Good Morning!
On Monday, January 13, the S&P 500 closed at 5,836.22, up 1.16%. The NASDAQ fell 0.38% to finish at 19,088, while the Dow Jones Industrial Average advanced 0.86% to close at 42,297.
Crypto Highlights
Bitcoin (BTC): At the end of yesterday's session, it traded at $94,223, nearly flat (+0.13%).
Ethereum (ETH): Declined 3.62% to $3,126 per coin.
Solana (SOL): Down 2.21%, trading at $182.91.
Ripple (XRP): Increased 4.37%, trading at $2.53 per coin.
Yesterday's Earnings
ServiceTitan (TTAN)
ServiceTitan ($TITAN), a cloud-based software platform for trade businesses, reported a third-quarter loss of $46.1 million, or $1.74 per share, for the three months ended October 31, widening from a loss of $39.7 million, or $1.53 per share, in the same quarter the previous year.
Marks & Spencer Group Plc (MAKSY)
Marks & Spencer ($MAKSY) reported a 17% increase in profit before tax and adjusting items, reaching £407.8 million. This growth was driven by an 8.1% sales increase in their food business and a 4.7% rise in clothing and home sales.
KB Home (KBH)
For Q4 2024, KB Home ($KBH) reported earnings per share (EPS) of $2.52, surpassing analyst estimates of $2.44. Revenue for the quarter was $2 billion, slightly above the expected $1.99 billion. The company also noted a 17% increase in home deliveries and a significant rise in net orders.
WaFd Inc (WAFD)
WaFd Inc. ($WAFD) announced annual earnings of $200 million for the fiscal year ended September 30, 2024. After accounting for dividends on preferred stock, net income available for common shareholders was $2.50 per diluted share. These results include acquisition-related expenses of $26 million from the purchase of Luther Burbank Corporation.
Upcoming Earnings
Eaton Vance TaxManaged Global Diver ($EXG): Market cap: $2.51B.
Applied Digital ($APLD): Expected loss of $0.14 per share, revenue forecast at $63.39M. Market cap: $1.75B, after-hours reporting.
Karooooo ($KARO): Expected profit of $7.18 per share, revenue forecast at $1.15B. Market cap: $1.47B, after-hours reporting.
Headlines
Biden Announces Ceasefire Talks Progress Between Israel and Hamas
President Joe Biden has announced significant progress toward a ceasefire deal between Israel and Hamas after over 14 months of conflict. The agreement, closely aligned with a proposal Biden outlined earlier, could lead to a temporary halt in fighting. Senior U.S. officials and Israel's foreign minister, Gideon Saar, highlighted breakthroughs in indirect talks mediated by Qatar, the U.S., and Egypt. Central to the negotiations are the release of hostages held by Hamas and Palestinians imprisoned in Israel. However, challenges remain, including disagreements over troop withdrawal and the permanence of the ceasefire.
The urgency is amplified as Donald Trump's inauguration looms, with both Biden's administration and Netanyahu's government aiming to finalize the agreement before the transition. While optimism grows, obstacles persist, including opposition from hardline elements in Netanyahu’s coalition. The conflict has caused immense devastation in Gaza, with over 46,500 Palestinians killed and thousands injured, exacerbating the humanitarian crisis in the region.
California Wildfires Worsen as Los Angeles Prepares for Strong Winds
Southern California wildfires have devastated the Los Angeles area, claiming at least 24 lives, destroying over 12,000 structures, and scorching more than 60 square miles. The Palisades and Eaton fires continue to burn as officials issue "particularly dangerous situation" red flag warnings, predicting winds up to 70 mph from Tuesday through Wednesday. Over 92,000 residents remain under evacuation orders, with curfews in effect for affected zones. Federal and local teams are working tirelessly, with over 15,000 personnel and aerial support combating the flames. Despite these efforts, the fire threat remains critical, and authorities anticipate further challenges as conditions worsen.
Tether and Its Founders to Relocate to El Salvador
Cryptocurrency firm Tether is moving its headquarters to El Salvador, marking a significant step as the country seeks to establish itself as a global hub for digital currency trading. CEO Paolo Ardoino announced the relocation following Tether’s recent licensing as a digital asset service provider in the country. Alongside the company, Ardoino and its co-founders plan to move their residences to El Salvador, while the firm intends to employ 100 Salvadorans in the coming years. This move aligns with El Salvador's efforts under President Nayib Bukele to position the nation at the forefront of the cryptocurrency sector, with Bitcoin already recognized as legal tender since 2021.
Despite its dominance in the stablecoin market, Tether has faced scrutiny regarding the transparency of its reserves and the broader risks posed by the rapid growth of stablecoins. Regulators have raised concerns about the potential impact of stablecoin reserves on the financial system. Tether claims that most of its reserves are held with Wall Street brokerage Cantor Fitzgerald. Meanwhile, the firm continues to enhance monitoring mechanisms to prevent misuse of its tokens.
