OSINT Drip 8-7-2023
AI is Still Trending, Midwest Real-Estate is Coming Back, Rates Rise & Export Restrictions
Stocks
AMD (NASDAQ: AMD): AMD's quarterly results were lackluster, with total revenue falling 18% year over year. The company's client segment, which contains its Personal Computing business, saw a 54% drop in revenue. However, AMD is optimistic about the future of AI, as demand for this technology is skyrocketing. The company's MI300X chip, which is meant to compete directly with Nvidia's H100, is on track for delivery and sale this fall. Additionally, the Lawrence Livermore Laboratory in the United States has announced that it is installing a new generation of supercomputer called EI Capitan, which is powered by AMD's Instinct MI300 computing cards. EI Capitan is expected to be the world's fastest supercomputer when it goes online next year, so its success could spur more data science teams and cloud computing companies to buy more of their chips.
MIX300A claims to be the world’s first HPC and AI-oriented APU accelerator, integrating 13 chiplets, 146 billion transistors, two 5nm/6nm processes, including 24 Zen4 CPU cores, an undisclosed number of CDNA3 GPU cores, and 192GB HBM3 high bandwidth Memory.
In the data center alone, AMD expects the AI accelerator market to reach over $150 billion by 2027.
Datadog and Tenable are both cloud-based security companies that offer a variety of products and services to help businesses protect their data and applications. These services will only increase in need as companies race to integrate alternative datasets, generative AI, and large language models, all of which are typically accessed via cloud platforms and APIs. As a proxy, Google search trends, searches for the code management platform GitHub and “ML DevOps” have increased over the last two years. Given these are terms technical teams would be searching for, it indicates legitimate investments in AI have been taking place.
Datadog (NASDAQ: DDOG) provides a unified platform for monitoring and analytics across all of a company's cloud infrastructure. This includes data from servers, networks, applications, and containers. Datadog also offers a variety of security features, such as threat detection and compliance monitoring.
Tenable (NASDAQ: TENB) provides a platform for vulnerability management and compliance scanning. This includes scanning for vulnerabilities in software, hardware, and cloud infrastructure. Tenable also offers a variety of security features, such as risk assessment and remediation guidance.
Encore Capital (NASDAQ: ECPG) has been heavily investing in distressed credit and debt at attractive prices. Despite temporary profitability challenges, they are confident that their capital allocations will lead to higher collections, earnings, and cash flow in the future. With a funding profile showing contained leverage and flexibility, Encore Capital has close to $500 million between debt and cash for expansion. The main risk lies in the macro environment, but they remain optimistic about managing these risks. Anticipating an increase in cash generation in 2024, the company aims for higher earnings per share and potential upside for investors.
Extra Space Storage (NYSE: EXR) is a self-storage company whose stock price declined by 42% from its peak valuation. The decline is due to muted near-term growth and the potential for higher interest rates. However, the long-term growth drivers for EXR remain intact, including market consolidation and increasing demand for self-storage. EXR offers an attractive yield of 5.2% and has a strong balance sheet with a net debt-to-EBITDA ratio of just 4.9x and a large economy of scale with over 3,500 locations.
Mid-West Focused REITs: The region’s offices posted a 60% weekly average peak occupancy rate in the first half of the year, the highest in the nation, according to data from Basking.io. The Northeast averaged 24% peak occupancy over the same period. Midwestern offices also enjoyed more frequent visits than the rest of the US, with a greater share of people coming in four or five days a week.
Equity Commonwealth (NYSE: EQC) is a real estate investment trust (REIT) that owns office buildings in major Midwest markets like Chicago, Minneapolis, and Milwaukee.
Vornado Realty Trust (NYSE: VNO) is a REIT that owns and operates office buildings, retail properties, and hotels in major markets across the United States, including Chicago, Cleveland, and Detroit.
Simon Property Group (NYSE: SPG) is the largest owner of retail properties in the world. It has a significant presence in the Midwest, with properties in major markets like Chicago, Indianapolis, and St. Louis.
Of all the REITs mentioned, SPG has by far the most analytical and data-focused talent overall. At the same time, EQT has a higher percentage level according to LinkedIn - mostly due to its vastly smaller sample size (n=31 V n=3,483).
