A daily market update from FS Insight — what you need to know ahead of opening bell

“It is better to do something than to do nothing while waiting to do everything.” — Winston Churchill

First news

• U.S. servicemen killed, oil tanker shot by Iran-backed forces, while Navy sinks to taking pretty much anyone
• You’ve gotta fight for your right to drive a car in Singapore
• AI to the rescue for harried Chinese test takers, exam reviewers, and parents.

Overnight

• Evergrande Heads to Liquidation in Crisis Milestone (Correct). link
• U.S. Wants Cloud Firms to Reveal Foreign Clients in China AI Race. link
• Netanyahu Says Big Gaps Remain in New Hostage Negotiations. link
• Iran Distances Itself From US Base Attack as Biden Is Urged to Act. link

MARKET LEVELS

MORNING INSIGHT

Good morning!

One-hundred-and eight companies are reporting this week. Of the 124 companies that have reported so far (25% of the S&P 500):

• Overall, 71% are beating estimates, and those that beat are beating by a median of 7%.
• Of the 29% missing, those are missing by a median of –7%.
• On the top line, overall results are beating estimates by a median of 2% and missing by a median of –2%, and 68% of those reporting are beating estimates.

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TECHNICAL

SPX and QQQ at new all-time high territory has not yet been followed by similar movement from Russell 3k, Value Line Average, and DJ Transportation Avg, and this divergence will be important to concentrate on in the weeks ahead. Technology remains an outperformer after its recent breakout, while Financials are starting to play catch-up. Meanwhile, defensive sectors such as Utilities and Staples are starting to show evidence of hitting support, and likely are close to turning higher. Breadth has been waning in recent weeks, while US Dollar and Treasury yields have begun to press higher, which likely could bring about an upcoming consolidation for US Equities. At present, trends are bullish and trend reversals require a close back under 1/12/24 peaks to cause even short-term concern. (SPX-4802.40)

^{Source: Optuma}

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CRYPTO

Global digital asset banking group, Sygnum, raised $40 million in a strategic round, valuing the company at $900 million, marking the second largest valuation of 2024 thus far. Azimut Holdings, an asset management firm, led the investment round. The “Strategic Growth Round” was oversubscribed and exceeded the initial target of raising $35 million. The funding will be used to expand Sygnum’s offerings in new European and Asian markets to take advantage of positive market trends within the digital assets industry.

Sygnum offers a comprehensive suite of regulated digital asset services, including banking, asset management, tokenization, trading, staking, custody, and more. Sygnum is a prominent player in Europe and Asia with a Swiss banking license and CMS and MPI licenses in Singapore. They finished 2023 with over $100 million in annual revenue run rate and achieved positive cash flow in Q4. Its assets under administration have grown to over $4 billion, with over 1,700 clients across 60 countries. 2022 and 2023 saw many CeFi institutions blow up, such as FTX/Alameda, Silvergate, 3AC, and First Republic, among others, leaving a gap to be filled by other industry participants. CeFi fundraising was one of the least funded categories throughout 2023, and it is encouraging to see Sygnum taking advantage of the opportunity and restoring trust in the industry “via regulation and good governance.” As the market continues to pick up steam through 2024, Sygnum is well-positioned to “empower everyone everywhere to own digital assets with complete trust.”

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FIRST NEWS

Russian Roulette. As of Friday, recent months had brought at least 158 attacks on U.S. and coalition forces in Iraq and Syria. As the constant volley of drones, rockets, and missiles mostly failed to cause serious injury or damage to infrastructure, American officials had termed the campaign ‘unsuccessful’, lulling themselves into a false sense of security.

The 159th time turned out to be fatal for three U.S. Army soldiers, killed in a drone strike overnight from Saturday to Sunday at the Tower 22 outpost in Jordan, near the border with Syria, with 30 service members also injured in the attack. U.S. forces at the outpost are there as part of an advise-and-assist mission. It is not clear why air defenses failed to intercept the drone.

This is the first time U.S. troops have been killed by enemy fire in the Middle East since the beginning of the war in Gaza. Speaking at a church in South Carolina Sunday, President Biden, who now faces pressure to confront Iran, said “we had a tough day last night in the Middle East. We lost three brave souls in an attack on one of our bases. We will respond.”

CENTCOM said later Sunday that “there are approximately 350 U.S. Army and Air Force personnel deployed to the base, conducting a number of key support functions, including support to the coalition for the lasting defeat of ISIS.” CNN

Russian Roulette, Part II. A missile attack this past Friday on the Marlin Luanda, a tanker taking Russian fuel through the Gulf of Aden, may be the jolt an oil market previously seen as immune to months of Houthi attacks was due for. Why the (now shattered) appearance of calm? One answer is that oil tankers generally had been largely spared. Another is that much of the oil flowing through the Red Sea and Suez Canal came from Russia. Given that the Houthis said Russian ships had nothing to fear – and Moscow is an ally of their sponsor Iran – the theory was that oil in the Red Sea might be safe. Now, the Houthi hit on Russian fuel has oil traders recalculating risks. Oil prices rose ~$2 after Marlin Luanda was struck leaving the Red Sea. The attack could change which ships are considered at risk.

