☀️☕️ SpaceX’s Super-Heavy Explosion

📊 Also: Wholesale inflation higher; Retail sales lower; TikTok FYP: Beijing complains; Bandit Logic; Mnuchin Swoops in; ByteDance’s US investors have an idea 🎓 Bond Yields

📈 Market Roundup [15-March-24]

US large-cap S&P 500 closed 0.29% DOWN 🔻

Tech-heavy Nasdaq Composite closed 0.3% DOWN 🔻

Pan European STOXX Europe 600 closed 0.18% DOWN 🔻

HK/China's Hang Seng Index closed 0.71% DOWN 🔻

Japan's broad TOPIX closed 0.49% UP ▲

📝 Focus

  • SpaceX’s Super-Heavy Explosion

📊 In the Markets

  • Wholesale inflation higher; Retail sales lower; 

  • TikTok FYP: Beijing complains; Bandit Logic; Mnuchin Swoops in; ByteDance’s US investors have an idea

📖 MoneyFitt Explains

  • 🎓 Bond Yields

💸 Personal Finance Corner

📝 Focus

SpaceX’s Super-Heavy Explosion

SpaceX's Super Heavy-Starship rocket, the most powerful ever built, launched on its third test flight, coinciding with the 22nd anniversary of SpaceX's founding. It hit two significant milestones, successfully reaching orbit and re-entering Earth’s atmosphere for the first time. Despite breaking up before completing a rocket-powered descent to the Indian Ocean, "Today has been a phenomenal day," according to a SpaceX commentator.

However, the Federal Aviation Administration classified the loss of both stages as a "mishap" and will lead an investigation. SpaceX had also hoped to demonstrate additional processes during the flight, such as payload door operations, propellant transfers and a firing of one of the massive Raptor rockets that had taken Starship up there while still in orbit.

While certain objectives were obviously not met (like returning), data from the flight are vital for future missions, including satellite deployment and preparations for NASA’s Artemis program. Starship, eventually intended as a fully reusable system, has been earmarked by NASA for the Artemis III mission to transport astronauts to the lunar surface, possibly launching in 2026.

But back in one piece first. - Image credit: SNL / NBC via Tenor

..... ▷ SpaceX has a two-pronged business model, leveraging its launch capabilities to build its satellite internet access network, Starlink, which in turn generates further revenues. 

Firstly, SpaceX currently acts as a launch service provider for governments, space agencies and private companies. The company manufactures and operates reusable Falcon rockets and Dragon spacecraft for reliable and cost-effective transportation of satellites and payloads to orbit. 

This core business model generates revenue by charging per launch, with prices determined by payload weight and mission complexity. 

Reusability allows for reduced launch costs compared to traditional expendable rockets, making SpaceX attractive to a wider range of clients.

..... ▷ Secondly, SpaceX is developing Starlink, a mega-constellation of internet satellites in low Earth orbit. 

Once complete, Starlink aims to deliver high-speed internet access globally, particularly to underserved areas. By offering internet connectivity in remote or under-developed regions, SpaceX can tap into a new revenue stream through user subscriptions. 

The success of Starlink relies on its ability to scale effectively and provide competitive internet services compared to existing options.

..... ▷ Just to be clear, Falcon 9 and Dragon are both operational vehicles that have been successfully used for many missions. 

They are the workhorses of the current SpaceX fleet. Falcon 9 is a partially reusable launch vehicle with a proven track record of reliable launches. Dragon is a spacecraft designed to carry cargo or crew to and from orbit.

Starship, the one that just launched (and blew up), on the other hand, is a next-generation, fully reusable launch vehicle and spacecraft system still under development. 

It's designed for much larger payloads and has ambitions for deep space missions, including travel to the Moon and to Mars.

📊 In the Markets

Stocks fell Thursday as tech stocks lost ground again while February producer prices surged, particularly for goods like gasoline and food. Chipmakers AMD and Nvidia fell 4% and 3.2%, respectively, leading the market lower. 

Equity traders initially ignored the hotter inflation data, as they had with the CPI reading just two days earlier, but not so bond traders. Bond prices sank, sending yields🎓 higher (they move in opposite directions), signalling growing concerns over delayed Fed rate cuts. Two-year yields hit a two-week high, settling up 0.07 percentage points at 4.69%, while ten-year yields jumped by the most in a month… and that’s what later sent shares down. 

