Microsoft is planning to purchase Activision Blizzard Inc., in an all-cash deal worth around $75 billion. The transaction would make Microsoft the world’s third largest gaming company by revenue behind Tencent Holdings and Sony Group.
Key themes for the week include:
- Chinese economic growth beats expectations
- Resources’ strength drives the Johannesburg Stock Exchange (JSE) higher
- Gold rallies to a two-month high
- Rand strengthens on the back of commodity-price increases
MICROSOFT BETS ON THE METAVERSE
Microsoft is looking to acquire legendary game publisher, Activision, which is responsible for some major gaming franchises, including Call of Duty and World of Warcraft. Activision, however, has recently been tainted by sexual misconduct and workplace discrimination scandals. Microsoft’s bid of $95 a share was at a 45% premium on the closing price of Activision on Friday last week, but it is considered a bargain when compared with the stock’s performance in the first half of 2021 when Activision shares were trading around $100. A sexual bias lawsuit caused the company to lose around half of its value during the latter half of 2021. On Tuesday’s announcement, Activision shares surged and closed around 25% higher, while Microsoft shares slipped slightly, losing 2% amid a broader market sell-off.
Microsoft described the deal as a pathway to the “metaverse”, a shared virtual environment that is accessed via the Internet. The term was mentioned more than ten times during the 15-minute investor call after the announcement. The metaverse has been the subject of growing hype recently with Facebook’s Mark Zuckerberg announcing that it will be the new focus of Facebook and the company changed its name to Meta platforms. Other tech giants have also been focusing on the metaverse, as Google has worked on metaverse-related technology for years now and Apple has its own devices in the works, having recently launched a virtual reality headset.
So, what exactly is the metaverse and why is there so much hype around it? The metaverse can be described as the coming together of two main ideas: virtual reality and a digital second life. It is a virtual world where people can play, work and shop across different platforms using digital avatars (virtual representations of themselves) and digital currency. The metaverse has largely been hailed as the next evolution and the future of the internet. Multi-player games are an example of how such a metaverse might look, where people will operate in virtual world, where they spend virtual currency on digital goods and get their avatars to interact which each other.
ECONOMIC DATA IN A NUTSHELL
The United States (US) Department of Labor’s latest jobless claims reached 230 000, up from 207 000 claims during the prior week. Exceeding economists’ expectations of 200 000 claims, the number of jobless claims is highlighting the impact of the Omicron variant’s surge on the US labour market, which is currently experiencing a shortage of employees.
Eurozone inflation reached a record high of 5% in December 2021, owing to soaring energy and food prices. Inflation data released this week showed inflation rates broadly in line with expectations in Germany, at 5.3% and the United Kingdom (UK) which reported 5.4% inflation. The UK also reported a marginal improvement in its unemployment rate from 4.2% to 4.1% in November 2021.
China announced 2021 fourth quarter year-on-year economic growth of 4.0%, which beat expectations of 3.6%. A 4.3% increase in industrial output outpaced forecasts of 3.7% and was a key driver of economic growth for the quarter, as China benefitted from global demand heading into December’s festive period.
South Africa’s retail sales data for November 2021 show a 3.3% improvement; led by a 10.3% increase in spending on apparel items. Meanwhile, consumer inflation was reported at 5.9% year-on-year for December 2021, ahead of expectations of 5.7% and following an inflation rate of 5.5% in November. Core inflation stands at 3.4%.
RESOURCES CARRY THE JSE
US equity indices have remained in the red since the new year began. This week, markets showed further strain as we enter a new regime characterised by a hawkish US Federal Reserve. The S&P 500, and Nasdaq Composite retreated 2.8% and 3.7% respectively, as rising US Treasury Yields keep the pressure on equity valuations, especially in the tech space. Earnings season kicked-off this week; with UnitedHealth reporting fourth-quarter earnings which were 4.2% ahead of consensus after a 12.6% increase in revenues and an expansion in operating margins.
The JSE gained another 1.3% this week, leaving it 3.3% up year-to-date. The JSE Financials index gave away 2.9% this week, after two weeks of strong trading while the JSE Resources index continued to rally after an additional 3.8% gain. Woolworths released a 26-week trading update showing flat group sales on a constant currency basis, while the retailer contended with a weaker than usual performance from their prized Woolies Food business.
GOLD BOUNCES AS INVESTORS LOOK FOR INFLATION HEDGE
Strong demand and short-term supply disruptions continue to support oil prices despite the commodity slipping slightly on Thursday as Brent crude futures were down 0.5% at $88 per barrel. The global benchmark rose to $89.17 on Wednesday, its highest level since October 2014. The pull-back in the commodity price on Thursday coincided with President Joe Biden’s pledge to continue trying to lower oil prices as well as an emerging industry report which pointed to a modest increase in US crude stockpiles. Brent crude is up over 55% compared to a year ago and has gained 13% since the beginning of this year. This recent rally poses a challenge for consuming nations and central banks as they try and stave off inflation while supporting economic growth.
Gold rallied to a two-month high as investors sought out the precious metal as an inflation hedge. Spot gold rose to $1 842 an ounce, the highest since November last year. The increase in the bullion price translated into gains for the miners as they all surged higher on Thursday. Harmony Gold jumped 10.35%, AngloGold Ashanti gained 9.7% and Gold Fields was up 8.5%.
THE RAND SHINES
The US Dollar Index clawed back some strength this week reaching 95.5 after bouncing from a low of 94.6 during last week Friday’s trading. The direction the dollar will take this quarter is open for debate; dollar bulls argue that the greenback typically strengthens into a hiking cycle, while bears believe that stronger economic growth in Europe could be a catalyst for dollar weakness.
The week saw the euro and British pound reflect movements in the dollar for the most part, with little reaction from the Pound sterling after the Governor of the Bank of England, Andrew Bailey, insisted that inflation pressures should not be seen as a sign of support for additional rate hikes.
The rand has shown remarkable strength lately, reaching R15.15/$ on Thursday on the back of the rally in industrial commodity prices. The Bloomberg Industrial Commodity Index reached a high of 184.3 points on Thursday, which was 6.6% higher than its 2021 closing level, as investors price in expectations of increased demand from China this year.
The rand is trading at R15.25/$, R17.28/€ and R20.74/£.