Economy
U.S. economy adds 187,000 jobs in July
United States Non-Farm Payrolls - Source BLS
The U.S. economy added 187,000 jobs in July, signaling a healthy gain but a cooling of the labor market. Combined with June’s revised jobs gain of 185,000, the past two months have marked the weakest level of job growth since December 2020, but the gains are still considered solid. May’s job gains also were revised downward notably in Friday’s report, adding to evidence that the labor market has cooled substantially since last year.
The economy probably only needs to add 100,000 jobs a month to absorb all the people entering the labor force in search of work, Fed officials said.
US stock indexes opened higher following the Labor Department’s employment situation report on Friday, with the Dow Jones Industrial Average rising 152 points, or 0.43 percent, in early trading.
The labor force participation rate remained unchanged at 62.6% for the fifth consecutive month, matching a pre-pandemic low last seen in August 2018.
Unemployment among African Americans hit a record low of 4.7% that month before rebounding to 6% in June — raising some concerns. Further, Labor force participation for women ages 25 to 54 hit an all-time high this summer, far surpassing pre-pandemic levels.
Financial services, where job growth has been slow if not flat this year, added 19,000 jobs, with the largest gains in real estate and rental and leasing, offsetting job losses in commercial banking.
Hiring has averaged 278,000 jobs a month this year – strong by historic standards but down sharply from a record 606,000 a month in 2021 and from 399,000 last year as the U.S. economy roared back from 2020’s brief but nasty pandemic recession.
Bank of England raises interest rates to 5.25%
The Bank of England has increased interest rates by 0.25% to 5.25%, its 14th consecutive hike, as it aims to combat high inflation. The move, which economists widely expected, means UK interest rates are now at a fresh 15-year high. “But that doesn't mean it's easy for families facing higher mortgage bills, so we will continue to do what we can to help households." The hike will also mean further pain for mortgage rates. For the roughly 150,000 borrowers on tracker or variable rate mortgages in London, today's hike means an instant hike in mortgage payments.
The US Federal Reserve raised rates to 5.5%, the highest since 2001, while the ECB lifted rates to 4.25%, opting for a 25bps rise.
While the UK’s debt-to-GDP ratio is certainly not the highest amongst developed countries (Italy and Japan are far higher), debt servicing costs in the UK account for a much higher proportion of GDP than other countries at around 10% of GDP.
UK home prices likely to fall after biggest drop in 14 years
The Nationwide Building Society said its prices fell 3.8% from a year earlier, the most since 2009 and faster than last month’s 3.5% drop. Bloomberg Economics expects home prices to record a peak-to-trough decline of about 10%, meaning they would suffer a loss of 5.5%. Nationwide estimates that people who earn an average salary and are looking to buy a first-time home with a 20% down deposit will see a 43% share in monthly mortgage payments at a 6% mortgage rate, up from 32% a year ago.
The average home is now worth £260,828 - a fall of 0.2% compared to the previous month but down 4.5% on the peak recorded in August 2022, the building society said on Tuesday.
The typical first-time buyer with a deposit of 20 percent would see mortgage payments at current rates account for 43 percent of their take-home pay – up from 32 percent a year ago.
There were 86,000 completed British housing transactions in June, which is 15% below the levels prevailing a year ago and about 10% below pre-pandemic levels.
Commodities
World rice price index soars after India's export ban
The world rice price index of the United Nations food agency experienced a notable 2.8% rise in July, as compared to June, reaching the highest level recorded in almost 12 years. This hike in prices was mainly driven by excessive demand in key exporting countries and India's decision to restrict its rice exports. The Food and Agriculture Organization's All Rice Price Index, which tracks rice prices across major exporting nations, estimated an average of 129.7 points last month, a notable rise from June's 126.2 points. Amidst India’s ban on rice exports, which has tightened global supplies, some rice exporters in Thailand and Vietnam have been re-negotiating prices on sales contracts for around half a million metric tons for August shipment.
India, a country that contributes 40% of the world’s rice exports, ordered a halt to its largest rice export category last month.
International Monetary Fund (IMF) Chief Economist Pierre-Olivier Gourinchas estimates that the ban will push up prices and that global food prices could rise up to 15 percent this year.