The Producer Price Index (PPI), a key gauge of wholesale inflation and usually seen as a sneak preview of consumer prices, unexpectedly surged in February

On a monthly basis, PPI jumped 0.6% over the previous month, twice the 0.3% increase expected by Wall Street’s Finest and comes after a 0.3% increase in January. The core PPI, excluding volatile food and energy, rose by 0.3%, compared with the estimate for a 0.2% increase. (For perspective, 12 months in a row of 0.3% monthly increases would lead to prices 3.7% higher after a year.)

The headline was driven by volatile energy prices, but less-volatile categories showed ongoing moderation. 

That’s similar to what the bulls were saying after the CPI figures, too, where after absorbing more details, the higher than expected inflation reading didn’t look so bad. The main thing was that the CPI was driven by services, which were driven by shelter (housing), which is driven by lagging figures that real-time private sector indicators show have long since peaked. 

But this time, bond traders are getting a little more nervous. [MFM: US Inflation d’oh! And yet…]

Meanwhile, February's retail sales rebounded by much less than anticipated, indicating a potential slowdown in consumer spending thanks to persistent inflation and still-high borrowing costs. The Census Bureau reported a 0.6% increase compared to a consensus forecast of 0.8%. Weak (or poor forecasting.) 

But this is 0.6% growth on a January figure which itself was revised downward to a 1.1% drop instead of the previously stated 0.8% drop (revisions are common.) Which means that the actual sales were much, much weaker, to 0.5% down since the end of December instead of about flat. 

(Too little and too early to call for stagflation, of course, which is the worst version of persistently high inflation and slow to no growth.)

Today’s For You Page

Beijing hit out at US House legislation aiming to ban TikTok, calling it “bandit logic,” and adding that the bill would take "billions of dollars out of the pockets of creators and small businesses (and) put more than 300,000 American jobs at risk.” [MFM: TikTok On The Blok?

China continues to oppose any forced sale that involves exporting TikTok to foreign ownership, particularly with its “secret sauce” source code, the algorithms so crucial for the app’s success. Chinese regulations designate it as sensitive technology. China’s Foreign Ministry spokesperson Wang Wenbin said “The bill… puts the US on the opposite side of the principle of fair competition and international economic and trade rules,”

He added: "When you see other people’s good things, you must find ways to own them” …

“It’s a great business… It should be owned by a US business.”

Former Treasury Secretary Steven Mnuchin

Meanwhile, former Trump administration Treasury Secretary Steven Mnuchin announced plans to lead a consortium to acquire the app. Mnuchin told CNBC that during his time in the administration, he saw evidence that having TikTok on a phone lets it “collect an awful lot of data.”

And Bytedance’s US investors, which include the likes of General Atlantic, Susquehanna, Sequoia, Coatue Management, Fidelity, T Rowe Price and BlackRock, are toying with a proposal to stop ByteDance from having any control over TikTok while allowing it to keep its (hence their) existing ownership stake in the business. 

Under this arrangement, Oracle (or another US technology partner) would secure the data of US citizens and ensure that none would be handled or monitored by China-related entities.

(TikTok CEO Chew Shou Zi said last year that “TikTok has never shared, or received a request to share, US user data with the Chinese government. Nor would TikTok honour such a request if one were ever made.”)

📖 MoneyFitt Explains

🎓️ Bond Yields 

When you lend somebody money, you expect some kind of compensation for it, usually in the form of interest, reflecting 

(a) what you could get if you had done something else with it, like lending to somebody else, shoving it in a bank or investing, and

(b) the likelihood of getting your money back at all at the end of the arranged loan period. 

Well, a bond is the same thing - when a company or a government wants to borrow some money other than from a bank, they issue bonds. 

Bonds come with a "coupon", a promise to pay a certain amount of money to the bondholder on a regular basis for the life of the bond (known as “maturity”) including to any new owners of that bond. 

Bonds are usually issued at 100% of the face value (the amount borrowed) so the interest rate you get if you buy it at issue is pretty simple! Main thing to remember is whatever the price of the bond, the coupon remains the same. 

So if the bond price goes up, the current yield*, the return (similar to an interest rate) you actually get at the new price, will be lower, since it's the same size coupon divided by a larger number (yield = coupon / price.) If the bond price goes down, the yield will go up (same coupon divided by a smaller number.)

If something happens to change how buyers feel about (a) and/or (b) above, then the price they will pay for the bond will change... and so will the yield.

(* Taking into consideration the amount a bond holder gets back at “maturity”, i.e. the end of the life of the bond, as well as the coupon payments between now and then gives you an annual “Yield To Maturity” which can be different from the current yield, the coupon divided by the bond price.)

💸 Personal Finance Corner

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