Alibaba reported better-than-expected results on Thursday.
What does this mean?
Here’s the good thing about Alibaba: it’s so big that at least one part of its business is bound to flourish come rain, shine, or government-mandated lockdown. This time, it was Taocaicai that came into its own, with the value of transactions on the fresh food platform booming more than 200% last quarter from the same time last year. And even though the rest of Alibaba’s ecommerce segment had a slow April and May, it recovered in June thanks in part to China’s annual shopping festival. The company’s cloud computing business made the best of a tough few months too, posting a 10% uptick in sales even as the government cracked down on multiple online industries. So while Alibaba’s revenue did fall marginally, investors knew it could’ve been much worse, and they sent its US-listed stock up 6%.
Source: The Wall Street Journal, S&P Global
Why should I care?
Zooming in: Change of plan.
This was Alibaba’s first drop in revenue on record, but analysts don’t necessarily think it’ll become a habit. For one thing, Alibaba has recently promised to invest more in areas that are good for long-term growth. And for another, the Chinese government has realized it’ll need to let up on its anti-tech crusade and boost economic support if it wants to achieve its increasingly unrealistic growth targets.
The bigger picture: SoftBank runs for the hills.
The US has threatened to delist a host of Chinese companies from its stock market after they failed to stick to its disclosure rules. And it’s just added Alibaba to the line-up, which puts the company in a tight spot: a delisting would force some funds to sell its stock, which would send its share price tumbling. SoftBank doesn’t want to hang around to see that happen: the investment giant has reportedly started selling “forward contracts” that could see it dramatically reduce its stake in Alibaba over the next few years.
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The Bank of England Raised Rates By The Most Since 1995
The Bank of England (BoE) raised interest rates by the most in 27 years on Thursday.
What does this mean?
Five 0.25% hikes in a row from the BoE, and UK inflation still hit another 40-year high in June. So no more Mr. Nice Guy: the central bank increased interest rates by 0.5% on Thursday, with eight of its nine policymakers voting in favor of a hike that takes rates to the highest level since the financial crisis. And it didn’t stop there: the BoE also laid out plans to sell some of the $1 trillion-plus worth of bonds it’s accumulated over the years. This, after the BoE said last month that there would be no “ifs or buts” in its commitment to bringing inflation back to its 2% target, and warning on Thursday that it wouldn’t hesitate to act forcefully again if it had to.
Why should I care?
The bigger picture: It’ll probably have to…
The BoE now thinks inflation will peak at 13.3% in October, which holds water: the UK’s energy price cap is set to rise again in winter, causing the average household energy bill to increase by around 75%. And even when inflation has peaked, Brits won’t be out of the woods: the central bank is forecasting a recession in the fourth quarter of the year – one it thinks will last for the whole of 2023.
For markets: Ditch the pound.
The BoE has now joined the 70-odd central banks around the world that have now raised rates by 0.5% or more this year. But it’s still no match for the US Federal Reserve, whose back-to-back 0.75% hikes have made the dollar much more appealing to international investors and savers. The BoE’s relatively easy-does-it approach, then, might be why the British pound fell versus the dollar after the announcement.
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