News of the week summary - 10/22/2023

SEC orders large short sellers to report their positions

The Securities and Exchange Commission (SEC) has adopted new rules that offer traders a more comprehensive view of which public companies are being targeted by short sellers. 

• Short-selling : borrowing shares and selling them immediatly, before repurchasing them later to give them back to the lender. If the share price falls between the time the investor sells and purchases them, the investor will earn a profit equal to the price difference between these two prices.

These rules were prompted by the 2021 GameStop trading frenzy, where individual investors on Reddit coordinated to buy the stock to make its price rise and "punish" hedge funds that had bet against it. The SEC's final rules, coming more than two years after the GameStop event, are designed to enhance transparency in the market.

They involve two rules, one aimed at large short sellers and the other at securities lenders. 

• The first rule requires institutional funds with significant short positions to file monthly reports detailing their bets, which will then be published, although the positions and identities of individual short sellers will remain confidential. 
• The second rule applies to securities lenders, requiring them to disclose loan terms, borrowers' information, and more to ensure fair terms for both parties.

IMF warns current tensions in the middle-east could theaten global economy 

Finance ministers and officials gathered for an IMF and World Bank meeting in Morocco, have warned that escalating tensions in the Middle East pose a significant threat to the global economy as the world emerges from the shocks of the COVID-19 pandemic and the Ukraine conflict. Broader regional tensions could lead to economic ramifications, such as higher energy prices driving inflation and reduced confidence. 

The head of the IMF, Kristalina Georgieva, expressed concerns about the medium-term prospects for the global economy. The situation is seen as one of the most challenging times the world has faced in decades, with underlying vulnerabilities in the global economy, worsened growth trends, trade barriers, and rising public debt. While central banks managed to control inflation without causing recessions, recent geopolitical events have added uncertainty to the economic outlook.

Late Payments on U.S. Pandemic-Era Loans 

U.S. borrowers who acquired new debt during the COVID-19 pandemic are struggling to make payments at higher rates, largely due to increased lending to households supported by government stimulus programs. 

While these programs temporarily boosted consumer credit scores and made lenders more willing to extend credit, borrowers who took out loans in 2021, 2022, and early 2023 are experiencing difficulties with debt repayment since rates have skyrocketed. 

Delinquency rates on credit card accounts opened in the first quarter of this year reached 4% in September, a level not seen since 2008. These rising delinquency rates are raising concerns that government assistance programs may have inadvertently led some consumers into financial difficulties.

Nvidia and Foxconn to collaborate on AI data centers 

Nvidia and Foxconn have announced a partnership to build "artificial intelligence factories", which essentially consists of large data centers built to process the tremendous data needed by AI systems to function and develop. 

This collaboration comes as the U.S. tightens restrictions on AI chip sales to China. Nvidia, a leading supplier of AI chipsets, will provide its latest chips and enterprise software to create advanced data centers for training autonomous vehicles, robotics, and large language models. Foxconn's goal is to transform from a manufacturing service company (the company is Apple's main manufacturer) into a platform solution provider. 

German Producer Prices Decline 

Producer prices of goods in Germany have experienced their most significant annual decline since records began in 1949. This points to further deflationary pressures in the largest economy in Europe. 

The decline in producer prices is attributed to falling wholesale energy prices. When excluding energy, German producer prices rose slightly from a year earlier. This data is seen as an indicator of future consumer prices (read more on inflation and its measures here), and the weakness in the German economy is reflected in declining exports, particularly outside the EU. 

The German economy has faced nine months of contraction or stagnation, and it is expected to be the worst-performing major economy this year. These factors are contributing to cooling price pressures and may influence the European Central Bank's decisions on interest rates.

China Imposes Export Controls on Graphite 

China has imposed export controls on graphite, a critical material used in electric vehicle batteries. This move is seen as a response to U.S.-led restrictions on technology sales to Chinese companies. 

China, dominating global graphite supply chains, will now require special export permits for specific grades of graphite. These controls are introduced under the pretext of national security and are likely to heighten geopolitical tensions between China and the United States. 

While China is cautious of retaliatory actions, it has increasingly leveraged its dominance in various resources in response to external pressures, following similar restrictions on other critical materials earlier this year (notably gallium and germanium in September, read more here).