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Market Update

Updated: Jul 2, 2019

Authors: Phillip Feng Co-VP Education/ Research, Edward Su Co-VP Education/ Research, Brent Huang Research Analyst, Bill Shu Research Analyst

Federal Reserve’s Interest Rate Decision

  • Facing worsened economic outlook and the intensification of trade war concerns, a Federal Reserve rate cut is becoming increasingly likely, after a weak job report in May hints at a potential recession

  • Earlier this month, Fed chairman Jerome Powell has signaled openness to rate cuts if necessary, indicating that the current overnight rate, which has been gradually increasing in the past 3 years, is perhaps already at its peak

  • The S&P 500 rose 4.4% following Powell’s comments, as investors raise their expectations about a near-term rate cut

  • Indications about future interest rate movements, including the number of potential rate cuts this year, will be more clear after the June 18-19 Federal Open Market Committee meeting

Salesforce acquires Tableau

  • On June 10, Salesforce announced its acquisition of Tableau through an all-stock transaction, valuing Tableau at an enterprise value of $15.7 billion (each Tableau share is exchanged for 1.103 Salesforce shares), which will be dilutive in the short run

  • Following the announcement, Tableau’s shares rose by 33% and Salesforce’s shares plunged by over 5%

  • According to Marc Benioff, Chairman, and co-CEO of Salesforce, this deals "brings together the world's #1 CRM with the #1 analytics platform,” which will yield remarkable synergy for the new combined company

  • As a successful CRM software company,Salesforce is leveraging its massive collection of customer data to provide an integrated platform experience for data visualization and analytics

  • This deal follows right after Alphabet’s acquisition of Looker, a BI/analytics firm, as more analytics-related M&A activities are expected to follow

Crude Oil

Over the past couple of months, crude oil prices have declined due to concerns over a slowing global economy, weaker demand and oversupply. The slowing global economy is a result of the ongoing trade tensions between the U.S. and China while U.S. crude inventories continue to rise due to weaker demand. These two trends have been the main reason for declining oil prices over the past 2 months. Despite all of the reasons to believe that oil prices will continue to fall, many analysts believe that oil prices could hit $80 per barrel as a result of the recent rise in tensions in the Strait of Hormuz. The Strait of Hormuz is one of the world’s most important waterways as roughly 20% of the world’s oil consumption passes through this body of water. This past month two separate attacks on oil tankers have taken place. WIth continued attacks, oil prices could skyrocket due to the extreme instability in this region.

Furthermore Iran has said that they intend to block the Strait of Hormuz if U.S. sanctions are not removed. Iran oil sanctions were escalated on May 2nd when 8 additional countries were no longer permitted to import oil from Iran because of the U.S sanctions imposed by Donald Trump. Those 8 countries include India, China, Taiwan, Japan, South Korea, Turkey, Greece, and Italy. Out of the 8 countries 5 of them are Iran’s largest oil buyers. With all of the instability and uncertainty in this region, oil prices could potentially increase by wide margins and should be watched in coming weeks as tensions between Iran and the US persist.

On a final note about crude oil, oil output cuts imposed by OPEC+ in January are set to end at the end of June, and will be re-negotiated in the coming weeks. With the news of weaker demand and lower oil prices, traders and market followers should expect participating OPEC+ countries to continue their current outputs or reduce them.

U.S - Mexico Trade Deal

In other news, the trade deal between the United States of America and Mexico has been approved by the Mexican government. This decision came after President Donald Trump threatened Mexico with trade tariffs. In addition, as a part of their agreement, Mexico has agreed to help the U.S. with the illegal immigration issues, which have plagued the U.S.

The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the authors, which do not necessarily correspond to the opinions of University of Waterloo Finance Association (“UWFA”). Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by UWFA. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.