Strategy Boffins

Daily Strategy and News Journal

Update on financial, business and world news

and how they are interconnected

August 25, 2023

Strategy Journal

Nvidia’s Revenue Soars as AI Chip Demand Outpaces Hardware Sales Decline

– Nvidia’s revenue more than doubled in the latest quarter.
– The company reported revenue of $13.51 billion for the second quarter, up from $6.7 billion in the same period last year.
– Nvidia projected sales of $16 billion for the current quarter.
– Nvidia’s stock market value has more than tripled this year to about $1.2 trillion.
– Wall Street analysts had anticipated revenue of about $11.15 billion for the latest quarter.
– Taiwan Semiconductor Manufacturing Company predicted that demand for AI server chips would grow almost 50% annually for the next five years.
– The share of AI servers in the overall server market is expected to rise from 7% in 2020 to about 20% in 2027.

August 24, 2023

Strategy Journal

Bankers Grapple with Inflation in Jackson Hole

Central Bankers Grapple with Inflation Challenge Amid Uncertain Economic Landscape

  • The Federal Reserve’s annual gathering is hosted by the Kansas City Fed in Jackson Hole, Wyoming.
  • The federal funds rate has crested above 5 percent.
  • Unemployment remains near 50-year lows.
  • Fed offi­cials’ own estim­ates of the neut­ral rate — also called R-star
  • The neutral rate of interest (R-star) is estimated around 2.5 percent.
  • The median forecast for R-star is around 2.5 percent, adjusted for inflation at 2 percent.
  • Some believe a soft landing, where inflation comes down without a recession, is possible.
  • Others are more skeptical, with predictions of a “hardish” landing that could lift the unemployment rate to at least 5 percent.

August 23, 2023

Strategy Journal

US-China Tech Struggle – AI

US-China Tech Struggle: Chinese companies may soon face limitations in the speed of connections between the H800-series chips

– China’s leading internet companies have placed orders for $5 billion worth of chips from Nvidia.
– Nvidia’s H800 chips on sale in China have a transfer rate of 400 gigabytes per second (GB/s), compared to the 600 GB/s limit set by the US for chip exports to China.
– Nvidia’s H100 chips, shipped to customers outside China, have a transfer rate of 900 GB/s.

Rising Borrowing Costs Push Europeans Towards Rentals as Housing Affordability Suffers

– Rents in European cities such as London, Paris, and Berlin are at their highest on record.
– Lis­bon recorded one of the fastest increases in rents in the six months to June.
– Europe’s rental market is expected to remain tight.

August 22, 2023

Strategy Journal

China’s rate cuts and banking stability

China’s Rate Cut Decision Sparks Pessimism Over Economic Growth Amid Banking Stability Concerns

– Citigroup downgrades annual growth forecast to 4.7% due to China’s actions.
– One-year loan prime rate cut by 0.10 percentage points to 3.45%.
– Five-year rate, which impacts mortgage lending, remains steady at 4.2%.
– Economists expected 0.15 percentage point cuts to both rates.
– China’s growth forecast failing to hit official target of “about 5%”.
– Dilemma for Beijing: stimulate economy while preserving banking stability.
– Concerns over liquidity crisis among property developers impacting trust industry.
– Weak property sector, declining exports, and youth unemployment hampering growth.
– Chinese banks report slowing profits in the first half of 2023.

August 21, 2023

Strategy Journal

German Economy Faces Gloom

German Economy Faces Gloom as Structural Challenges and Global Downturn Loom

– IMF and OECD predict Germany to be the worst-performing major economy in the world this year.
– Energy-intensive industrial sectors’ production down 17% since the start of last year.
– German carmaking industry losing market share to cheaper Chinese rivals in the electric vehicle sector.
– Analysts forecast German GDP to shrink 0.35% this year.
– Effective tax rate on company profits at 28.8%, well above EU average of 18.8%.

UPI in India

– About 350 million people use UPI for paying for goods, services, or money transfers.
– UPI recorded almost 10 billion transactions in July, over 50% higher than the same month last year.
– The Reserve Bank of India (RBI) announced a plan for “conversational” payments using AI-based speech recognition.

August 20, 2023

Strategy Journal

China’s Temporary Deflation: Limited Impact on Global Inflation and Economy

Chinese Deflation

– Chinese consumer prices fell 0.3% in the year to July.
– Chinese deflation might have limited impact on global inflation as most of the price of goods made in China and sold elsewhere is paid to workers and other costs in the destination country.
– Weaker Chinese economy could benefit Europe by placing less competition on natural gas supplies.

