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Thoughts of the Day

OpenAI’s Board of Directors dismissed CEO Sam Altman without clear reasons, followed by Microsoft hiring Altman and his team for its advanced AI research group. The swift move highlights the scarcity of talent in the AI sector, and despite short-term dramas, the long-term trend of AI adoption in various industries remains unstoppable.

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Day Ahead

The Canadian Consumer Price Index is expected to show that prices rose +3.2% Year-on-Year in October, down from +3.8% in September. 

The meeting minutes for the Federal Reserve October Meeting will be released, more information about the Federal Reserve policy stance may be released.

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What Happened Yesterday

Market Movements as of New York Close 20 Nov 23
  • The RBA minutes showed that the RBA remains focused on their fight against inflation with the central bank noting that the risk of inflation has increased, thus resulting in an interest rate hike at the previous meeting. It also noted staff forecasts for inflation at the meeting assumed one or two more rate hikes.
  • The US Treasury Yield curve inversion widened slightly to 0.47% as the US 2-year bond yield rose +0.01% to 4.89% while the US 10-year bond yield fell -0.02% to 4.42%.
  • The US stock futures experienced some jitters in the early Asian hours following news over the weekend that CEO and founder of OpenAI Sam Altman has been fired from the company by the board of directors. However, risk sentiment started to improve as the London trading session started following news that he is joining Microsoft.The S&P 500 futures then fell slightly on some news regarding a weaker Canadian economy (see headline 3). The S&P 500 futures were down -0.04% before the New York session began.
  • The US stock market opened almost unchanged from Friday. It then climbed higher through the New York session as the market processed Microsoft’s (+2.05%) announcement that former OpenAI CEO Sam Altman and president and board chair Greg Brockman will be joining the big tech giant. Optimism was seen also in Nvidia (+2.28%) ahead of its earnings today. Consequently, the S&P 500 closed +0.74% higher (high: +0.95%, low: -0.08%), the Dow Jones rose +0.58% (high: +0.80%, low: -0.11%) while the Nasdaq climbed +1.19% (high: +1.38%, low: -0.04%).
  • The crypto market inched higher due to improved risk sentiment despite the lack of crypto drivers. Bitcoin is up +0.30% while Ether rose +0.47%
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Headlines & Market Impact

Japan’s inflation comeback prompts investors to tear up old playbooks

Notable Snippet: Global inflationary forces are finally seeping into Japan’s economy after decades of falling prices, forcing investors to radically rethink their Japan bets as the Bank of Japan considers a major policy shift.

International investors, who have long favoured stocks benefiting from Japan’s ageing population or a weakening yen, are tearing up their playbooks to focus on expected higher interest rates, more generous dividends and a revival in consumer spending.

The policy switch has been slow in coming but could herald an entirely new way of investing in Japan if a predicted long-term inflation rate of 2% in 2024 really happens.

Japanese shoppers who no longer expect prices to keep falling may make big purchases. If the BOJ pulls interest rates above zero for the first time in years, banks’ lending margins could rise.

Japanese stock markets have already rallied to around their highest since 1990, with consumer and financial stocks outperforming domestic indexes. On the downside, inflation creates a bleak outlook for Japanese government bonds.

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ECB rates to stay unchanged for next few quarters -Villeroy

Notable Snippet: The European Central Bank’s interest rates have reached a plateau where they will likely remain for the next few quarters, ECB policymaker Francois Villeroy de Galhau said on Monday, dismissing rate cut talk as premature.

The ECB broke a streak of 10 consecutive hikes last month by holding rates steady, prompting investors to turn their attention to when rate cuts could come.

“There aren’t just peaks and descents: there are also plateaus, where you can experience the effects of altitude and appreciate the view,” said Villeroy, who is the governor of the French central bank.

“That’s what we’ll probably be doing for at least the next several meetings and the next few quarters,” he told the Society of Professional Economists in London.

The ECB aims to steer euro zone inflation towards its 2% target by 2025, though Villeroy insisted the number was an average and he was not fixated on hitting 2.0% precisely.

While interest rates were likely to remain at current levels for the immediate future, he said it might be necessary to end bond purchases in the 1.7 trillion euro ($1.85 trillion) Pandemic Emergency Purchase Programme earlier than the current plan for the end of 2024.

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Microsoft CEO Nadella says OpenAI governance needs to change no matter where Altman ends up

Notable Snippet: “At this point, I think it’s very clear that something has to change around the governance,” Nadella said. He added that Microsoft would have “a good dialogue with their board on that.”

In his first press interview since Altman’s ouster, Nadella dismissed concerns of long-term damage at OpenAI and said that the critical artificial intelligence research continues as does the partnership with Microsoft. But his comments didn’t clear up confusion surrounding where Altman and fellow OpenAI co-founder Greg Brockman, who was the company’s chairman, will ultimately end up.

Early Monday morning Nadella said that Altman, Brockman and their colleagues would join Microsoft as part of a new AI research group. That post followed news that ex-Twitch CEO Emmett Shear had been named OpenAI interim head as Altman looked to depart. Over the course of Monday, it became less evident that Altman and Brockman would actually be joining Microsoft.

Hundreds of OpenAI employees signed a letter to the company’s board demanding that they resign or else the staffers may choose to leave and join their former boss at Microsoft.

Nadella said it’s the choice of OpenAI employees whether they stay in their current roles or move to Microsoft, adding that his company has what it needs to keep innovating on its own.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord