Cela's Weekly Insights - April 02, 2023
Welcome back everyone! This week, we're delving into the surprising dip in European inflation, the big split of Alibaba into six separate entities, and a brief look at historical company breakups.
Inflation in Europe: A Wild Ride
Inflation in the Eurozone took an unexpected turn, with consumer prices rising 6.9% in March, down from 8.5% the previous month. While the overall figure might seem positive, it's essential to look beneath the surface. Core inflation, which excludes energy and food costs, actually hit a Eurozone high of 5.7% (up from 5.6% the previous month). Additionally, both food price inflation and services inflation saw slight increases, from 15% to 15.4% and from 4.8% to 5%, respectively.
Analysts predict that this high core figure could lead to further increases in borrowing costs by the European Central Bank (ECB), which targets inflation of 2%. Despite the drop in energy costs, concerns about rising labor costs and unemployment in the bloc at a record low of 6.6% have experts worrying about a new wave of inflation.
Alibaba: The Big Split
Chinese e-commerce giant Alibaba is dividing into six separate companies under the Alibaba Group. The aim of this move is to increase entrepreneurial flexibility and speed up internal decision-making processes. The six possible companies include: online commerce, financial services, logistics, cloud computing, healthcare, and video streaming.
Investors are cheering this decision, with Alibaba's stock jumping by 9% this week. Furthermore, five of these new companies are expected to go public, bringing even more delight to investors. However, the future of Alibaba remains uncertain due to ongoing issues with regulations in China. While the potential breakup may unlock value for shareholders, it's important to consider the broader context of the regulatory environment in which the company operates. As a result, investors should keep a close eye on Alibaba's developments and the impact of Chinese regulations on its various business segments.
A Brief History of Company Splits
So let's talk about breakups for a second. Company breakups aren't a new phenomenon. Notable examples include Standard Oil, AT&T, American Tobacco and very recently General Electric. Microsoft was also a candidate: The U.S. government accused Microsoft of illegally maintaining its monopoly position in the personal computer (PC) market. However, Microsoft was never officially split, but in 2000, the company reached an agreement with the US government to end anti-competitive behavior related to the Windows operating system and Internet Explorer.
So why do companies breakup? Well, they often split due to regulatory concerns, value enhancement, increased focus, flexibility, or risk reduction. Large companies are sometimes broken up or divided by regulatory authorities due to antitrust concerns or monopolistic behavior. Authorities aim to promote competition and provide consumers with fair prices and choices. Breakups can also help a company concentrate on its core competencies and divest less profitable business units, increasing efficiency and making better use of resources. So I guess breakups are not such a bad thing sometimes.
Last Week's Market Performance: A Global Overview
Last Week's Survey Results | Calender Week 13/2023
Last week's poll results showed a split opinion about the weekly forecast for the S&P 500. LinkedIn users were more cautious, with only 54% predicting a positive week, while Instagram users were considerably more optimistic, with 79% foreseeing gains. As it turned out, the S&P 500 finished the week strong, with a robust gain of +3.48%, marking its third consecutive week of positive returns.
Will this upward momentum continue? Make sure to cast your vote here in this week's poll: ?? or ??
That's all for today folks. If you've made it this far, thanks for tuning in ??.
Cheerio!