China removes tariffs on Australian barley
China has decided to lift its 80.5 percent tariff on Australian barley imports, effective August 5th. The positive outlook extends beyond barley imports, as Australian authorities expect a similar process for the removal of duties on Australian wine. The lifting of tariffs on Australian barley could also ease food price inflation concerns in China following Russia's withdrawal from the Black Sea Grain Initiative. Australia's export relationship with China has been significant, with Australia exporting more to China than it imports from the country.
Australian Trade Minister Don Farrell said on Friday that Chinese restrictions affecting roughly A$20 billion of annual trade as of last May had shrunk to hit about A$2 billion of exports.
The Australian government said it would end its barley dispute at the WTO but had not yet dropped a separate complaint against China's tariffs of up to 218% on Australian wine.
China's Ministry of Commerce said on Friday (August 4) anti-dumping and anti-subsidy tariffs on Australian barley would end on Saturday (August 5), roughly three years after more than 80% of duties severed an annual trade worth the equivalent of US$986 million.
Oil prices climb as Saudi Arabia, Russia supply cuts boost supply jitters
Oil prices rose on Friday after Saudi Arabia and Russia announced plans to extend existing supply curbs. The move by Saudi Arabia to extend its voluntary oil output cut of 1 million barrels per day for a third month triggered hectic short-covering in the futures contract and helped the commodity regain the ground it had lost in the previous session. Oil prices were also supported by comments from Russia's Deputy Prime Minister Alexander Novak that Russia would cut oil exports by 300,000 bpd in September.
Benchmark crude oil futures for September delivery rose $2.06 or about 2.6 percent to settle at $81.66 a barrel on the New York Mercantile Exchange.
Asia's imports were estimated at 21.85 million metric tons in July by commodity analysts Kpler, up from June's 21.28 million and the most since January.
Looking at July import data, Europe's imports were estimated at 8.72 million metric tons in July, down from June's 9.06 million and the lowest monthly total since August last year.
In summary, oil prices rose on Friday due to concerns about tight supply. Saudi Arabia and Russia's decision to extend their oil output cuts helped to boost prices, as did strong demand from Asia. However, Europe's oil imports fell in July, which could weigh on prices in the coming weeks.
European Union
EU officials to look at funding Ukrainian grain transportation
The European Union will look at helping to fund the costly transportation of grain out of Ukraine after Russia halted a deal that allowed Black Sea exports vital to global food security, a top agriculture official has said. The issue of how to get food products out of Ukraine - and help farmers in neighboring EU countries compete with a glut of cheap grain - is threatening to shake the 27-nation bloc's unity in supporting Kyiv as it battles Russia's invasion.
Europe imposes new sanctions on Belarus
The Council of Europe has expanded sanctions against Belarus in a continued effort to maintain pressure on Minsk for its support of Russia’s war in Ukraine. New sanctions will ensure tighter coordination of anti-Russian and anti-Belarusian sanctions, as well as make it more difficult to circumvent sanctions against Russia using Belarus.
The latest measures target a further 38 regime figures and three state-owned entities, including leading “propagandists” on state television, prosecutors, and prison officials.
In total, the European Union's sanctions against Belarus now target 233 individuals and 37 entities.
EU adopts new standards for corporate sustainability reporting
The European Commission has adopted the European Sustainability Reporting Standards to be used by companies under the CSRD. These standards, covering environmental, social, and governance issues, aim to enable investors to understand the sustainability impact of companies. Moreover, the new standards take account of discussions with the International Sustainability Standards Board and the Global Reporting Initiative in order to ensure a very high degree of interoperability between EU and global standards and to prevent unnecessary double reporting by companies.
Under the ESRS, large listed EU companies with over 500 employees are required to report all emissions – direct (scope 1), indirect (scope 2), and value-chain (scope 3) – from 2024, while large unlisted companies will have to do so from 2025.
Additionally, non-EU companies generating over €150 million of revenue annually in the EU and having a branch in the EU with revenue over €40 million or a subsidiary that is a large company or a listed SME will begin reporting from the financial year 2028 with the first reports due in 2029.
The adoption of the new standard comes just weeks after almost 100 asset managers, banks, funds and other financial firms called on the European Commission to amend its environmental, social and governance (ESG) reporting rules, warning they are not strong enough given escalating environmental risks.