The EUR/USD pair loses ground to around 1.0490 during the early European session on Tuesday. The Euro (EUR) weakens against the Greenback as a budget standoff in France fuelled concern about the Eurozone’s second-biggest economy. 

The French Prime Minister Michel Barnier's plan to pass a social security bill without a parliamentary vote has prompted opposition parties to declare their intention to vote for a no-confidence motion against Barnier. This move is likely to cause the French government to collapse this week. 

The political uncertainty in France exerts some selling pressure on the shared currency. Meanwhile, the yield spread between French and German 10-year government bonds rose 7.6 basis points (bps) to 87.3 bps after reaching 90 bps last week, its highest level since 2012. "Crashing political sentiment in France and another activity data beat in the U.S. have handed the euro a dire start to December," said Kyle Chapman, FX market analyst at Ballinger Group.

Across the pond, US economic data released on Monday showed US manufacturing activity improving in November, suggesting that the US economy remains robust, lifting the US Dollar. However, the US Federal Reserve (Fed) remains data-dependent, and the employment report due on Friday will be closely watched. The Nonfarm Payrolls (NFP) might offer some hints as to whether the Fed would cut rates again on December 18.

Source: FXSTREET

Super Micro Computer (NASDAQ: SMCI) stock was one of the top gainers on Monday, as the stock price skyrocketed 29% to about $42 per share.

The catalyst for the server manufacturer, typically called Supermicro, was the news that it had not been involved in any fraud or misconduct following an investigation into its governance and controls.

The issues had caused Supermicro not to file its annual report for the fiscal year ended June 30 or its fiscal Q1 report for the period ended September 30. It also led to its outside auditor, Ernst & Young, resigning, and Nasdaq threatening to delist Supermicro from its exchange for not filing the reports.

However, the company, which makes AI-enabled servers for data centers, appears to be back on track following the satisfactory conclusion of an investigation.

No evidence of fraud or misconduct

Mainly, the earnings were delayed because Supermicro had appointed a special committee in August to investigate the governance issues that Ernst & Young (EY) brought to Supermicro’s audit committee back in July. The issue was compounded after EY resigned in October; replaced by a new outside accounting firm, BDO.

A couple of weeks ago, Supermicro stock jumped after it reported that it was finishing the investigation and had filed a plan to regain compliance and avoid being delisted.

On December 2, Supermicro released the final results of the investigation by the special committee. It found that there was “no evidence of fraud or misconduct on the part of management or the board of directors.”

Ultimately, the review determined that EY’s conclusions “were not supported by the facts examined in the review, the special committee’s interim findings reported to EY on October 2, 2024, or the special committee’s final findings.”

The investigation focused on several different areas. One was the rehiring of certain employees who resigned in 2018 following an investigation in 2017 by the audit committee. Another was the current sales and revenue recognition practices, particularly around quarter-ends. A third issue dealt with export control matters related to prevention of sales or diversion to restricted countries. Finally, there were concerns about related party disclosures.

Among the key findings, the special committee drew three main conclusions from its investigation.

One, the evidence reviewed by the special committee did not raise any substantial concerns about the integrity of Supermicro’s senior management or audit committee, or their commitment to ensuring that the company’s financial statements are materially accurate.

Two, the audit committee demonstrated appropriate independence and generally provided proper oversight relating to financial reporting. The special committee also had no reservations about the independence of the audit committee and each of its members.

Three, with respect to the rehiring of former employees, the tone at the top of the company was appropriate and fully consistent with a commitment to proper financial reporting and legal compliance.

Supermicro to hire new CFO

The special committee made several recommendations to strengthen Supermicro’s governance, including appointing a new CFO and creating a chief accounting officer position. The chief accounting officer will create an additional layer of accounting standards and oversight.

The committee also advised the company to appoint a separate chief compliance officer, a general counsel and more attorneys. The number of in-house attorneys should be appropriate for a company of Supermicro’s size and complexity.

It also called for Supermicro to improve its training systems and guardrail monitoring practices, and establish processes to review them.  

The board accepted all of the recommendations. Currently, it is searching for a new CFO to replace David Weigand, who will serve until a successor is named.

Further, Kenneth Cheung, Supermicro’s current corporate comptroller, was appointed chief accounting officer. Additionally, the board is accelerating the search for a chief compliance officer and general counsel.

In addition, the company said it has filed a plan with Nasdaq to complete its overdue annual and quarterly reports. It plans to “become current with its periodic reports within the discretionary period available to the Nasdaq staff to grant.” This will keep the stock listed on the Nasdaq.

Stock goes jumps 29%

Supermicro stock had been in freefall, dropping some 85% to a low of $17 per share in mid-November, post the October 1 10-for-one stock split. The fall was due for the most part to these issues.

Since November 15, the stock has jumped back to $42 per share, including a 29% surge on Monday. It is currently up 48% YTD.

The P/E ratio sunk from 79 in March down to 16 now, making this AI stock extremely attractive.

As an AI stock whose servers facilitate high performance computing at data centers, Supermicro has been compared to NVIDIA. It has incredible earnings power, and now its valuation is too low to ignore. However, investors should still be cautious until the missing earnings reports are released. They will provide a more detailed view of the company’s finances.

