This week, global bond markets were rocked by a “hawkish shift” from some central banks. Investors are now betting that the Fed will follow by raising interest rates ahead of time to cope with rising inflation.
The Reserve Bank of Australia (RBA) unexpectedly gave up defending its yield target during routine market operations on Thursday at a time when inflation continued to rise, a move interpreted by the market as the RBA was about to start taper. The Bank of Canada, known as one of the most hawkish central banks announced last Wednesday that it would completely end QE bond purchases and raised interest rates as early as the second quarter of next year. This pushed the yield on Canadian two-year bonds above 1%, the highest since March last year.
The Fed will hold a new monetary policy meeting this week on 2 & 3 November.. The Fed is widely expected to announce at the meeting that it will begin to scale back its $120 billion-a-month bond-buying program. But some investors are betting that the Fed will abandon its claim that accelerated consumer price increases will be a short-term side effect of COVID-19 ‘s epidemic and raise interest rates for the first time significantly ahead of schedule. The market is anticipating that the Fed will raise interest rates by 25 basis points for the first time in June next year (90% probability). In 2022, interest rates will be raised more than twice for the whole year, each time by 25 basis points. The new forecast is that they now expect inflation to be more stubborn than previously thought, with CPI excluding food and energy still above 4% when taper ends next year. But some analysts believe that the current aggressive market pricing underestimates the risk of a slowdown in economic growth next year. And the Fed has historically been more inclined to “lead” the shift in monetary policy among central banks around the world. The market is a little ahead of time. The Fed will have an active dialogue with the market this week.
Smart mobile phone after hitting 10% global penetration in 2008, it took off and hit 70% global penetration in 5-7 years! Now in 2021, EVs hit 10% global penetration here, it likely reflects the EVs to enter a S-curve growth curve the coming 5-7 years. Industry leader Tesla is the best proxy, from its last set of quarterly result, it has already made 30% gross margin. Going forward, it will continue to rip higher margin benefiting from their vertical integration business model, economy of scale and FSD software.
Last week, Hertz Global made a big corporate move, continues its transformation with new deals with Uber following placing a large $4.2bn (100,000 EVs) order to Tesla.
Hertz Global and Uber on accelerating the adoption of EVs through a new exclusive partnership to make up to 50K Tesla available by 2023 for drivers to rent through the Uber network. It is the largest expansion of EVs on a mobility platform in North America and starts to lay the groundwork for the long awaited robotaxi network over the next decade from Tesla.
General Motors has a huge investment in the concept through its Cruise autonomous vehicle startup. Baidu and Nio are also testing autonomous vehicles that could one day be used for a robotaxi fleet. Other companies with robotaxi dreams include Google’s Waymo m, Ford backed Argo AI and Amazon through its Zoox partner. Why the big investments? Industry expects estimated earlier this year that the autonomous ride-hail total addressable market is as high as $11-12 trillion. Lower labor and insurance costs could make margins very attractive at scale for platform winners.
It cannot be ignored that autonomous driving and managing a robotaxi network requires powerful chips. Under-the-hood bets on future robotaxis could be made through Nvidia, Qualcomm and Intel.
With the Windows operating system and office suite, Microsoft Corp long occupied the position of the world’s most valuable company in the late 1990s. During the dotcom bubble, Microsoft Corp’s market capitalization peaked at $614bn, , 40 times that of Apple Inc. However, after the launch of the iPhone series of hardware, Apple Inc surpassed Microsoft Corp in market capitalization in 2010. The outbreak of Microsoft Corp cloud business and Apple Inc supply chain restrictions are the key factors for Microsoft Corp’s market capitalization to exceed again.
Highlight from Microsoft’s last quarterly results, in terms of business segmentation, Its Cloud business has become the biggest driver of the company’s revenue. Intelligent cloud businesses, including Azure achieved revenue of US $16.98 billion, far exceeding expectations. Year-on-year growth of 31% Azure cloud business is growing at an astonishing 50% this quarter. In terms of the cloud business competitors, Microsoft is obviously gaining markets shares, the gap between Microsoft and industry leader Amazon has narrowed significantly.
In Apple Inc’s case, its quarterly revenue fell short of market expectations for the first time since May 2017 due to supply chain constraints. Apple Inc. recorded revenue of $83.36 billion in the closing quarter of fiscal 2021, up 29% from a year earlier and the highest in the company’s history in the September quarter, but below analysts’ expectations of $84.69 billion. For the weaker-than-expected results, CEO Tim Cook attributed the reason to the higher-than-expected supply restrictions on iPhone, iPad and Mac. To make matters worse, Apple Inc. expects supply chain constraints to have a greater impact on the critical holiday shopping season at the end of the year. According to past experience, the demand for shopping at the end of the year tends to boost the performance of the company. Apple expects the revenue impact of supply constraints to exceed $6 billion in the fourth quarter by the end of the first quarter (year-end shopping season).
October 28th, 2021 is destined to be a historic day in the history of Facebook Inc. On this day, Facebook Inc, who was 17 years old and entered adulthood, changed his name to Meta.
Quoted from Mark Zuckerberg: “Today, we are seen as a social media company, but in our DNA, we are a company that creates technologies to connect people to people, and just like the social networks we started, Meta is the next frontier. Our brand is very closely linked to a product that may not represent what we do today, let alone in the future. From now on, what we put in the first place is meta-universe, not Facebook Inc.”
If you recalled, I had my initial thoughts on the “Metaverse” thematic investment thesis two months ago. In July, Zuckerberg described his vision for meta-universe, hoping to build Facebook Inc into a meta-universe company in about five years. Meta-universe is a new revolution after the mobile Internet. It will be a physical Internet, which will be operated jointly by many participants in a decentralized way.
Facebook Inc plans to further strengthen the layout of meta-universe by changing its name to reflect his concern about building a meta-universe. After changing its name, Facebook Inc may become one of the many products owned by the parent company, which is responsible for managing all the products such as Instagram, WhatsApp, Oculus and Facebook Reality Labs（FRL）and so on. In Facebook Inc’s view, whether talking with colleagues in a conference room or hanging out with friends in distant places around the world, people will gather and communicate by entering a virtual environment. It seems an unprecedented Metaverse economy is building up.
The investors’ allocation of US stocks in 2021 surpassed the level of the dotcom bubble, reaching a record 52% . Treasury yields are expected to rise to 1.8% this year as the labour market continues to recover, a trend historically in line with the rise in the stock market.
American households hold half of the $28 trillion in cash assets in the United States, or $14 trillion. The historically low interest rate environment and the lack of attractive alternatives to fixed income mean that more cash will flow into the stock market next year if investors are looking for higher returns. In addition, as share buybacks and mergers and acquisitions hit record highs, companies are likely to become the biggest demand for shares. Economists estimate that companies will buy shares worth at least $350 billion next year, while demand from households and foreign investors for US stocks will reach $300 billion.
So, despite the uncertainty of future economic growth, rising inflation and supply chain disruptions, the allocation of US stocks will increase if growth expectations rise, policy uncertainty falls or consumer confidence increases. Investors have no choice but US stocks. Other options are less attractive than stocks. Investors should keep close track on economic data release for this scenario judgement.
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