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Kristal Monthly Roundup | 29th April 2019

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Got only 15 seconds? Here’s what you need to know.

Here’s a succinct summary of major global events that transpired this month.

Top Positives

1. U.S. economy is in recovery mode – first quarter GDP beats estimates

2. Amazon says it has had a record-breaking first quarter

3. Uber updated its S1 IPO filing; aims at $90 billion in revenue

Top Negatives

1. Deutsche Bank stops merger talk; posts a 9% slump in revenue

2. U.S. crude falls 2.5% after Trump says he wants OPEC to cut costs

3. China’s stock market has its worst week since October ‘18

Now, for more detail.

Positives

1.  U.S. economy is in recovery mode – first quarter GDP beats estimates

What You Should Know

The American economy has been struggling and the Fed’s decisions still loom like a sharp knife over its tenuous frame. However, if numbers are anything to go by, then the country looks to be in good shape with Q1 GDP rising by 3.5%. To put this in context, Dow Jones investors who were polled earlier this year had estimated a 2.5% growth.

What You Should Lookout For

This is the best start to a year in the last four years for the U.S. economy. Personal spending hasn’t increased by much (just 1.2%) but the spend on non-durable goods and services has offset the decline in spending on durable goods. Inflation is on the low, so a 3% increase in disposable income has helped the economy rally post the lows of the government shutdown last year.

Suggested Reading:

US economy grows by 3.2% in the first quarter, topping expectations

2. Amazon says it has had a record-breaking first quarter 

What You Should Know

Amazon released its earnings report last week (26th April) and stated that it had earned a record $3.6 billion in profits since the start of the year. This is more than double of the $1.6 profits it raked in last year. The tech giant also announced that it would invest $800 million in the coming days to ensure that one-day delivery becomes the norm for all Amazon Prime orders. The news helped Amazon shares rise up 1% in after-hours trading.

What You Should Lookout For

Amazon has historically not been a big profit maker. The company spends a lot in creating fulfilment centres, brick-and-mortar shops, and premium video content. While sales numbers may have gone down, the company has now entered a phase where the growth is sluggish but the profits are consistent. As expected, most of the revenue came in from AWS and advertising.

Suggested Reading: 

Here come Amazon’s earnings

3. Uber updated its S1 IPO filing; aims at $90 billion in revenue

What You Should Know

Uber has updated its S1 IPO filing, and removed most references to public transport. For years, Uber had talked about being a complement to public transport. But in the initial filing released on 11th April, the company mentioned public transport as being a competitor and a factor affecting its potential growth. Experts had taken umbrage at this language and the company’s 300-page document has now been amended. Moreover, Uber also revealed its IPO offering; with shares valued at $45-$50 per unit. Reports suggest that the company is now targeting a valuation of up to $90 million.

What You Should Lookout For

Initial reports suggested that the company could be valued at $120 million, but the numbers seem to have come down after the Lyft fiasco. Even with the lower numbers, Uber’s offering will still be the biggest for any tech company in the Valley. Investors will do well to remember, however, that Uber’s ride-sharing business has actually stalled in its earnings. Uber has suffered $3 billion in losses from operations in 2018, and about $12 billion in losses over 5 years trying to maintain its market share. These numbers will only go up in the future.

Suggested Reading: 

Why Uber’s IPO may be overvalued

Negatives

1. Deutsche Bank stops merger talk; posts a 9% slump in revenue and 3% drop in share price

What You Should Know

A day after announcing that it would not go through with merger talks with rival Commerzbank, Deutsche Bank posted its Q1 earnings which showed a 67% growth in profit. However, this is directly attributable to a loss-cutting and belt-tightening exercise than an increase in revenues. Shares for Deutsche Bank lost 3% on the Frankfurt market, leading to a cumulative loss of 40% in the past year.

What You Should Lookout For

Post the global crisis, Deutsche Bank has suffered a loss of momentum and direction. Investment banking revenue fell 13% to €3.3 billion ($3.7 billion), while costs for the unit totalled €3.4 billion ($3.8 billion). Merging with Commerzbank might have helped the bank get out of this slump, but with the deal falling through investors are now asking CEO Christian Sewing for a detailed plan. Last year, the bank had to slash hundreds of jobs to stay afloat. The options available before it now are just as drastic: either to exit the US market and cut losses, or to overhaul its investment banking strategy completely.

Suggested Reading:

Deutsche Bank is on the ropes without a plan to fight back

2.  U.S. crude falls 2.5% after Trump says he wants OPEC to cut costs

What You Should Know

On Friday, President Trump announced that he had asked the OPEC to ‘tame’ crude oil prices. In response, the U.S. West Texas Intermediate crude futures slipped $1.91 to settle at $63.30 per barrel, plunging 2.9% on the day and ending the week down 1.1%. Brent crude futures fell $2.20, or 3%, to $72.15 per barrel, after hitting a one-week low at $71.31. Brent stocks had earlier gone up to $75 after some European countries shut down Russian oil supply citing poor quality. The recent drop threatens to derail the longest bull run that U.S. crude has had in years.

What You Should Lookout For

Just like the U.S.-China talks, the future of crude oil also stands at a slippery slope. The administration has already reiterated its stance on waivers for Iranian oil supply, causing a 3% rise in oil prices right after. The government has also said that it has secured commitments from countries like Saudia Arabia and UAE to fill in the gaps left by shutting down the Iranian supply. There are also reports saying that Trump has actually not had any talks with the OPEC HQ. Saudi Energy Minister Khalid al-Falih also pointed out that there is no “immediate” need for pumping more oil, and it will only be done if countries ask for more supplies.

Suggested Reading: 

Trump hasn’t spoken to anyone in OPEC HQ in Vienna

3. China’s stock market has its worst week since October ‘18

What You Should Know

Both the Shanghai and Shenzhen indices have had a good run this year. The Shanghai Composite Index has gone up nearly 24%, and the Shenzhen Component Index Fund ETF rose up over 34%. But after the People’s Bank of China released statements citing it will pare back economic support in a recovering economy, the markets slumped by about 6% amid fears of near-term policy easing.

What You Should Lookout For

The PBOC has said that it will neither tighten, nor relax monetary policy. Insiders, however, view its methods somewhat differently. The PBOC has been very particular about injecting funds into struggling sectors, instead of using a system-wide cash infusion policy. China’s economic report for the first quarter also suggests that since the economy is on an uprise, the bank might pause its cash management moves to further assess the situation. This has sparked fears among investors who think that Q1 numbers were high only due to less restrained policies and that tightening the regulations may stymie growth once again.

Suggested Reading:

China stocks drop to 3-week low as investors fret over growth, stimulus

Disclaimer

The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.

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