Finimize - 😘 Investors heart Samsung

What’s going on here?

Samsung warned that last quarter’s profit will come in well short of expectations, but it was easy to spot investors’ loyalty when the Korean chipmaker’s stock stayed steady.

What does this mean?

Samsung’s name might be plastered over 85-inch flat screen televisions and cult-favorite Galaxy smartphones, but the tech company has also quietly become the world’s biggest producer of computer and phone memory chips. But it’ll want to keep the latest development on the down-low: with shoppers cutting back on luxuries like new phones and laptops, companies are buying fewer memory chips – and that’s left Samsung flogging unsold stock at discount prices. So now, the company’s warning that profit will have fallen a worse-than-expected 35% during the quarter that ended in December, a turnaround from Samsung’s optimistic tone back in October.

Why should I care?

For markets: The chips aren’t down yet.

Samsung won’t be shouting that news from the rooftops, of course, but the firm’s memory chips trade on an exchange, which means their prices are public knowledge. Still, future-focused investors don’t seem worried. In fact, Samsung’s stock didn’t budge after the news. That’s partly because a gaggle of chipmakers – including the Korean household name itself – are slowing down their production lines to match demand, which should perk up chip prices a little. And with investors hoping for more sales in the computer and phone markets when interest rates take a breather, Samsung could be in for a more lucrative year.

Zooming out: Investors are playing the long game.

Investors sent Samsung’s stock up 45% last year, and that’s not only because they’ve crossed their fingers for a recovery in the memory chip market. While no one’s sure quite how artificial intelligence will develop over the coming months and years, chipmakers are guaranteed to be in demand. After all, any artificial intelligence systems will need a bounty of all sorts of chips if they’re going to take over the world.

What’s going on here?

Germany’s previously prized industrial sector continued its streak of infamy, laying low for the sixth month in a row.

What does this mean?

The industrial powerhouse has a reputation for being reliable. Usually, that means churning out enough produce to buoy up the country’s economy and, more often than not, the whole of Europe’s too. But more recently, Germany has been reliably disappointing. The latest data showed that the industrial sector’s output shrunk by 0.7% in November versus the month before, letting down economists who had hoped for a 0.3% recovery. So with the sector still making around 10% less of its wares than before the pandemic, some economists believe that Europe’s biggest economy might’ve fallen into a technical recession at the end of the year.

Why should I care?

The bigger picture: The worse the data, the hastier the help.

Inflation seems to be losing its muscle, but central banks will want a few more months of consistent data before they consider bringing interest rates any lower. At the end of the day, a hasty move could wipe out much of the progress made. But central banks don’t want to hammer economies too hard, either. So as long as inflation stays on the retreat, they may lean on concerning stats – like that German data – to justify economy-cushioning interest rate cuts as soon as they confidently can.

Zooming out: America’s pulled ahead.

Investors often act on their macroeconomic predictions by trading currencies, so the foreign exchange market can be revealing. The euro and US dollar have been stuck in a chase for the last year, with the frontrunner depending on whether investors expect the Federal Reserve or European Central Bank (ECB) to cut rates first. But lately, the dollar has been building strength as investors anticipate the ECB reaching for the scissors first. Mind you, any disheartening stateside data could turn those odds on their head.