☀️☕️ Achtung, Adidas!

📊 Also: Record highs in US and Japan; Swiss cut rates, BOE flat, Turkey up (a lot); Reddit also up a lot!; Mexi-CUT; Antitrust Apple 🎓 Currency Crisis

📈 Market Roundup [22-March-24]

US large-cap S&P 500 closed 0.32% UP ▲

Tech-heavy Nasdaq Composite closed 0.2% UP ▲

Pan European STOXX Europe 600 closed 0.9% UP ▲

HK/China's Hang Seng Index closed 1.93% UP ▲

Japan's broad TOPIX closed 1.64% UP ▲

📝 Focus

  • Achtung, Adidas!

📊 In the Markets

  • Record highs in US and Japan; Swiss cut rates, BOE flat, Turkey up (a lot); Reddit also up a lot!

  • Mexi-CUT

  • Antitrust Apple

📖 MoneyFitt Explains

  • 🎓 Currency Crisis

💸 Personal Finance Corner

📝 Focus

Achtung, Adidas!

Nike will replace Adidas as the sponsor of the German national football team, marking the end of over seven decades of cooperation, one of sport's longest-standing kit partnerships. Nike's seven-year contract, starting in 2027, will be the first time since 1950 that Germany’s national footballers won't wear Adidas' distinctive three-striped logo.

The DFB, the German football association, announced that Nike's offer was the most financially lucrative though the terms of the deal were undisclosed, but notably with commitments to support amateur and grassroots sports and women's football in Germany.

While the change won't immediately impact Adidas financially due to existing contracts, losing the high-profile home team sponsorship deal is a massive setback for Adidas CEO Bjørn Gulden, who has aimed to leverage Adidas' heritage to navigate the brand through multiple financial challenges… and catch its archrival, Nike.

The Adidas CEO didn’t receive the news too well - Image credit: Tenor

..... ▷ Adidas and Nike both have their roots deeply embedded in sport, drawing upon iconic products like Sambas, Gazelles, and Air Jordans. Nike's investments in endorsements and collaborations, like its deal with the NBA, maintain brand vitality despite the high costs.

..... ▷ In contrast, Adidas shifted towards fashion and lifestyle, neglecting its origins in sporting performance. Adidas faced a setback in 2022 when it parted ways with rapper Kanye West's antisemitic remarks, resulting in millions of unsold Yeezy shoes and a gap in the brand's identity. Years of straying from its sporting roots have widened the gap between Adidas and Nike, with Adidas trailing further and further behind Nike, despite occasional successes like Lionel Messi’s pink Inter Miami jerseys.

..... ▷ Achtung, Nike, too. Despite better-than-expected third-quarter revenue and profit, Nike's shares dropped 5.4% in extended trading as it warned that first-half fiscal 2025 revenue would shrink by a low single-digit percentage and that its direct-to-consumer strategy was not driving the expected growth. 

..... ▷ More concerning was that it was also losing market share in running shoes, both to newer brands like On, the Swiss company part-owned by Roger Federer, and Decker-owned Hoka, as well as to older ones like New Balance. On's market share at Dick's Sporting Goods rose to 8.2% from 6.1% in October 2023, while New Balance saw an increase from 4.6% to 5.4%.

📊 In the Markets

Wall Street's major indexes notched up record closing highs for the second consecutive day, bolstered by the Federal Reserve's reaffirmation of potential rate cuts amid a gradual if bumpy decline in inflation toward the 2% target, plus a surge in chip stocks driven by memory chipmaker Micron Technology's optimistic forecast. 

Micron's shares soared over 14%, reaching an all-time high, following a surprise quarterly revenue growth of 158% and a third-quarter revenue forecast exceeding expectations. 

Accenture saw a 9% stock drop due to a downward revision in its fiscal-year 2024 revenue forecast, attributed to economic uncertainty affecting client spending on consulting and IT services.

Reddit's shares debuted on the New York Stock Exchange at $47, a 38% jump from its initial public offering price of $34. The stock closed at $50.44. [MFM: RDDT IPO; Seen it, Heard it, RDDT]

Japan stocks surged to new all-time highs on Thursday, buoyed by the Federal Reserve's decision to maintain its forecast for three rate cuts this year. Improved business sentiment in Japan, better export data for February and BOJ Governor Ueda’s pledge to continue support for the economy through accommodative monetary conditions also contributed to the market's optimism. 

