☀️☕️ Combating Eurozone Inflation: Lagarde, en garde!

📝 Focus

• Lagarde, en garde!

📊 In the Markets

• Cyber BNPL

• Shein IPO

📖 MoneyFitt Explains

🎓️ The ECB

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📝 Focus

Lagarde, en garde!

European stocks ended lower on Monday as the European Central Bank 🎓president Christine Lagarde signalled that sustained high interest rates are needed to combat inflation and reiterated that there would be no rate cuts soon.

In her quarterly dialogue with a European parliamentary committee, Lagarde added ominously that they could speed up the shrinking of its balance sheet by ending the last of its bond purchases earlier than planned. 

This would be a clear sign that the bank is preparing to further tighten monetary policy by reducing the amount of bonds it buys next year. 

 ..... ▷ Buying bonds and putting more money into the economy is a form of monetary stimulus and therefore inconsistent with the ECB’s own efforts to tame inflation by raising rates. 

The ECB stopped much of its net bond-buying (quantitative easing) last year. But it has still been reinvesting some of the proceeds of maturing securities, while allowing the overall balance to fall.

..... ▷ The latest eurozone inflation data came in at 2.9% for October 2023, a good step down from the 4.3% seen the previous month.

But the ECB is aiming for an inflation rate of 2%, so the current rate is still too high.

 ..... ▷ The ECB is likely to continue raising interest rates in an effort to bring inflation back down to its target. 

However, it is also aware that hiking interest rates too much could slow down the economy even further.

As it is, the eurozone economy is already seeing pretty sluggish growth. The European Commission itself is projecting expansion of 0.6% for 2023. 

Various challenges like the war in Ukraine, Covid and persistent supply chain disruptions have dampened consumer and business confidence, leading to reduced investment and spending. 

These factors, along with its heavy imported energy dependency and high exposure to exports, has pushed Germany, Europe’s largest economy, just about to the verge of recession. 

🇸🇬 Singapore: Let’s Get MoneyFitt!

📊 In the Markets

The good news is that on Monday, China’s industrial profits for October grew on a year-on-year basis for the third month running, though much more slowly, suggesting more stimulus may yet be needed. The bad news is that Chinese property stocks kept dropping, pulling regional markets lower and troubled financial conglomerate Zhongzhi, which last week notified investors of a $31bn - $36bn liquidity gap, now at the centre of a criminal investigation. Beijing police suspect Zhongzhi of “illegal crimes” (not the other kind.)

The senior NHS doctors' strikes in England neared an end as their union, the British Medical Association, endorsed the government's proposed pay offer. The deal comprises a 4.95% “investment in pay” this fiscal year, plus an additional potential raise of up to 12.8% for most consultants, effective from January next year. The strikes, which started back in December 2022, have resulted in roughly 1.2 million cancelled operations and appointments ahead of the winter season, exacerbating NHS England's many challenges. 

On Monday, US stocks dipped slightly with all eyes on Cyber Monday for a health check on the American consumer, whose spending accounts for 70% of the GDP. According to the CME's FedWatch tool, The Fed is expected to keep rates high despite ending tightening, with a 96.8% likelihood of unchanged rates in the upcoming meeting. 

US Treasury yields slipped on Monday after data showed sales of new homes in the US fell more than expected in October. As is often the case, “bad news” has been greeted positively in the market. The thinking is that it’s a sign of a slowing economy, which suggests less inflationary pressure. Therefore, the Fed might pull forward interest rate cuts to stimulate the economy. 

Cyber BNPL

We will have firmer numbers come in over the coming days and weeks, but estimates point to shoppers setting a record for Cyber Monday spending. 

Adobe predicts $12-12.4 billion in online spending overall, an increase of 5.4% compared with a year ago, but the standout within that was the 19% surge to $782 million via BNPL. 

Shares in Affirm rallied 12%, taking its gains for the year to 223%, reflecting BNPL's booming popularity. BNPL continues to attract shoppers who don’t have the money to pay for the stuff they desperately want but don’t have the money to pay for, or who think it’s a way to avoid credit card fees. 

Swedish rival Klarna reported a 29% rise in Black Friday orders in the US, though in its own survey noted also that close to half of all those in the survey were worried that they would not be able to pay off credit card bills in full from holiday spending. (The solution not being to spend less, of course.) 

Shein IPO

Chinese (but Singapore HQed) fast-fashion giant Shein filed confidential IPO paperwork with US regulators, possibly marking one of the largest NY listings in a decade. 

The company reportedly told prospective investors that it was targeting a valuation of US$80 billion to US$90 billion. 

This move follows a fundraising round where Shein raised $1.5 billion but at a valuation down from $100 billion to around $66 billion in what’s known as a “downround.” 

The online retailer gained immense popularity during the pandemic, attracting millions to online shopping with ultra low prices and effective use of social media. 

But Shein is currently locked in battle with Temu, owned by Chinese e-commerce giant PDD Holdings, both as competitors as well as through the courts.