Earn 10$ Cash for every Pro+ Friend you Refer!

Tesla Lost Its Crown

January 06, 2024
5 min read

Here are some of the biggest stories from last week:

  • China's factory activity contracted more than expected last month.
  • UK grocery price inflation fell at the fastest rate on record in December.
  • Minutes from the Fed’s latest meeting showed officials are in no rush to cut rates.
  • Inflation in the eurozone accelerated last month.
  • Foreign purchases of Chinese shares dropped to an eight-year low in 2023.
  • Tesla was overtaken by BYD as the world’s biggest EV firm by sales.
  • The US became the world’s largest exporter of LNG in 2023.

Dig deeper into these stories in this week’s review.

Macro

China’s latest purchasing managers' index (PMI) showed factory activity in the country contracted for the third consecutive month in December. The official manufacturing PMI fell to 49.0 from 49.4 the previous month, leaving it still below the crucial 50-mark that separates expansion from contraction, and defying economist expectations for a slight improvement to 49.6. Meanwhile, a non-manufacturing activity index increased to 50.4 from 50.2 in November, fueled by growth in construction due to a recent acceleration in government infrastructure spending. Services activity, however, remained in contraction mode, with the sector’s PMI staying flat at 49.3.

r06_01_2024_g1
China's factory activity posted its worst contraction in six months in December. Source: Bloomberg

All in all, the data provided more signs of weakness in China's economic rebound in the year's closing months, and is expected to intensify calls for further fiscal and monetary support – especially after policymakers recently vowed to maintain a pro-growth stance in 2024.

Elsewhere, this week brought some good news for British shoppers and the Bank of England. See, food has been a major driver of rising inflation in the UK over the last couple of years, with blocked supply chains and the outbreak of war leading to limited supplies and making everyday essentials more expensive. But now, it looks like the BoE’s interest rate hikes aimed at curbing demand and dampening inflation are finally paying off: annual grocery price inflation eased from 9.1% in November to 6.7% in December, marking the fastest month-on-month drop since records began in 2008.

r06_01_2024_g2
UK grocery price inflation fell at the fastest rate on record in December (note that figures show average year-over-year change in grocery prices). Source: Kantar

Moving on, minutes released this week from the Fed’s December meeting showed officials are in no rush to cut borrowing costs. While they expressed optimism that the central bank was successfully stifling inflation and that interest rates are likely at or near their peak for this tightening cycle, they “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably.” Finally, the committee expressed a willingness to cut borrowing costs in 2024 should that inflation trend continue, though they gave no indication that easing could begin as soon as March, as traders expect. (Futures markets currently anticipate that the Fed will cut rates six times this year, beginning with a quarter-point reduction in March). 

r06_01_2024_g3
By one measure, underlying US inflation has already drifted below the Fed's target. Source: Bloomberg

Finally, new data this week showed inflation in the eurozone picked up last month, highlighting the tricky path back to 2% foreseen by the European Central Bank and raising questions over how soon it’ll deliver interest rate cuts. Consumer prices in the bloc rose by 2.9% in December from a year ago, in-line with economist forecasts but a marked acceleration from November’s 2.4% pace. The uptick was mainly driven by energy costs, after some governments removed support for subsidies for gas and electricity. Core inflation, which excludes volatile food and energy items, slowed for a fifth consecutive month, to 3.4%. 

r06_01_2024_g4
Headline inflation in the eurozone accelerated last month, but the core measure continued to decline. Source: Bloomberg

Stocks

The Stock Connect program, which was launched in November 2014 to link up markets in Hong Kong and mainland China, is the primary channel for international investors to trade mainland shares. That’s why net flows via this program are closely monitored as an important barometer of investor sentiment, which in turn affects onshore traders in the mainland. 

