, FOMC Minutes
China announces monetary easing measures in response to weak economic indicators
In response to weak macro economic signals, PBOC cuts lending rate & eases liquidity constraints.
Industrial Production rose by 3.8% falling short of 4.6% expected rate and lower compared to June
China's Retail sales grew by 2.7% in July YoY (5% expected). Industrial Prod rose by 3.8% (4.6% expected). YTD Fixed Asset Investment rose by 5.7% YoY (6.2% expected). Investment into real estate fell at a faster pace in July than June, while investment into manufacturing slowed its pace of growth. Youth unemployment stands at a record 19.9%.
PBOC said it was lowering the rate of one-year medium-term lending facility (MLF) loans to some financial institutions by 10bps to 2.75%. Reason cited was to "keep banking system liquidity reasonably ample".
PBOC also injected RMB 2 billion through 7-day reverse repos while slashing borrowing costs by 10 bps to 2.0%.
These monetary stimulus actions point to rising anxiety in Beijing as it fights consumer demand decline triggered by zero-Covid policy plus fallout from cash-strapped property developers and slowing global growth.
ING cut its forecast for China's 2022 GDP growth to 4% from 4.4% previously, and warned a further downgrade is possible
Analysts expect economic slowdown to prompt looser monetary policy and fiscal stimulus but some are pessimistic for the scale and speed of Beijing’s response reported FT.
Source: FT, Reuters, and, CNBC
Slowdown in Chinese Housing Markets with price slump breaking a 6-year consecutive price rise
New data out this week showed Chinese new-home prices in the country falling roughly 1% in the last year, breaking more than 6 consecutive years of rising prices.
Although a relatively small drop, the fall in new-home prices is just the latest piece of evidence that paints a concerning picture for the largest residential property market in the world.
13 straight months - that sales of apartments by the largest developers have been falling
Sales of apartments by the country's largest developers have fallen for 13 months straight and hundreds of buildings that were presold have been left unfinished — leading some homeowners to stop paying their mortgage, a rare show of dissent in the country.
All told, the WSJ estimates that billions of square meters of residential homes have been started, but not yet completed, in the last decade.
"If you’ve bought one, buy two. If you’ve bought two, buy three. If you’ve bought three, buy four"
One Chinese party secretary even went as far as to play the role of realtor, urging the country's leadership to lead the charge in buying property, saying "If you’ve bought one, buy two. If you’ve bought two, buy three. If you’ve bought three, buy four" in a speech last week, as reported in the Wall Street Journal.
Soaring oil in 1H propel Saudi Aramco to record earnings
Q2 net income of $48.4B (90% increase YoY). Net income rose to $48.4bn in the second quarter, a 90% YoY increase and the group’s highest earnings since listing in 2019. The company kept its dividend unchanged at $18.8bn for Q3.
USD 48.4 billion was Saudi Aramco’s Q2 Net Profits; More than Q2 net profits of Apple, Microsoft, Meta and Tesla combined
The company said it had limited capacity to increase production and by 2025 would hit 12.3mn barrels per day.
The Company’s Capex increased 8% YoY to $16.9B in 1H 2022, and is expected to gradually increase.
Brent crude has dropped from $120 a barrel in June to near Feb lows.
Saudi Aramco’s shares, which are listed in Riyadh, have risen more than 25% this year. The government listed 1.7% of the oil firm’s shares in 2019.
Source: FT, Reuters, and, Chartr
BHP posts highest profits in 11 years
BHP's underlying profit increased 26% to $21.3B ($20.89B expected). BHP said the results reflected higher coal and copper prices, disciplined cost controls, and, robust iron ore demand from China. (Reuters, Investing)
For the fiscal year ended June 30, shareholders will get a final dividend of $1.75 per share, making it a peak annual distribution of $3.25 per share.
