Company / Analytics

Analytics, 29 March 2023

3 Things Affecting the Markets

On Monday, the Dow and S&P 500 closed mostly higher, with eight out of 11 S&P sectors gaining, despite the Nasdaq ending down by 0.47%. Regional bank stocks rallied as prospects for government support appeared to strengthen. However, Michael Barr, the Federal Reserve’s vice chairman for supervision, is due to address the Senate on Wednesday regarding the bank sector’s recent volatility, including Silicon Valley Bank’s failure.

Meanwhile, Disney CEO Bob Iger informed employees that the company would begin its planned layoffs this week, to shed 7,000 jobs across its operations. Binance and its CEO have been accused of violating anti-money laundering and anti-terrorism financing rules by the Commodity Futures and Trading Commission, dealing a blow to the cryptocurrency industry.

In China, Alibaba announced a major restructuring plan, dividing into six separate businesses, each with its ability to raise funding and explore IPOs. In this article, we shall take a look at Disney and Alibaba’s plans and the case between C.F.T.C. and Changpeng Zhao.

Disney Begins Layoffs

Disney began its previously announced layoffs on Monday, affecting 7,000 employees across several major divisions of the company, including Disney Entertainment, Disney Parks, Experiences and Products, and corporate. ESPN is not affected in this round of cuts but is expected to be included in later rounds. The cuts come as Disney seeks to control costs and create a more streamlined business, with the aim of saving $5.5 billion in costs and making its money-losing streaming business profitable. CEO Bob Iger said the first round of notifications will take place over the next four days, with a second, larger round of job cuts in April and a final round before the summer. The entertainment industry has undergone a retrenchment since media companies launched competitors to Netflix, with established media companies losing billions. The need to rein in spending became more urgent when Netflix posted its first loss of subscribers in a decade in early 2022, and Wall Street began prioritizing profitability over subscriber growth. Anxiety has been building within Disney as rumors swirl about areas of possible cuts, with details of the layoffs being closely guarded by the company.

Alibaba Splits Up

Shares of SoftBank Group Corp rose by 5.6% in afternoon trade, as Chinese e-commerce giant Alibaba Group, in which SoftBank has a 13.7% stake, announced its biggest restructuring plan in 24 years. The restructuring includes splitting into six units and exploring fundraising or listings for most of them. Alibaba would also reorganize itself into a holding company structure, with separate CEOs and boards for each of the six sub-divisions. The move is expected to prevent Chinese government scrutiny of Alibaba’s operations from affecting the rest of the group.

The unprecedented regulatory crackdown by the Chinese government in the last couple of years on its marquee domestic companies wiped off billions in market values and weighed on investor sentiment. Investors took the restructuring positively, as the uncertainty over Alibaba has been eased a little. SBI Securities analyst Shinji Moriyuki said the restructuring would help reduce the “discount to SoftBank’s stake given the unclear direction of China’s internet sector.” However, it is too early to tell if the restructuring will bring lasting growth to the Chinese company.

C.F.T.C. Sues Changpeng Zhao

Binance, the world’s largest cryptocurrency exchange, and its founder, Changpeng Zhao, have been sued by the US Commodity Futures Trading Commission (CFTC) for allegedly operating an illegal exchange and a sham compliance programme. The CFTC claimed that Binance offered and executed commodity derivatives transactions on behalf of US persons in violation of US laws, while Binance’s compliance programme has been “ineffective.” The lawsuit also accused Binance’s former chief compliance officer, Samuel Lim, of “aiding and abetting” Binance’s violations. The CFTC is responsible for oversight of commodities and derivatives markets, including Bitcoin.

Investor’s Note

The possibility of government support for regional banks helped boost their stocks, despite concerns being raised about the sector’s recent volatility. Meanwhile, the entertainment industry continued to feel the impact of the competition posed by streaming services, with Disney beginning its planned layoffs. The restructuring in Alibaba has also been closely watched, with SoftBank’s shares surging as investors welcomed the move to split the Chinese e-commerce giant into six units. It remains to be seen how the restructuring will help ease the regulatory pressure from the Chinese government and whether it will lead to lasting growth for Alibaba.

Overall, market participants are carefully monitoring various developments, ranging from regulatory changes and geopolitical tensions to corporate restructuring and industry trends, to assess their impact on investment opportunities and risk management strategies. The outlook for the markets in the coming days and weeks will likely depend on a range of factors, including economic data, earnings reports, and central bank policies, as well as geopolitical and regulatory risks.

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