In related news: It’s a roughly 20-hour flight from the capital of Yemen to Moscow, including at least one layover, yet a Houthi delegation braved the stretch of time and distance last week, traveling to Russia’s capital to meet with the local deputy foreign minister. Per a post on X by a leading Houthi negotiator, on the agenda was how to intensify the pressure on the U.S. and Israel to stop war in the Gaza Strip and “the American-British aggression it was subjected to in order to protect Israel”. The airline could neither confirm nor deny that the delegation had been served hallucinogens to ease the discomfort of the outbound flight.

Russia has been ratcheting up anti-Western rhetoric, claiming to be protecting certain countries of the Global South against countries of the G7. Israel is correctly seen by Russia – whose predecessor and spiritual forefather, the USSR, had a long history as an ideological crusader against Zionism and a supporter of Arab countries in their wars against Israel – as a Western country, and an ally of the G7. Bloomberg, The Jerusalem Post

Standards Aweigh. In related news, amid continued recruiting woes, the U.S. Navy has lowered the quality bar for the ranks of the enlisted. Access will now be open to so-called ‘Tier 3’ applicants. Fox News

SEC to ADM: CFO. The CFO of Archer-Daniels-Midland, of ‘Supermarket to the world’ fame, (ADM) was “placed on administrative leave, effective immediately” after less than two years at his post. The “leave is pending an ongoing investigation being conducted by outside counsel for the company and the Board’s Audit Committee regarding certain accounting practices and procedures with respect to the company’s Nutrition reporting segment, including as related to certain intersegment transactions.” The company also disclosed that “the investigation was initiated in response to the company’s receipt of a voluntary document request by the Securities and Exchange Commission… The company is cooperating with the SEC.” [VerityData, via The Bear Cave]

Clear Backlog on Single-log Bridge. Backed by Hong Kong broadband billionaire Richard Li, startup Learnable.ai wants to use AI to revamp the spirit-breaking ordeal that is the administration, taking, and grading of China’s annual college-entrance exams by slashing grading times and help students.

Guan Wang, chairman of Learnable.ai, Brown University computer science PhD, and director of the Ningbo Artificial Intelligence Research Institute at Shanghai’s Jiaotong University, secured ~$14 million for the startup in 2022 at a valuation of $200 million.

Ningbo-based Learnable.ai is in talks with investors to raise up to 500 million yuan ($70 million) to develop AI for automating the grading of the gaokao – the nationwide test that determines which of millions of annual aspirants get into China’s top universities. Known as the mother of all exams, the gaokao is like the SAT, ACT, and the AP exams rolled into one two-day paroxysm of test-taking – testing learning, will power, and mental resilience.

Learnable.ai ambitiously seeks to overhaul a system largely unchanged since its launch some 70 years ago. Every year, up to 10 million high-school students take the handwritten exams, then wait weeks for the results, as thousands of human examiners review every single paper.

Wang believes AI can cut all that down to under a day. Theoretically, after sifting through papers in an instant – the test would have to be digital for that – his model would generate grading standards, then pull assessments together within hours.

Roughly 1% of China’s students get into its top 20 universities. Gaokao stands for National Unified Examination for Admissions to General Universities and Colleges and is sometimes described as a dumuqiao, which translates as ‘single-log bridge’ – referring to a Chinese idiom suggesting ‘a willingness to go where others fear to tread’; only in this case, it’s more of ‘a difficult path everyone has to walk’. Students in online forums who claim to have scored 1500-plus on the SAT after the requisite preparation, freely admit that they would be ‘toast’ if forced to take the gaokao anytime soon.

China’s Ministry of Education has been testing Learnable.ai’s model since 2019, and since 2021, it’s been used as an auxiliary tool in high-school and college entrance exams in a dozen-plus provinces or regions including Hunan, Sichuan, Guangxi and Jiangxi. The company is now testing a consumer app.

Wang argues that there’s real potential for AI to lessen the burden on students and parents. “China’s best education resources concentrate in places like Beijing, Shanghai and Shenzhen, but there is a shortage of good teachers in vast rural areas.” “The cost of using AI models for inclusive education will be really low, because most parents have at least a mobile phone.” Bloomberg, Yahoo Finance

Ten Years a Car Owner or G-d Bless America. Driving in Singapore was never designed to be a universal right – the way it is, say, in the U.S. Since 1990, the government of the tiny island, roughly a quarter of Rhode Island in area, has had a tight grip on the number of cars on the road. In 2017, it decided to freeze growth altogether. Now, at practically twice what a small, government-subsidized apartment costs, $200,000 Toyotas Camrys (car-owner’s permit generously included) are fueling discontent over the widening wealth gap on the island, while elevated rents and inflation are stoking a general affordability debate.

The price of the permit alone spiked from ~$22,000 in 2020 to a record $112,000 in 2023 as a post-pandemic recovery had driven up the cost of Singapore’s vehicle quota system to all-time highs. The city-state is home to ~6 million people and can be driven across in less than an hour; the total number of vehicles on the road is capped at about 950,000. In Singapore, the winning bidder in an open-bid uniform price auction receives the legal right to register, own, and use a vehicle for 10 years via the permit, called The Certificate of Entitlement. In the U.S., we are generally entitled to 0.85 vehicles per person, while Singapore makes do with only 0.16. [All figures in U.S. dollars.] Bloomberg