☀️☕️ Attack of the Doves

📝 Focus

• Attack of the Doves

📊 In the Markets

• Zara Not Fastest Fashion (Shein)

• Private Credit

• Cop-Out at COP28?

• Shrinking UK

📖 MoneyFitt Explains

• 🎓️ Doves vs Hawks

💸 Personal Finance Corner

• Singapore Personal Tax Rates: Understanding the Marginal Rate & Tax Obligations

📝 Focus

Attack of the Doves

US Treasury bond prices surged in a historic rally alongside stocks after Fed Chair Jay Powell's comments sparked optimism following the bank's unexpectedly dovish outlook.

Because bond prices and their yields move in opposite directions, the two-year note yield plummeted 0.25%, hitting a six-month low at 4.48%, its largest daily drop since March's Silicon Valley Bank collapse. At its lowest, the yield was down 0.3%, a huge one-day move. The 10-year yield at just over 4% is its lowest since August.

The S&P 500 surged nearly 1.4%, marking its largest jump in a month, having been flat before the Fed’s announcement and Powell’s statement, and the US Dollar weakened. But with markets on both sides of the Atlantic already at or close to all time highs in anticipation of rate cuts and a “soft landing” in 2024… how much is or was already “priced in”?

 ..... ▷ The Fed decided to keep interest rates between 5.25% to 5.5%, a 22-year high, but most Fed officials are projecting a potential 0.75% rate cut next year to about 4.4% to 4.9% by end-2024. 

The latest projections indicate a commitment to keeping rates elevated despite moderating growth and inflation, and a very slight uptick in unemployment (though still at historically low levels.) 

 ..... ▷ But before we’ve even started dancing on the grave of vanquished 2022/23 inflation, some observers are suggesting that deflation, a decades-long nightmare in Tokyo and setting alarm bells ringing in Beijing, may be a bigger danger down the line.

🇸🇬 Singapore: Let’s Get MoneyFitt!

📊 In the Markets

The Dow Jones (which we rarely follow) hit its first record high since January 2022, with the S&P 500 and Nasdaq rallying over 1% each on the Fed decision and Powell statement.

Markets, initially flat, surged, with broad-based S&P 500 sectors soaring, led by real estate and utilities, while the Russell 2000, a smaller company focused US index that more closely represents the domestic economy, surged 3.5%. Futures markets further increased the odds of a May rate cut to 90% from 80% in the morning and mid-70s% a week before that.

Zara Not Fastest Fashion (Shein)

Inditex, owner of Zara, only managed a 6.6% rise in sales to €8.8bn from August to October, slightly below expectations and lower than the past two years' growth rate of over 10%. Quarterly pre-tax profit rose 17% to nearly €2bn, also slightly below analysts’ best guesses. 

It could be down to weakening consumer spending in the fashion sector or warm weather holding back winter clothing purchases in Southern Europe, where Inditex primarily operates, or a combination of both.

Plus competition from soon-to-IPO Shein (and PDD’s Temu.)

..... ▷ Seemingly out of nowhere, Shein now has the largest fast fashion market share in the US, larger than H&M, Fashion Nova, Forever 21, ASOS and Zara.

Globally, Shein’s 2022 estimated revenues of $24bn puts it just above H&M’s $23bn but still behind Inditex’s $31bn, though other estimates put Shein in the top spot in 2022 and widening the lead in future years.

..... ▷ In Fast Fashion 1.0, Zara, H&M and others would identify fashion trends, sometimes allegedly copying designs straight off the runway, and very quickly produce a large number cheaply (but limited run) for sale at low prices in the coming season in their stores worldwide and online. 

Once sold out, it’s on to the next design, and the next and the next. 

..... ▷ Fast Fashion 2.0 led by Shein takes the online presence a stage further with an even more super-fast and super-flexible production cycle. 

A massive number of new designs scraped from anywhere and everywhere (allegedly using AI and proprietary algorithms) would be made in small initial runs and offered online even more cheaply for shipping direct to customers. 

If the design has strong demand, production would be immediately ramped up. 

If not, the run would be killed, a response to live demand data rather than relying on skilled predictors of fashion trends. 

According to Reuters, over the last 12 months, Shein introduced 1.5 million individual new products (SKUs) to the US, compared to just 40,000 from Zara and 23,000 from H&M.

Private whatcouldpossiblygowrong Credit

Goldman Sachs’ $110 billion private credit unit is reshuffling senior executives to double its size in the medium term. The firm is already a leader in the $1.6tn market, having started building its private credit division before the 2008 financial crisis. 

Unlike its rivals like JPMorgan Chase & Co, Barclays, and Citigroup, Goldman operates by housing the franchise within its asset-management arm, focusing on raising third-party capital rather than using its balance sheet (as that would conflict with its own leveraged finance business.)

A month ago, private equity giant Blackstone announced that it would borrow against its own private credit loan portfolios to make more private credit loans. 

 ..... ▷ Private credit lending is growing super quickly with not just private equity firms but regular traditional mutual fund managers and the like. 

Though still very small relative to the overall banking sector, they are increasingly interconnected with other parts of the financial system. 

 ..... ▷ The lack of transparency and regulatory oversight means unanticipated problems could spill over into other areas in finance and into different sectors of the economy entirely and create broader financial instability, perhaps at a systemic risk level.

 ..... ▷ Relying on asset managers who are incentivised and rewarded totally differently from bankers to price loans to companies and sectors that those bankers don’t want to make, especially as the economy slows… and then gearing up the lending… What could possibly go wrong? 

Cop-Out at COP28?

Diplomats from nearly 200 countries reached a historic global pact explicitly calling for a move away from fossil fuels at the UN’s COP28 climate summit in Dubai, but NOT adopting the term “phase out” that some were calling for. 

The agreement aims to transition away from oil, gas, and coal, emphasising an end to CO2 emissions by midcentury. It calls for tripling renewable energy by 2030 and reducing methane emissions.

While non-binding, the pact sets guidelines for countries to submit emission-curbing plans by 2035. Meeting climate targets will be tough, though, as emissions remain high and global warming has already passed 1.2° Celsius.

Shrinking UK

The UK economy unexpectedly shrank by 0.3% in October, raising recession concerns amid the cost of living and cost of debt crisis. This contraction could lead to lousy overall fourth-quarter growth, possibly dropping the economy into a recession.

All main sectors contracted, with the services sector, particularly IT and telecoms but also legal firms and film production, leading the decline. Manufacturing and construction also slumped, though partially due to rubbish British weather.

The stock market rallied a little, having picked the bad-news-is-good-news side of the trade (and leading us to remind everyone that the economy is not the stock market and the stock market is most definitely not the economy.)