Welcome to this week’s edition of top stock market highlights.
US interest rates
The US Federal Reserve has embarked on its first rate cut after more than four years.
During its meeting on 18 September, the central bank cut interest rates by 0.5 percentage points, helping to sharply lower borrowing costs.
Federal Reserve chairman Jerome Powell is confident that inflation is moving down to the central bank’s target of 2%.
The interest rate reduction is also meant to prevent the economy from slowing down and the labour market from weakening further.
Economic projections meant that a swifter pace of rate cuts could be on the cards, faster than what was envisioned several months ago.
Officials now see the benchmark rate falling by another half a percentage point before the end of 2024.
This will be followed by a full percentage point reduction in 2025, and a half a percentage point cut in 2026 so that the Federal Funds rate ends in the range of 2.75% to 3%.
This policy meeting is the last before Americans head to the Presidential polls on 5 November.
Investors may wonder if the size of this rate cut is the result of a Federal Reserve that is reacting to the weaker labour market statistics and is an attempt to ensure a soft landing for the economy.
Officials will continue to weigh incoming economic data to decide on its future moves.
The good news is that this rate cut should ease the financial stress on borrowers by making loans cheaper overall.
BlackRock (NYSE: BLK) and Microsoft (NASDAQ: MSFT)
The artificial intelligence (AI) sector will receive another big boost with both BlackRock and Microsoft teaming up to fund the build-out of data warehouses and related infrastructure.
BlackRock is one of the largest asset management companies in the world with US$10.6 trillion of assets under management (AUM) as of 30 June 2024.
Microsoft is one of the largest technology companies in the world with a market capitalisation of US$3.2 trillion (as of 18 September 2024).
These two companies will work with the United Arab Emirates MGX investment vehicle to seek US$30 billion of private equity capital over time.
This initial funding will be leveraged to as much as US$100 billion in potential investments as time goes by.
Blackrock’s CEO, Larry Fink, said that this partnership has been months in the making and that data centres require trillions of dollars to finance.
These infrastructure investments, which also include energy projects, will be mostly in the US but with a portion to be deployed to US partner countries.
The intention is to seek out additional investors such as pension funds and insurance companies who are looking to invest in long-term infrastructure investments.
The group includes money manager Bayo Ogunlesi’s Global Infrastructure Partners which BlackRock is acquiring for US$12.5 billion along with GPU-manufacturer Nvidia (NASDAQ: NVDA).
Microsoft has done its part by investing US$13 billion in AI research outfit OpenAI and is in the process of overhauling its product line around AI features.
The software company is significantly increasing its spending on data centres and computing infrastructure to deliver these services more efficiently to its customers.
Yangzijiang Shipbuilding (Holdings) Ltd (SGX: BS6)
Yangzijiang Shipbuilding, or YZJ, announced that it entered a joint venture with Tsuneishi Holdings (THD) to acquire a 34% stake in Tsuneishi Group (Zhoushan) Shipbuilding Co., Ltd (TZS) through a private share placement.
TZS is a wholly-owned subsidiary of THD.
The consideration for this acquisition is RMB 833,050,297 which was agreed on in a willing-seller, willing-buyer agreement.
The payment was determined based on TZS’s audited net asset value of RMB 2,450,147,933 as of 31 December 2023.
YZJ will fund the acquisition in cash from the group’s internal resources.
Upon completion of this acquisition, TZS will become an associate company of YZJ.
Both TZS and YZJ had collaborated before in various areas of shipbuilding through a joint venture (JV) Jiangsu Yangzi-Mitsui Shipbuilding Co., Ltd.
With the signing of this new JV agreement, YZJ and TZS will strengthen their relationship and commit to sustainable growth with a focus on private-sector shipbuilding.
The JV will combine the strengths of both companies in research and development, shipbuilding, and supply chain capabilities to achieve synergistic benefits.
It will also help to drive decarbonisation in the shipbuilding and maritime industries.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
