This week, we’re starting and ending with China as there was some big retail news there and a development that may warrant a short-term “volatility alert”…
“Singles Day” Underscores China’s Resilience – for all the headlines warning of a weakening China, its retail sector proved otherwise on Wednesday. For China, “Singles Day” has turned into a major one-day shopping event, much like “Cyber Monday” here in the U.S. Alibaba Group Holding Ltd. posted a record $14.3 billion in sales on the day, with $1 billion coming in the first eight minutes of the sale.
Compare this to last year’s total sales of $9.3 billion, and it’s plain to see that the consumer in China is strengthening, not weakening. Alibaba estimates that 1.7 million deliverymen, 400,000 vehicles and 200 airplanes will be utilized to deliver all the goods sold. Retail’s economic engine, at its finest.
Biggest Beer Deal in History, Formalized – the maker of Budweiser, Anheuser-Busch InBev, formalized a deal on Wednesday to buy its British-South African rival SABMiller for $107 billion. This deal has been months in the making as SABMiller played hard ball in negotiations for some time before relenting. The combined company will allow Anheuser-Busch InBev the ability to tack hard into the developing world, where SABMiller already has a significant footprint – it gets 35% of its revenue from Latin America and 34% from Africa. Molson Coors is also part of the larger deal as they are slated to buy back SABMiller’s 58% stake in their joint venture, MillerCoors, in a deal valued at $12 billion in cash. This transaction was largely done in an effort to appease regulators concerned about how big AB InBev and SABMiller would be when combined (accounting for nearly 30% of global beer sales). The deal still has a hurdle to clear in being approved by regulators.
Crude Oil Prices Looking for a Bottom – it’s near impossible to predict when oil prices will bottom out as supply and demand factors are fickle and the commodity is historically volatile. I think the $40 – $50 range probably marks the lowest they’ll go, but the International Energy Agency (IEA) published some data this week that made me second guess. According to the IEA, oil stockpiles surged to a record 3 billion barrels due to high production levels from OPEC and producers that have just recently come back online, like Iran and Libya. The IEA referred to it as a “massive cushion [that] has inflated” even as the market has recalibrated itself to just over $40 / barrel prices. With OPEC essentially refusing to cut production in an effort to provide bottom support for prices, I’d expect $40 oil to linger for a while yet. Maybe even go a bit lower in the near term.
China Mingles in the Markets (Again) with New Rules – if it feels like China is intervening in the markets every week with new rules or some kind of monetary stimulus, it’s because they are. This week, they took steps to curb leveraged bets in their stock market which arguably played a big role in creating the bubble that burst earlier in the year. This week they raised margin requirements from 50% to 100%, a rule set to take effect on November 23. I’d expect the move to stir-up some fresh volatility for the Shanghai come Monday after investors take the weekend to process the change.