Crunch time for Apple
In recent years, New York City’s title as the Big Apple has been hotly contested by a certain famous US tech giant, with both boasting impressive figures. New York City’s current GDP is some $1.5 trillion, while at its 2018 peak, Apple Inc. stood at $1.12 trillion.
However, last week’s sell-off left the world’s first trillion-dollar company at $674 billion – a plunge of almost $450 billion in only three months. The bad news continued last week, with Apple’s first revenue forecast cut in 16 years leading investors to take 10% off the stock price. The tech giant, which has slipped off the top of the podium of the world’s largest companies (sinking to fourth place), blamed the cut on poor iPhone sales in China.
All of the signs point to a crunch moment, but it is unclear who this is for: Apple or, indeed, China. Apple certainly faces challenges, facing a decline in global economic and consumer confidence and dropping to third-largest global mobile manufacturer last year. Yet said decline in global confidence has been particularly apparent in China, the home of a third of all iPhone users. Last week, worrying figures showed plunges in Chinese manufacturing, car sales and consumption tax revenues, and this comes on top of an official growth rate of only 6.5% last year. The Shanghai Composite index fell 25% in 2018 and continued to fall further midweek.
Mixed investor signals in China
Despite these worrying numbers and the fact that major tax cuts are expected in the year ahead, figures also showed foreign investor money rushing into the Chinese market. Yet even if the policymakers make the right moves, investors should take care. Tom Beal, Deputy Chief Investment Officer at St. James’s Place, commented: “Rules around A-shares [renminbi-denominated shares listed in mainland China] have now been relaxed, making it more accessible to overseas investors, but the market remains dominated by private investors, not professional, institutional players. As a result, price volatility is almost double developed market levels and that’s a double-edged sword – the market is very risky but, conversely, high-quality managers can find some good opportunities.”
Flash-crash demonstrates market volatility
The capability of markets to experience sudden bouts of extreme volatility was highlighted by a seven-minute ‘flash crash’ on Wednesday, as the Japanese yen rose 9% against the Australian dollar and 10% against the Turkish lira. Traders are still struggling to explain why the yen rose that day against every currency Bloomberg tracks – demonstrating that short-term market shifts don’t always make sense – even to experts.
One explanation offered was that investors were influenced by fears over growth in both China and also the US. Last week, manufacturing survey figures for the US showed a sharp decline in December, although jobs numbers came in strong. The pace of growth in the US decoupled from much of the developed world last year, reflecting the impact of Donald Trump’s tax cuts on corporate earnings. Yet the boost has made investors highly sensitive to any signs of the boost petering out – and to the risk of interest rate rises killing it.
On Friday, the governor of the Federal Reserve acknowledged market fears about global growth and hinted that the Fed wouldn’t be raising rates imminently. Perhaps more importantly, he suggested that quantitative tightening – which the Fed embarked on last year – could yet be put on hold. The market rallied in response, taking the S&P 500 positive for the week.
Brexit continues to dominate European market news
The EU faces several looming challenges, from Italy’s budgetary plans to Eurosceptic forces amassing at European Parliament elections in May. Brexit may be the most immediate. Last week, Theresa May was back on the phone to Brussels, seeking those elusive “assurances” over the Northern Irish backstop. As yet, there are few signs she can sway recalcitrant MPs ahead of the looming vote. Meanwhile, preparations continued for a no-deal outcome with, on the one hand, a publicity campaign planned and, on the other, news that 16 UK drug companies and 10 trade associations were asked by the government to sign non-disclosure agreements to prevent them talking publicly about any stockpiling plans.
The ECB announced the end of its post-crisis quantitative easing programme in December, but the timing was arguably unfortunate, given the significant slowdown in eurozone growth over the course of 2018. After falling at the opening of the year, both the EURO STOXX 50 and FTSE 100 had more than made up their new year losses by the weekend; although this probably had more to do with global market trends than local specifics.