Source: FXSTREET

(Dec 3): Bank of Japan (BOJ) governor Kazuo Ueda has plenty of data to support the case for raising the benchmark rate in December, an outcome that would mark the first tightening of policy three times in a calendar year since the peak of Japan’s asset bubble in 1989.

The governor appears determined to weigh his options until the last minute before the Dec 19 decision. He will sift through forthcoming numbers, including the central bank’s Tankan survey on Dec 13, and monitor the US Federal Reserve’s (Fed) own rate decision due several hours before the BOJ’s board sets policy.

Still, expectations of a near-term move are rising. Ueda reiterated in an interview published Saturday that authorities will raise rates if the economy performs in line with projections, and he went a step further by saying the timing for a hike is “nearing” precisely because forecasts have proved prescient. Inflation momentum has been sustained, businesses are planning to invest and wages are rising. 

With annual wage talks also off to a fairly bullish start in an indication that the economy is inching toward a virtuous wage-price cycle, the December policy meeting promises to be very much a live event. Most economists surveyed last month foresaw a hike by January, and Ueda’s weekend interview probably nudged some of those views forward, as two-year government bond yields rose on Monday to the highest since 2008.

“The next rate hike is likely to be in December,” said Ko Nakayama, the chief economist of Okasan Securities and a former BOJ official. “The BOJ has said it will do it if the economy goes along with the official projections. There is mounting evidence to support that.”

The last time the BOJ conducted three hikes in a single year was in 1989. The third increase that year came on Christmas Day just four days before the Nikkei 225 stock average peaked at 38,957.44. 

The cumulative scope of those moves, which took the official bank rate to 4.25% from 2.5% at the start of the year, combined with the bank’s warnings about the bubble, weighed heavily on the economy and helped prick the overstretched confidence of investors. The stock market didn’t revisit those heights again until February this year, three and a half decades later.

Ueda faces a very different economic landscape in 2024. Japan is no longer in any kind of potential competition to become the world’s biggest economy. Instead, it is an ageing economy trying to re-establish a cycle of inflation, economic dynamism and growth. After years of policy experimentation, the governor is looking to return the central bank to an orthodox approach of policy control through interest rates.

In his first full year since taking the helm in April 2023, Ueda has already made 2024 a landmark year by ending the bank’s massive monetary easing programme in March with the first rate hike in 17 years.

The next hike would bring the BOJ’s policy rate to 0.5% from 0.25%, the highest level since 2008. While that’s still very low compared with borrowing costs managed by major global peers, the move still represents a substantial change after it stayed at -0.1% for years as the world’s last negative rate. 

While Ueda’s surprisingly rapid march towards normality has been smoother than expected, it has had its speed bumps. The BOJ’s second hike in July helped trigger a market meltdown in early August including the Nikkei’s biggest daily fall on record. But markets eventually settled down. 

Ueda has vowed to conduct careful communications ahead of the BOJ’s next move. The governor hasn’t gone so far as to adopt the sort of communication style favoured by Fed chair Jerome Powell, who telegraphed a pending rate move by saying “the time has come”. 

Ueda’s choice of the word “nearing” allowed him to hint that a move is coming without boxing himself into a precise month.  

In the media interview published on Saturday, the governor noted that he is keeping an eye on the wage talks as well as any risks that might emerge from the US economy as authorities attempt to engineer a soft landing at a time of political transition. The robust wage gains achieved this spring were an impetus behind the bank’s decision to begin rolling back its stimulus programme in March.

This month’s decision day could see a narrowing of the difference in US and Japanese interest rates with moves from both sides. As of Monday, traders saw around a 67% chance that the Fed will cut rates, and about a 61% chance that the BOJ will hike, doubling from a month ago.  

“If the Fed moves and the BOJ doesn’t, that could shed light on the BOJ’s cautiousness and weaken the yen,” Nakayama said. “That could also be a source of confusion that might destabilise financial markets.” 

Some economists say political factors could push the BOJ’s hike decision into January. One reason to pause is Prime Minister Shigeru Ishiba’s weak footing after the ruling coalition lost its majority while sustaining its worst electoral drubbing since 2009 in October. 

The prime minister must seek the cooperation of opposition parities to help pass a ¥14 trillion (US$93 billion or RM417.73 billion) extra budget to fund a stimulus package. The government also needs their support to compile a regular budget and undertake law revisions.  

“Ishiba is walking a tight rope with his ruling coalition not having a majority in parliament,” BNP Paribas economists Ryutaro Kono and Hiroshi Shiraishi wrote in a report on Monday. “The BOJ may decide to wait if Ishiba’s government can’t have proper communications” while also balancing other tasks.   

Still, if Ueda didn’t think there was a good chance of hiking in December, he probably wouldn’t have accepted the interview request, according to Naomi Muguruma, a long-time BOJ watcher. The governor only does about two major interviews with the press per year, so the timing of last weekend’s story may be pertinent.

“If the BOJ was thinking about a January rate hike, there was no need to have the interview now and indicate a rate hike,” Muguruma, the chief fixed-income strategist of Mitsubishi UFJ Morgan Stanley Securities Co, wrote in a note. “The BOJ is laying the groundwork for an additional hike at the December meeting.”

Source: Theedgemarkets