Meanwhile, central bankers around the world cut, hiked and stayed put. 

The Swiss franc fell following an unexpected interest rate reduction by the Swiss National Bank, cutting its main policy rate by 0.25 percentage points to 1.5%. This move diverges from the stance of other Western central banks, like the European Central Bank, which remains concerned about inflation. Switzerland's decision marks it as the first major economy to reduce interest rates, reflecting growing confidence in managing inflationary pressures.

Meanwhile, the British pound dipped against the dollar after the Bank of England, as expected, maintained rates at 5.25%, a 16-year high. However, BOE Governor Andrew Bailey expressed optimism about the UK inflation, hinting at potential rate cuts. 

In a surprising move, Turkey's central bank raised its main interest rate by 5 percentage points to 50% to combat escalating capital outflows and mitigate inflationary pressures.

Mexi-CUT

But the Bank of Mexico is the most interesting. The decision to cut rates by 25 basis points to 11% bucks the trend of most central banks in developed nations, which have yet to ease monetary policy. 

However, in Latin America, Mexico joins other major countries in cutting rates, aligning with the region's forefront position in the global easing cycle. Central banks in Latin America swiftly responded to post-pandemic inflation, drawing on their past experiences with and deep fears of hyperinflation and currency crises🎓.

Now he’s a Mexi-Cut - Once upon a time in Mexico (2003) / Columbia via Tenor

..... ▷ Historically, Latin American economies were caught in a vicious cycle of depreciation - inflation - depreciation in which currencies would lose value, leading to inflation, which in turn eroded confidence in macroeconomic management, causing further currency depreciation. (e.g. The 1994 Mexican Peso Crisis, which resulted in severe recession and bouts of hyperinflation in Mexico. The sudden devaluation of the peso had ripple effects on other currencies as well.)

..... ▷ Brazil and Mexico raised rates in early 2021, followed by Chile, Colombia, and Peru later that year, with the Fed and ECB only hiking in 2022. Latin American central banks can cut earlier due to higher initial rates and will be closely watched as they handle the delicate balance between inflation risks and monetary easing.

Antitrust Apple

The US government is suing Apple for allegedly abusing its power in the smartphone sector to stifle competition and limit consumer choice, marking another challenge to Big Tech under President Joe Biden's administration. 

“Apple has maintained monopoly power in the smartphone market… not because of its superiority but because of its unlawful exclusionary behaviour”

US Attorney-general Merrick Garland

..... ▷ The lawsuit accuses Apple of imposing restrictive contracts on developers and making it harder for users to switch devices, jeopardising its annual $85 billion services revenue. 

..... ▷ The Department of Justice alleges that Apple's actions constitute anticompetitive behaviour, with its response to competition likened to a game of 'Whac-A-Mole' by antitrust chief Jonathan Kanter. The complaint outlines various ways Apple leveraged its market power, including stifling innovative apps and hampering rival smartwatches, although Apple recently revised its policy on game streaming apps.

..... ▷ This marks the first antitrust challenge against Apple during the Biden administration's crackdown on Silicon Valley giants. If successful, potential remedies could range from breaking up the company to restructuring its contracts and business practices. US officials refrained from specifying the remedies they might seek.

📖 MoneyFitt Explains

🎓️ Currency Crisis

A currency crisis occurs when there is a sudden and sharp decline in the value of a currency. This can be caused by a number of factors, such as a balance of payments crisis, a loss of confidence in the government, political instability or a speculative attack on the currency.

A balance of payments crisis occurs when a country's imports exceed its exports, and it cannot pay for its imports with its foreign exchange reserves. This can lead to inflation, economic recession and a decline in the value of the currency... potentially even a currency crisis. 

Balance of payments and currency crises can often occur together and can lead to hyperinflation, economic recession and even political instability. 

For example, if a country experiences a balance of payments crisis, it may be forced to devalue its currency in order to make its exports more competitive. This can lead to a currency crisis, as investors lose confidence in the government and the currency.

But the two are not the same thing. A balance of payments crisis is a broader problem that affects the entire economy, while a currency crisis is a more specific problem that affects the value of the currency.

💸 Personal Finance Corner

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