BHP warned of a slowdown in advanced economies as monetary policy tightens, and said it expects labor constraints to continue to put pressure on global and local supply chains. However, BHP remain optimistic about China and its return from Covid lockdowns. (Reuters)
German economic pessimism worsens in August
ZEW gauge of economic sentiment dropped from -53.8 to -55.3, its lowest reading since 2011. (Investing)
The financial market experts expect a further decline in the already weak economic growth in Germany. Still high inflation rates and expected additional costs for heating and energy lead to a decrease in profit expectations for the private consumption sector," said Dr. Michael Schröder, head of the ZEW financial market survey. (Investing)
Worries are also growing that Germany's energy woes may worsen. With the main pipeline delivering Russian gas to Europe now running at just 20% capacity. (Investing)
German PPI surged 37.2%, sharpest increase since records began in 1949
German Producer prices - a leading indicator for inflation - surged 37.2% on the year, the biggest rise since records began in 1949, the federal statistics office said on Friday. The MoM rise, 5.3%, was also the highest on record. (Reuters)
The record increases in producer prices were primarily driven by skyrocketing energy prices, which as a whole were up 105% compared with the same month last year, the office said. (Reuters)
Feeding into already high energy costs, the German government will impose levies on gas consumers from Oct. 1 that will add several hundred euros to the average family's annual energy bill. To cushion the blow, sales taxes on gas are set to be reduced to 7% from 19% while the levies are in place (Reuters)
UK CPI rises to 10.1%, highest level since 1982
CPI rose from 9.4% in June to 10.1% in July, exceeding economists expectations of 9.8% and fueling bets that the Bank of England will keep on hiking interest rates quickly. (Reuters)
12.6% rise in annual food prices - the biggest since 2008 - was the main cause of the jump in CPI inflation from June to July, while higher energy and petrol prices were the main driver over the year as a whole (Reuters)
The BoE expects inflation to peak in October at 13.3% when regulated household energy prices are next due to rise, however, others expect inflation to continue increasing into early next year and peak at 15% (Reuters)
"With the Bank focused on signs of more persistent inflationary pressures, we think a hawkish reaction is now all but inevitable," said Citi economist Benjamin Nabarro. (Reuters)
Source: Reuters
Tencent reports first ever drop in quarterly revenue
The company said on Wednesday revenue declined 3% to 134 billion yuan ($19.78 billion) for the three months ended June 30 from 138.3 billion yuan a year earlier. Analysts were anticipating the decline. Tencent has reported double-digit growth almost every quarter since it went public in 2004 (CNN)
3% drop; For the first time since going public in 2004, Tencent’s quarterly revenue declined for the first time
Sales hurt by a lack of game approvals and regulations that limit playing time, as well as Covid-19 lockdowns and a weak economy that squeezed ad sales. (CNN)
Tencent has been reducing holdings in portfolio companies partly to appease the Chinese regulators and partly to book its hefty profits on those bets, according to sources. (CNN)
Revenue from online games, Tencent's big profit driver, decreased both at home and abroad, with each declining by 1%. Tencent has yet to receive a new game license from Chinese regulators after they temporarily halted approvals. (CNN)
Tencent said that advertising in its nascent short video platform could become a “substantial” revenue source in the future as other areas of its business such as gaming face pressure. (CNBC)
Source: CNN
Asian Exchanges Declare Quarterly Results with SGX and Australia delivering record Billion+ dollars in revenue
ASX reported operating revenue of $1.02 billion, this is the first time the group has generated over $1 billion in revenue, and it's a 7.5% increase on FY '21. Announce dividend of $1.2 per share sticking to 90% dividend payout ratio. (Yahoo)
SGX reported record revenues; ASX posted its first ever $1 Billion+ Revenue
SGX reported revenue of S$1.1B, highest ever since listing, on the back of higher derivatives volume. (SGX)
For ASX, strong equity market activity drove performance across divisions, including IPOs through to trading, post-trade activity, equity futures and options (Yahoo)
SGX reports final quarterly dividend of 8.0 cents per share, payable on 21 October 2022, bringing total FY2022 dividends to 32.0 cents per share. (SGX)
HKEX posted lowest interim profits in 5 years as Net profit fell 27 per cent to HK$4.84 billion (US$616 million)
Average daily turnover on the stock market shrank 26.5 per cent year on year to HK$138.26 billion during the first half, cutting trading fees by 27 per cent and settlement fees by 14 per cent.
Listing fees shrank by 7 per cent as fundraising from new offerings plummeted 91 per cent, the company said. (SCMP)
Hong Kong Exchanges and Clearing (HKEX) will continue to diversify new products and its own investment strategy, while it also plans to carry out more listing reforms to attract more technology start-ups to list in the city (SCMP)
Third best record European Summer Rally in Equity Markets
The strong performance over the past six weeks is putting the S&P500 on course for one of its best summer rallies on record as reported on Bloomberg and posted on LinkedIn by Charles-Henry of Syz Group.
The gains are similar to those in the summer of 2020 and are only surpassed by a 16% gain in 1929 and a rally of 89% in 1932.
Source: LinkedIn
Broadest Monetary Tightening Cycle in Recent History and Yet we are witnessing solid equity market rebound
More than 80% of central banks are hiking interest rates. It has also been one of the most aggressive, with more than 50 central banks raising interest rates by at least 50 bps in one go this year alone.
80% of Central Banks are hiking rates and tightening monetary policy
More than a decade of monetary easing supported the economy and pushed asset prices to record levels (relative to economic growth).
Posting the above chart, Stéphane Renevier wonders if how a massive unwind of such epic proportions would not hurt (perhaps decimate) asset values.
Source: LinkedIn
Private investments could be the source of the next financial crisis
USD 9.8 trillion has been invested into unlisted private equity, credit, and early stage firms.
$9.8 Trillion is the sum locked into private equity, credit and early stage firms
Besides (a) overvaluation, (b) optimistic assumptions, (c) aggressive accounting, and (d) high debt levels, Satyajit Das argues that there are at least four other additional concerns.
These include (a) Lack of Liquidity, (b) Absence of market prices, (c) Excessive leverage into businesses that are likely overvalued, & lacking in cash flows, and, (d) Preponderance of non-profitable or cash flow-negative enterprises with doubtful follow-on funding to sustain operations.
He asserts that fall in asset value anywhere can create instability elsewhere within the financial system. Rush into private assets was predicated on the continuous availability of cheap capital as a sustainable investment strategy.
Source: Financial Times