Retailers Report Modest Holiday Gains, but Wall Street Remains Unimpressed
Major U.S. retailers, including Lululemon, Abercrombie & Fitch, and American Eagle, posted better-than-expected early holiday results but faced declining stock prices as Wall Street tempered its enthusiasm. Lululemon raised its fourth-quarter guidance, forecasting sales growth of 11%-12% and improved earnings per share. While its stock rose slightly, other retailers fared worse. Abercrombie’s modestly improved guidance, signaling a 7%-8% sales increase, failed to meet investor expectations, sending its stock down 15%. The brand’s shift to prioritize profit over revenue growth reflects a maturing strategy following two years of robust gains.
Macy’s and Urban Outfitters also reported mixed results. Macy’s now expects sales at or below its prior guidance, leading to an 8% drop in its stock price. Urban Outfitters experienced a 10% rise in net sales for the holiday period, bolstered by strong online performance and rapid growth in its rental service, Nuuly, but still saw shares dip 2%. Overall, the holiday shopping season showed slight improvement over expectations, with retail sales rising 3.8% year-over-year, though real growth remained minimal when adjusted for inflation.
Pound Drops to 14-Month Low Amid Business Confidence Crisis
The British pound has fallen to a 14-month low against the US dollar, trading at $1.21, following a week of bond market turmoil and growing concerns over the UK government’s economic policies. Rupert Soames, chair of the Confederation of British Industry (CBI), criticized the government for eroding business confidence and trust, citing tax increases and new employment rights legislation. The proposed changes, including banning zero-hours contracts and enhancing worker protections, have sparked fears of significant job losses, which Soames described as potentially leading to “quite an ugly rush” of layoffs.
The dollar’s strength, fueled by robust US jobs data and expectations of delayed Federal Reserve interest rate cuts, has compounded pressure on the UK government. Bond yields have risen sharply, with the 30-year gilt yield reaching its highest level since 1998 at 5.472%. Investors are wary of a repeat of past market instability, reminiscent of the fallout from Liz Truss’s short-lived premiership.
UK Borrowing Costs Surge to Post-Banking Crisis High
UK borrowing costs have climbed to their highest levels since the 2007-08 banking crisis, driven by rising government debt and global inflation concerns. The yield on 10-year gilts reached 4.82%, while 30-year gilts rose to 5.383%, their highest in 27 years. This increase reflects a decline in bond prices, caused by higher borrowing and a larger supply of government debt following Chancellor Rachel Reeves's October budget, which included tax hikes and significant investment plans. The UK’s debt now approaches 100% of GDP, with borrowing expected to reach 4.5% of GDP this fiscal year.
Global factors are also influencing the rise in borrowing costs. Major economies like the US and France face similar or higher deficits, and bond investors are bracing for potential inflation spikes due to global energy price volatility and expected policies under the incoming Trump administration. These factors, coupled with anticipated slower rate cuts from central banks, are pushing yields higher. For the UK, higher borrowing costs could force Reeves to consider further tax increases or spending cuts to meet fiscal rules, potentially dampening economic growth and straining public services. The government's reliance on inflation-linked gilts exacerbates the issue, as rising inflation increases debt repayment costs, adding pressure on the UK’s fiscal position.
Euro-Dollar Parity: Could the Euro Slip Below the Greenback in 2025?
The euro is approaching its weakest levels in over two years, weighed down by Donald Trump’s proposed tariffs, diverging monetary policies between the Federal Reserve and the European Central Bank (ECB), and rising geopolitical uncertainty. Falling to $1.03 in early January 2025, the euro inches closer to parity with the dollar, a level not seen since summer 2022. Analysts warn that tariffs on European goods, potential inflation-driven rate hikes in the U.S., and slower European growth could exacerbate the euro’s decline. Trump's planned tariff hikes, including up to 60% on Chinese goods and 10-20% on European imports, are expected to dent Europe’s export competitiveness, particularly in machinery, vehicles, and chemicals, which collectively account for a significant share of EU-U.S. trade.
Monetary policy divergence and geopolitical uncertainty amplify risks for the euro. Tariff-induced inflation in the U.S. may lead the Federal Reserve to maintain higher interest rates, while sluggish European growth could pressure the ECB to loosen its stance, increasing the appeal of dollar-denominated assets. Additionally, tensions surrounding NATO spending and energy policies—echoing the European natural gas crisis of 2022—compound the euro’s vulnerability.
China's Trade Data Surprises with December Growth Amid Looming Tariff Threats
China’s exports and imports exceeded expectations in December, reflecting a 10.7% year-over-year increase in exports and a surprising 1.0% rise in imports, reversing prior months' contractions. This growth was driven by exporters frontloading shipments ahead of potential tariff hikes and boosted by government stimulus measures that supported industrial demand. Key contributors included electric vehicles and semiconductors, with exports rising 13.1% and 18.7%, respectively, while steel exports reached their highest levels since 2015.
Spain Proposes 100% Tax on Non-EU Real Estate Buyers to Address Housing Crisis
Spain’s Prime Minister Pedro Sánchez has announced plans to impose a tax of up to 100% on homes purchased by non-EU residents, aiming to address the country’s housing affordability crisis. The unprecedented measure, part of a broader package of housing reforms, seeks to curb speculative property investments by foreign buyers, particularly in popular destinations like Ibiza, Marbella, and Barcelona. Sánchez emphasized that many of these properties are not used as primary residences but for profit, a practice he argues exacerbates housing shortages.
