The Federal Reserve of the United States has once again brought up the topic of recession, causing investors to scrutinize producer prices and unemployment benefit claims for further insights into the state of the US economy. Shares of Chinese e-commerce giant Alibaba fell following reports that Softbank intends to sell off most of its stake in the company. Here’s what you need to know about the financial markets on Thursday, April 13th.
1. The focus is on recession
Signs of slowing inflation in the United States gave investors a boost on Wednesday, but most of that sentiment was dampened after the minutes of the latest Federal Reserve meeting revealed that policymakers now expect a mild recession this year.
Fed officials expressed concern about the state of the country’s regional banks, suggesting that the central bank’s next moves may depend on lending conditions.
However, it is important to remember that the latest Fed meeting took place when the banking crisis, largely sparked by the collapse of Silicon Valley Bank, was in full swing, and conditions are now less tense.
Large earnings reports from American banks, starting from Friday, will be scrutinized even more closely than before, but before that comes inflation data – the producer price index, which is expected to be moderate compared to the same time last year, and data on jobless claims, which are expected to be slightly higher than in the previous week.
2. Alibaba’s stocks (HK: 9988) (NYSE: BABA) fell sharply in Asia on Thursday following reports from the Financial Times that SoftBank (TYO: 9984) (OTC: SFTBY) plans to sell almost all of its stake in the Chinese e-commerce giant. The Japanese investment firm has been struggling with a significant decline in its technology holdings over the past year, and has previously used its stake in Alibaba to raise cash. This year alone it has already raised slightly over $7 billion from selling Alibaba stocks, following a record $29 billion stock sale in 2022.
As a result of this new move, Softbank’s stake in Alibaba will be less than 4%, although at some point it had controlled up to 34%. Alibaba’s announcement last month of plans to split the massive conglomerate into 6 divisions was well-received, boosting the stock price after a long weakening period caused by roughly 2 years of intense government scrutiny in China.
3. In March, Chinese export unexpectedly grew by 14.8% compared to last year, ending a five-month consecutive decline streak. This surge in demand was attributed by Chinese officials to the rise of electric vehicles. This development brings optimism that the world’s second-largest economy can quickly recover from the difficulties brought about by the strict “zero-tolerance” policy on the coronavirus. Investors will now keep an eye on how sustained this improvement will be, given the expected economic slowdown in major export markets like the United States and European Union in the latter half of the year.
4. Oil prices are stable on the eve of OPEC’s monthly report. On Thursday, oil prices traded slightly below the flat rate, and discussions of a possible recession by the Fed [refer to above] weakened the recent rally. As of 5:00 AM Eastern Time, WTI futures decreased by 0.1% to $83.19 per barrel, and Brent contracts fell by 0.2% to $87.22 per barrel. The proximity to the publication of the Organization of the Petroleum Exporting Countries’ monthly report also prompted caution. Additional data on crude oil demand and supply are expected to be presented later in the session after the cartel unexpectedly reduced production earlier this month. Both oil benchmarks rose by 2% on Wednesday to the highest level in over a month as cooling inflation in the US spurred hopes that the Federal Reserve would likely stop raising rates. Traders mostly ignored the unexpected increase in US oil inventories as most of the growth was due to the publication of the Strategic Petroleum Reserve data.