Jarden Brief: Chip wars cast a cloud on US-China relations, Saudi and Russia aim to cook up higher oil price

Saudi Arabia and Russia have announced plans to extend or implement additional cuts to oil production. Picture / AP

Keeping you up to date with the latest market moves, in association with Investment firm Jarden.

International

US

Markets were closed in the U.S. yesterday for Independence Day.

Rest of the World

The US government is planning to impose restrictions on Chinese companies’ access to US cloud computing services.

The proposed rule would require US cloud service providers like Amazon and Microsoft to obtain government permission before offering cloud computing services with advanced artificial intelligence chips to Chinese customers.

This move comes as China recently announced export restrictions on metals used in advanced chip manufacturing. The conflict over supply chain access to advanced technology is intensifying ahead of Treasury Secretary Janet Yellen’s visit to China, where discussions will cover macroeconomic conditions, climate change, and debt.

The US aims to close a loophole that allows Chinese AI companies to bypass export control rules by utilising cloud services.

The Commerce Department is expected to announce the action as part of an expansion of semiconductor export control policies in the coming weeks. The potential ban on cloud services is the latest development in ongoing disputes over semiconductors and advanced technologies between the US and China.

British retailer Marks & Spencer (M&S) reported a strong start to its 2023-24 financial year for its food business.

CEO Stuart Machin said M&S faced a 130 basis points decrease in its food margin due to not passing on the full impact of cost inflation to customers. Despite this, food sales grew by 8.7 per cent over the year to date, providing a positive start to the new financial year.

However, Machin expressed concerns about deflation, as prices are expected to come down at a slower pace than they went up.

In separate news, Sainsbury’s, the second-largest supermarket group in the UK, announced fresh food prices were falling, with packaged goods expected to follow suit. The company reported a 9.8 per cent rise in underlying sales in their most recent quarter and predicted a moderation in inflation as input costs decrease. Both M&S and Sainsbury’s are closely monitoring inflation trends and their impact on consumers and the market.

Commodities

Saudi Arabia and Russia, the leading members of OPEC+, have announced plans to extend or implement additional cuts to oil production in August.

Saudi Arabia will extend its 1 million barrels per day production cut from July, while Russia will voluntarily cut an additional 500,000 barrels per day next month.

Their aim is to boost crude oil prices, which have fallen significantly since last year due to various factors, including the Russia-Ukraine conflict and concerns about inflation and recession. Saudi Arabia’s Prince Abdulaziz bin Salman has been leading efforts to raise oil prices to support the kingdom’s economic transformation plans, while Russia seeks higher prices to fund its war in Ukraine.

Despite the announcement, oil prices had a relatively modest increase, reflecting ongoing economic concerns and Russia’s robust exports.

Australia

The Reserve Bank of Australia held the cash rate unchanged at 4.1 per cent during yesterday’s Board meeting.

This decision was more dovish than expected, as 17 out of 28 local economists surveyed forecasted a 25 basis points hike, 10 predicted a pause and one anticipated a 50 basis points hike.

The RBA said hikes might still be necessary in the future. The board also mentioned the need for more time to assess the state of the economy, economic outlook, and associated risks. The RBA acknowledged the easing in May’s Consumer Price Index but still considered inflation to be “too high” and made incremental upgrades to its language regarding the labor market.

ANZ-Roy Morgan Consumer Confidence in Australia decreased to 74.1, marking the longest stretch below 80 since the index began on a weekly basis in October 2008.

Compared to the same week a year ago, consumer confidence is 9.6 points lower. The decline was driven by negative perceptions of personal finances compared to a year ago and pessimistic views on the long-term prospects of the Australian economy. Only 19.0 per cent of Australians believe their families are better off financially than the previous year, while 56.0 per cent say they are worse off.

Sentiment towards the future of the Australian economy is weak, with only 6 per cent expecting “good times” in the next twelve months and 10 per cent expecting “good times” in the next five years.

Building products company CSR Limited announced its agreement to acquire Woven Image, a leader in sustainable acoustic finishes and textiles, for A$43 million. The acquisition, subject to certain conditions, will strengthen CSR’s commercial interior finishes offering in the Australian market and expand its exports to Europe and Asia.

The acquisition follows CSR’s move to full ownership of Martini in 2020 and reflects the company’s commitment to growth and diversification in the commercial interior finishes segment. Woven Image, established in 1987, is known for its design-led acoustic finishes and textiles widely used in global commercial projects across various sectors.

New Zealand

Comvita Limited has acquired HoneyWorld, a prominent honey retailer based in Singapore valued at SG$8.5 million (NZ$10.36 million).

The company was founded in 1997 and currently operates 18 outlets within Singapore. An estimated combined market share of 50 per cent in Singapore is expected by Comvita.

The acquisition is projected to increase the company’s return on capital employed by 24.0 per cent and improve earnings per share by 22.0 per cent.

The transaction will be financed through debt. The existing HoneyWorld team will continue to operate in the same manner, with plans to expand the presence of both HoneyWorld and Comvita Mānuka brands.

The Quarterly Survey of Business Opinion for the quarter ended June revealed an improvement of 4 points to -59 points in overall confidence compared to the quarter ended March.

Despite this positive trend, experienced price and cost measures increased. Capacity utilisation experienced a significant decline, reaching its lowest level in 25 years (apart from the Covid-19 lockdown period) to 87.1 per cent from 94.0 per cent.

Employment numbers slightly rose in the past quarter and remain positive.

The survey suggests an overheated economy that is beginning to turn the corner, aligning with the views of the Reserve Bank of New Zealand.

While there were mixed indicators in trading activity, pricing, and employment, the drop on capacity aligns with the views of the Reserve Bank in the sharp drop in capacity utilisation.

The ease of finding unskilled labour also increased, potentially signalling a decrease in wage pressures.

For more information on the latest market moves, get in touch with Jarden.

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All market pricing and announcements are sourced from Refinitiv, NZX and ASX.