Foreign Investors Confidence Crisis in China

– Bondholdings of foreign institutional investors fell Rmb37bn in July to Rmb3.24tn, reflecting a lack of confidence in China’s economic measures.
– Challenges to Beijing’s narrative of a robust post-Covid recovery have mounted, with missed payments by companies like Country Garden highlighting Beijing’s reluctance to bail out struggling firms.
– The benchmark CSI 300 index of Shanghai and Shenzhen-listed stocks has almost completely reversed its 5.7% rise following the politburo meeting.

August 19, 2023

Strategy Journal

Global Bond Sell-Off Spurs Surge in Borrowing Costs

Surge in Borrowing Costs on Both Sides of the Atlantic:

– US 10-year Treasury yields near highest level since 2007.
– Equivalent gilt yields at highest since 2008; French government bonds at levels unseen since 2012.

Factors Driving  Bond Yield Increase:

– Global bond sell-off driving benchmark US 10-year Treasury yields and other bond yields higher.
– Strong economic data suggests US economy’s strength and inflation may take longer to moderate.
– Increased government bond supply contributing to yield surge.
– Demand from foreign investors, like Japan and China, may be waning.

UK economy vs Germany economy

– UK’s GDP per capita in 2007: Just over $44,000
– Germany’s GDP per capita in 2007: Just over $47,000
– UK’s GDP per capita in 2022: Under $47,000 (barely moved since 2007)
– Germany’s GDP per capita growth from 2007 to 2022: 14%
– France, Germany, and the US are around one-sixth more productive than the UK

August 18, 2023

Strategy Journal

European Clean Tech Lags Behind US due to Inflation Reduction Act

  • European clean tech start-ups attracted $8.7 billion in investment for early-stage technologies within the year since the Inflation Reduction Act (IRA) was signed in the US.
  • In contrast, the US secured more than $21.7 billion for similar projects in the same time frame.
  • Despite the EU leading in energy and transport investment in Q2 2022, the US outpaced the EU in funding for clean hydrogen since Q2.
  • Venture capital investments in clean hydrogen reached €343 million in the EU’s Q1 2022, three times the US’s equivalent funding, but subsequent quarters saw the US outpace the EU.
  • The European Commission announced the Net Zero Industry Act and loosened state aid rules in response to the IRA, pledging an EU fund to boost investment in green industries.
  • The US’s tax credit scheme was seen as simpler and more focused on mass deployment of green technologies than the EU’s funding program.

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August 17, 2023

Strategy Journal

Drought-Induced Restrictions in Panama Canal Disrupt Global Trade Routes

Drought-Induced Restrictions in Panama Canal Disrupt Global Trade Routes, Highlighting Climate Change Impact

  • Over 3% of global trade volume passes through the Panama Canal, with up to 29% of Pacific-bound container trade using it.
  • The drought has led to extended waits of over two weeks for vessels light enough to use the canal.
  • More than 264 ships were waiting to cross the canal recently, marking a 16% increase from the previous year.

US Industrial Policy Spurs $224 Billion Clean Tech and Semiconductor Manufacturing, Creating 100,000 Jobs Amid Challenges. The legislation includes tax credits, loans, and subsidies, boosting sectors like electric vehicles, batteries, and solar/wind parts.

Intel’s acquisition of Israeli chipmaker Tower Semiconductor worth $5.4 billion has been abandoned due to a lack of regulatory approval in China.

  • Intel will pay a $353 million termination fee to Tower Semiconductor.
  • Tower’s Israeli-listed shares closed down 7.8% in Tel Aviv.

August 16, 2023

Strategy Journal

Japan’s Economy Surges on Strong Car Exports

Japan’s economy in 2023

– Japan’s GDP growth rate (April-June 23): 6%
– Consensus estimate of economists for GDP growth: 2.9%
– Number of consecutive quarters of expansion: 3
– Quarter-on-quarter GDP growth: 1.5%
– Average forecast for quarter-on-quarter GDP growth: 0.8%
– Export growth rate (second quarter): 3.2%
– Quarter-on-quarter fall in private consumption: 0.5%
– Quarter-on-quarter fall in imports: 4.3%
– Proportion of Japanese economy represented by private consumption: more than half
– Percentage of pre-pandemic levels for inbound tourism: more than two-thirds

Private equity in China

  • Goldman Sachs, JPMorgan, Morgan Stanley, Bank of America, and Citigroup collectively saw an 87% drop in net revenue from advising Chinese companies on raising equity overseas last year. This trend continued in 2023, with only $98 million earned since January.

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