by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

On a slow news day, our short Comment today opens with early signs of relatively disappointing demand for World Cup tickets, which could mean the economic stimulus from the event will be less than expected. We next review several other international and US developments that could affect the financial markets today, including an unexpected interest rate hike in Indonesia and a US blacklisting of more Chinese firms as suppliers to Beijing’s military.

FIFA World Cup: New data from FIFA shows it still has some 15,000 initial tickets available for first-round “group” games during the US-Canada-Mexico tournament, as well as a whopping 176,000 resale tickets available. Analysis by the Financial Times suggests demand is so weak that most resale tickets are being released at a loss after fees.

• The apparent shortfall in enthusiasm could mean that the economic jolt for cities hosting the games will be less than hoped for.
• It could also mean that the surge in hospitality and local government hiring and other preparations for the tournament will be reversed quickly, leading to some potentially weak economic reports for June and July.

China-North Korea: Chinese General Secretary Xi today wrapped up his visit to North Korean paramount leader Kim. While few substantial, concrete agreements or other developments have been noted, one key observation is that there was no significant reference to North Korea’s nuclear program. That suggests Xi no longer sees North Korea’s denuclearization as feasible. In turn, the US may not be able to rely on China for additional pressure on Pyongyang to scrap its nuclear weapons. North Korea will therefore remain a security risk for Asia and its investors.

United States-China: The Pentagon today designated about two dozen additional Chinese companies as suppliers to Beijing’s armed forces. The newly designated firms include tech giants Alibaba Group and Baidu, electric car manufacturer BYD, pharmaceutical firm WuXi AppTec, and humanoid robotics company Unitree. The designation means the firms can’t do business with the Pentagon, but it can also lead to reputational risk that can be a headwind for their overall business in the US.

US Artificial Intelligence Industry: Late yesterday afternoon, ChatGPT creator OpenAI announced that it has filed for an initial public offering that will likely come sometime this autumn. That means that OpenAI, its rival Anthropic, and SpaceX are all now planning big IPOs (at mammoth valuations) in the coming weeks and months. Reports indicate that some investors have already begun selling shares in other companies to raise cash and be ready to buy the new tech shares. In turn, that could weigh on share prices for targeted sectors or firms.

• Interestingly, some major college endowments that invested in SpaceX via private equity funds in recent years are now set to earn billions of dollars from its IPO.
• For some institutions, including Washington University in St. Louis, equity in SpaceX makes up more than 10% of their endowment portfolio. (We don’t expect any windfall to lead to lower tuition rates, unfortunately.)

US Housing Market: The Financial Times today carries an interesting article showing that buy-now, pay-later firms are starting to offer so-called “rent-split loans,” in which the lenders cover a tenant’s monthly payment to their landlord and receive the money back in installments spread over the course of the month. The loans effectively split up the borrower’s rent bill into smaller sums. The new product reflects the financial challenges that many lower-income consumers are facing because of rising living costs.

Indonesia: In an off-cycle move today, Bank Indonesia unexpectedly boosted its benchmark short-term interest rate to 5.50%, up from 5.25% previously. The hike followed a 0.50% increase just three weeks ago, which had been the first rate hike in about two years. According to the policymakers, the rate increases aim to support the rupiah, which has been losing value against the dollar and other major currencies as investors begin to project possible rate hikes in the US and other countries because of the war in Iran.

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