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Weekly Feed Mins Read

Kristal Weekly Feed | 20th May 2019

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Got only 15 seconds? Here’s what you need to know.
Below is a succinct summary of major global events that transpired last week.

Positives

1. Goldman Sachs scoops up United Capital in a $750 million buyout

2. HPE decides to buy Cray supercomputers for $1.3 billion

3. China’s Starbucks makes impressive debut in its US IPO

4. Trump removes tariffs on steel and aluminium imports from Canada and Mexico

Negatives

1. U.S. stocks fell for the second week straight; dollar saw a rise

2. Trade war can be very upsetting for U.S. crude and tractor company Deere

3. Chinese search engine Baidu loses 10% in pre-market trading

Now, for more detail.

Positives

1. Goldman Sachs scoops up United Capital in a $750 million buyout

What You Should Know

This is the biggest acquisition by Goldman since its buyout of Spear, Leeds & Kellog in 2000. The Newport Beach, California-based boutique firm is expected to help Goldman out of its slump – the bank has seen profits slump by 11% so far, and trading revenues in the second quarter are expected to be even lower. United Capital founder and CEO Joe Duran, and more than 220 financial advisors across the United States, will join Goldman Sachs as part of the deal.

What You Should Lookout For

United Capital has $25 billion in AUM and more than 22,000 clients. Acquiring it gives Goldman a larger footprint in wealth management and access to state-of-the-art technology. The bank plans to use the digital platform FinLifeCX and its technology to better its private wealth management and Ayco businesses.

Suggested Reading:

Goldman Sachs makes biggest acquisition in 20 years

2. HPE decides to buy Cray supercomputers for $1.3 billion

What You Should Know

Cray supercomputers came into the news during the 90s when its X-MP supercomputers were used as a plot point in the famous novel “Jurassic Park”. Cray supercomputers were used in the genome sequencing project, and have been the backbone of weather reporting and analysis, and other research projects for a very long time.

What You Should Lookout For

HPE’s announcement caused a 23% jump in Cray stocks. HPE’s stocks also ended going up a notch. Cray is currently building the world’s fastest supercomputer called ‘Frontier’ which will be used for research into renewable energy, scientific research, and security. Watch this space for more updates!

Suggested Reading:

The ‘Jurassic Park’ computer company just got sold for $1.3 billion

3. China’s Starbucks makes impressive debut in its US IPO

What You Should Know

Luckin Coffee, touted to be China’s answer to Starbucks, made its IPO debut and saw stocks go up by 20% as investors flocked to invest in the company that beat Starbucks. Luckin’s initial IPO was valued at $4 billion. The company has over 17 million customers and 2,370 stores in China.

What You Should LookOut For

Tech-enabled startups have flamed up and then gone down in flames in China. The market recently has not been uber favourable for tech startups who have struggled to make profits. Luckin Coffee, too, is in the red because it heavily subsidies its products and holds frequent giveaways. However, the growth opportunities are huge. China, being a tea-drinking country, has only just started to become a coffee connoisseur. Starbucks holds over 50% of the market currently, McCafe has a 5% share, and then there’s Luckin with 2%. Luckin is still not a profitable venture, but if it can convert tea lovers to java drinkers and retain its customers, the tide may change in the future.

Suggested Reading:

Luckin Coffee, Chinese Rival to Starbucks, Jumps in Its U.S. Trading Debut

4. Trump removes tariffs on steel and aluminium imports from Canada and Mexico

What You Should Know

Trump said on Friday that as part of his new North American trade deal, tariffs on steel and aluminium imports from neighbours Canada and Mexico would be lifted. In response, Canada will remove retaliatory tariffs it had placed on U.S. goods.

What You Should LookOut For

As per the agreement, the U.S. can re-impose the tariffs if not enough is done to prevent the increase of metals imports beyond historical levels. The three nations have also agreed to amplify efforts to trace the source of the metals, so as to stop the diversion of shipments from other nations trying to dodge tariffs.

The new trade deal will aim to advantage primary steel and aluminium producers in the three-nation trading bloc and encourage regional metal workers.

Suggested Reading:

Trump Agrees to Remove Steel, Aluminum Tariffs on Canada, Mexico

Negatives

1. U.S. stocks fall again due to disappointing trade talk news

What You Should Know

Stocks closed lower on Friday after reports that the U.S.-China trade talks had stalled. The Dow Jones ended the day down 98.68 points at 25,764 while the S&P 500 fell 0.6% to 2,859.53. The Nasdaq Composite was down 1% at 7,816.28. This was also the fourth straight weekly drop for the Dow.

What You Should Lookout For

The Trump administration has made it harder for U.S. companies to deal with Chinese tech companies; specially Huawei. This has caused shares of Huawei’s U.S. suppliers like Qualcomm, Qorvo, and Micron Technology to fall by 1.6%, 6.1% and 3.4%, respectively. Apple’s shares have also gone down 0.6%, raking its weekly losses to 4%. A Chinese retaliation to Trump’s actions is expected sometime soon. It may cause further losses in the stock market.

Suggested Reading:

On Huawei and Autos, Trump Aligns Trade With U.S. Security

2. Trade war can be very upsetting for U.S. crude and tractor company Deere

What You Should Know

Futures in New York fell 0.2% on Friday, while Brent also declined; this despite both posting the biggest weekly rise since early April. Tensions have been rife in the Middle East with U.S. sanctions on Iran, and attacks on oil tankers and pumping stations. Along with these, the ever-present threat of the trade war has also affected global oil demand.

Another victim to the trade war: tractor company Deere, which has seen its stock fall by 10% this year. “Ongoing concerns about export-market access, near-term demand for commodities such as soybeans, and a delayed planting season in much of North America are causing farmers to become much more cautious about making major purchases,” Deere CEO Samuel Allen said in a statement.

What You Should Lookout For

Traders will be actively watching this weekend’s meeting of OPEC producers and allies in Jeddah. The group is expected to make decisions on how to fill supply gaps following U.S.-imposed sanctions on Iran. For equipment makers like Deere, there are other factors that will continue to affect sales like a strong dollar, and bad weather in the Midwest. The company did report a 5% jump in overall sales thanks to healthy demand for its construction and forestry equipment; but most analysts are still calling it an ‘underweight’ on the stock market for now.

Suggested Reading:

Deere warns of weaker earnings because of the trade war

3. Chinese search engine Baidu loses 10% in pre-market trading

What You Should Know

Chinese search engine Baidu (BIDU) has lost 327 million yuan ($47 million) for the March quarter, due to a slump in its main online advertising business. As China grapples with news of an escalating trade war, its economic growth has slowed down to a three-decade low. The government has become increasingly aware of online content and advertisements – which is the main source of any search engine’s revenues.

What You Should Lookout For

Baidu’s CEO Robin Li said: “Although the Chinese government has announced many economic policies to bolster the economy, we are taking a cautious view that online marketing in the near term will face a more challenging environment”. The company’s disappointing performance stands out in stark contrast to its two main Chinese tech competitors, Tencent (TCEHY) and Alibaba (BABA), both of which reported strong earnings earlier this week.

Weibo, another Chinese search engine company, will report its earnings on 23rd May. This would be a good time for investors to gauge if the economic downturn is hampering the industry as a whole, or if Baidu is an exception.

Suggested Reading:

Why Baidu, Weibo, and Sogou Dropped on Friday

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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