Global investors began 2023 buying Chinese stocks at a record pace in anticipation of a strong economic rebound after the country abandoned its restrictive zero-Covid policies. But investor flows headed into reverse in the second half of the year as a prolonged housing slump, regulatory uncertainties, a lack of strong stimulus, and geopolitical tensions led to a heavy market selloff. In fact, international investors have been persistent net sellers of Chinese stocks since August, when missed bond payments by developer Country Garden exposed the depth of the liquidity crisis in the nation’s property sector. 

r06_01_2024_g5
Foreign flows into Chinese shares went sharply into reverse after property developer Country Garden missed its bond payments. Source: FT

That means net foreign flows into Chinese shares were just 30.7 billion renminbi ($4.3 billion) in 2023 – the smallest annual amount since 2015. During better times, investors would scoop up that amount in a single month. So, needless to say, Chinese shares are extremely out of favor. A survey of Asia-focused fund managers by Bank of America conducted last month, for example, showed that China was the most underweighted market in the region.

r06_01_2024_g6
Foreign purchases of Chinese shares dropped to an eight-year low in 2023. Source: FT

But on the flip side, China’s underweight status means there’s more room for international investors to increase rather than cut allocations to the country. That decision is made all the more tempting by the fact that Chinese stocks are very cheap, after dropping by almost 60% since early 2021. That slump has left the price-to-earnings ratio based on expected profits for Chinese companies below 10 – almost half the global average. Having said that, cheap valuations have failed to be enough of a reason to buy Chinese stocks in the recent past, and so time will tell if 2024 proves to be different.

r06_01_2024_g7
Almost a third of 417 respondents to Bloomberg’s latest Markets Live Pulse survey said they will increase their allocation to China over the next 12 months. Source: Bloomberg

Speaking of Chinese companies, BYD – the auto and battery giant backed by Warren Buffett – surpassed Tesla as the world’s biggest EV firm by sales last quarter. The latter delivered over 484,000 cars in the fourth quarter, more than the 473,000 forecasted by analysts but not enough to retain its crown after BYD reported record battery-only vehicle sales of over 526,000 during the same timeframe, driven mainly by its much broader lineup of cheaper models in China. While Tesla surpassed its annual goal of 1.8 million deliveries, the firm fell significantly short of the more optimistic forecast Elon Musk touted a year ago. After the CEO told analysts the company had the potential to produce 2 million cars, a series of price cuts failed to stoke enough demand to support that much output, with the firm consistently producing more cars than it sells over the course of 2023.

r06_01_2024_g8
BYD surpassed Tesla last quarter as the world’s biggest EV firm by sales. Source: Bloomberg

Commodities

New data this week showed the US hit a major energy milestone last year, overtaking Australia and Qatar to become the world’s biggest exporter of liquefied natural gas for the first time ever. The US exported a record 91.2 million metric tons of LNG in 2023, as last year’s restart of the Freeport LNG facility in Texas, which had been shuttered for months following a June 2022 fire and explosion, led to expanded output. What’s more, Europe’s scramble to wean itself off of Russian gas made it easier for US LNG firms to find buyers, further boosting exports.

r06_01_2024_g9
The US overtook Australia and Qatar to become the world’s biggest exporter of LNG last year. Source: Bloomberg

Qatar, the top LNG supplier in 2022, saw its volumes shrink for the first time since at least 2016, with a 1.9% decline dropping the nation into third spot after Australia. What’s more, the US is set to extend its lead this year, when two new LNG projects are slated to commence production. Once operating at full capacity, they’re expected to add an additional 38 million tons per year to the US's LNG output.

Next week

  • Monday: Eurozone retail sales (November) and economic sentiment (December), Japan household spending (November).
  • Tuesday: Eurozone unemployment rate (November), US trade balance (November).
  • Wednesday: China loan growth (December).
  • Thursday: US inflation (December), China inflation (December). Earnings: TSMC.
  • Friday: China trade balance (December), UK monthly GDP (November). Earnings: Bank of America, BlackRock, Citi, JPMorgan, UnitedHealth, Wells Fargo.
r06_01_2024_g10
r06_01_2024_g11
r06_01_2024_g12
r06_01_2024_g13
r06_01_2024_g14
r06_01_2024_g15
r06_01_2024_g16
r06_01_2024_g17
r06_01_2024_g18

General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

Did you find this insightful?

👎

Nope

😶

Sort of

👍

Good