In addition to the tax proposal, Sánchez outlined plans to expand social housing, incentivize affordable rentals, and tighten regulations on tourist flats, which are often blamed for driving up rental prices. With just 2.5% of Spanish housing allocated for social purposes—far behind countries like France and the Netherlands—the government is aiming for comprehensive reforms. However, analysts suggest the tax proposal might be more about deterring foreign investment through uncertainty, as its chances of passing parliament remain slim.
UK Prepared to Throw Planning Rules Out the Window for Massive Datacenters
The UK government is set to classify large datacenter developments as Nationally Significant Infrastructure Projects (NSIPs), enabling faster approvals by shifting decision-making from local authorities to the national level. This follows recent moves to label datacenters as Critical National Infrastructure (CNI), easing restrictions and overriding some local objections. While these changes aim to address the industry’s concerns about Britain’s complex planning system, they raise worries about reduced local input and environmental sustainability.
Power supply constraints and high energy demands remain major challenges, with nearly 90% of industry professionals citing limited energy infrastructure as a barrier to growth. The government has proposed grid upgrades and incentives for decentralized energy solutions, such as on-site solar and wind power, to alleviate pressure.
TSMC Achieves Record $90 Billion Revenue in 2024 Amid AI and Smartphone Boom
Taiwan Semiconductor Manufacturing Company (TSMC) has reported a record-breaking $90 billion in annual revenue for 2024, marking its highest sales since going public in 1994. The company’s Q4 performance was particularly impressive, with $26.3 billion in revenue—a 38.8% year-over-year increase—driven by surging demand for AI data center processing and high-end smartphones. December alone saw a 57.8% revenue spike, totaling $8.43 billion and surpassing analyst expectations.
With investment in AI infrastructure, such as Microsoft’s $80 billion AI data center initiative, TSMC is poised for continued growth in 2025. The firm is expanding its global footprint, with advanced manufacturing projects underway. Its P1 fab in Taiwan will begin 2-nanometer mass production in 2025, while additional fabs in Kaohsiung and Japan are set for completion by 2027. TSMC has also started operations in Japan’s Kumamoto Prefecture and is progressing on a U.S. facility in Phoenix.
Cash Cattle Trade Hits Record All-Time High
Cash fed cattle trade reached historic highs last week, driven by tight supplies, strong demand, and winter weather disruptions. In the North, negotiated dressed prices ranged from $312 to $315, with live sale prices at $200, and some transactions exceeding that figure. The South followed with prices between $196 and $197, marking a $4-$5 increase from the prior week. This surge led to a new 5-area weighted average record of $198.93, surpassing the July 2024 high of $197.09. Despite the introduction of fresh formula cattle, market expert Brad Kooima anticipates prices could rise further this week.
Several factors contribute to this rally, including historically low cattle numbers, with steer and heifer slaughter down 0.5% and cow slaughter plummeting by 18-19% year-over-year. Strong demand for beef, especially hamburger-grade cuts, continues to fuel the market. However, concerns loom about the sustainability of these record prices. Producer Ty Klabenes notes increasing heifer retention and rising weights signal early herd expansion, which could shift the market by spring.
Quantum Computing Stocks Tumble Amid Tempered Expectations
Quantum computing stocks faced a sharp sell-off Monday after Meta CEO Mark Zuckerberg expressed skepticism about the near-term practicality of the technology. Speaking on Joe Rogan's podcast, Zuckerberg noted that quantum computing remains "a decade plus out" from becoming a useful paradigm. His comments echoed recent statements from Nvidia CEO Jensen Huang, who estimated the timeline for significant breakthroughs in quantum computing to be 15 to 30 years.
The remarks have dampened enthusiasm following a banner year for the sector in 2024, fueled by Alphabet's Willow chip announcement. Shares of Rigetti Computing and D-Wave Quantum, which surged 1,449% and 854% respectively last year, plummeted more than 32% each on Monday. IonQ also dropped nearly 15%. Despite previous optimism, many investors are now reassessing the timeline for real-world applications of quantum computing.
Arm Considers Price Hikes and In-House Chip Design in Bold Strategic Shift
Arm Holdings, the British chip design giant owned by SoftBank, is reportedly planning a dramatic price hike of up to 300% for its intellectual property licenses, aiming to increase annual revenue by $1 billion over the next decade. Known for licensing its chip designs to tech giants like Apple, Qualcomm, and Microsoft, Arm's new strategy reflects its ambition to compete more aggressively in the semiconductor industry. The company is also exploring the possibility of developing its own chips, a move that could challenge its biggest customers.
The potential shift has raised concerns among industry analysts, who warn that such a move could disrupt Arm's longstanding relationships with major clients. Qualcomm, for instance, has already taken steps to reduce reliance on Arm's ready-made designs. The strategic evolution, dubbed the "Picasso" project, dates back to 2019 but has gained renewed attention following court disclosures. If Arm proceeds with chip development, it could face pushback from customers wary of increased competition and higher costs.
