Faster than we can imagine…

Thoughts of the Day

Within a year of the launch of ChatGPT, an OpenAI chatbot, we read the news that AI models autonomously negotiate a legal contract. This exemplifies the rapid advancements in AI capabilities. Expect more productivity breakthroughs across industries in the near future.

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Day Ahead

Federal Reserve Chair Powell is due to deliver opening remarks at the Division of Research and Statistics Centennial Conference, in Washington DC. May talk about monetary policy.

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What Happened Yesterday

Market Movements as of New York Close 7 Nov 23
  • Fedspeak:
    Kashkari (current voter, known hawk): “Economic activity running this hot makes me question if we’ve done enough. No discussion at the Fed about rate cuts. Not seeing a lot of evidence the economy is weakening. We have to let inflation and labour data guide us.”
    Bowman (current voter, known hawk): “I remain willing to support raising the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or is insufficient to bring inflation to 2% in a timely way.”
    Waller (current voter, known hawk): “In central banking terms, movement up in 10 years has been an earthquake. Labour supply appears to be normalising to pre-pandemic levels.”
    Goolsbee (current voter, known dove): “If long rates are sustained at high levels, that is most likely tightening. The economy is weakening. Inflation has come down a lot. My conditions for the Fed being done with rates are that we are clearly back on the path to get inflation back to 2.”
  • Logan (current voter, known hawk): “Inflation remains too high and looks like we are trending toward 3%” rather than the Fed’s 2% inflation goal.”
    (Kashkari and Bowman sticking to their usual hawkish tone. Dovish comments from Waller and Goolsbee. Logan switched from neutral to slightly hawkish.)
  • The RBA hiked interest rates by +0.25% as expected, bringing the overnight cash rate to 4.35% from 4.10% as the central bank remains resolute in its determination to return inflation to target. The AUD initially increased +0.19% against the USD from the 0.6489 to 0.6501 before falling more than -0.6% from the highs following the decision and continued trading lower for the rest of the day.
  • The US Treasury Yield curve inversion widened to 0.33% as the US 2-year bond yield fell -0.02% to 4.91% while  the US 10-year bond yield slipped -0.09% to 4.58%.
  • The US stock futures traded sideways through the Asian and London trading hours, staying almost unchanged before the New York session started.
  • The US stock market opened relatively unchanged from Monday. The market then inched higher as US bond yields fell through the session. Consequently, the S&P 500 closed the day higher at +0.28% (high: +0.46%, low: -0.24%), the Dow eked out a small gain of +0.17% (high: +0.33%, low: -0.20%) while the Nasdaq gained +0.93% (high: +1.19%, low: -0.01%).
  • The crypto market traded mixed with Bitcoin up +1.05% and Ether down -0.71%.
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Headlines & Market Impact

IMF upgrades China’s 2023, 2024 GDP growth forecasts

Notable Snippet: China’s economy is set to grow 5.4% this year, having made a “strong” post-COVID recovery, the International Monetary Fund said on Tuesday, making an upward revision to its earlier forecast of 5% growth, while expecting slower growth next year.

The IMF said continued weakness in the property sector and subdued external demand could restrict gross domestic product growth to 4.6% in 2024, which was still better than the 4.2% forecast contained in its World Economic Outlook (WEO), published in October.

The upward revision followed a decision by China to approve a 1 trillion yuan ($137 billion) sovereign bond issue and allow local governments to frontload part of their 2024 bond quotas, in a move to support the economy.

“We have revised up growth by 0.4 percentage points in both years relative to our October WEO projections, reflecting stronger than expected growth in the third quarter and the new policy support that was recently announced,” IMF’s First Deputy Managing Director Gita Gopinath said in Beijing.

Over the medium term, growth is projected to gradually slow to about 3.5% by 2028 amid headwinds from weak productivity and population ageing, Gopinath told a news conference to mark the release of the fund’s “Article IV” review of China’s economic policies.

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Oil dives 4% to lowest since July on demand worry, strong dollar

Notable Snippet: Oil prices fell more than 4% on Tuesday to their lowest since late July, as mixed Chinese economic data and rising OPEC exports eased fears about tight markets and as the dollar strengthened.

Brent crude futures closed below $84 a barrel for the first time since Hamas Islamists’ Oct. 7 attack on Israel. The global benchmark settled at $81.61 a barrel, down $3.57, or 4.2%, while U.S. West Texas Intermediate crude futures settled at $77.37 a barrel, down $3.45, or 4.3%.

A recovery in oil exports from the Organization of Petroleum Exporting Countries also added to the pressure on oil prices, UBS analyst Giovanni Staunovo said.

“OPEC crude exports are up by about 1 million barrels per day (bpd) since their August low, as a result of seasonally lower domestic demand in the Middle East. It seems there is too much supply to be absorbed by oil consuming nations,” Staunovo said.

On the demand side, China’s crude oil imports in October showed robust growth but its total exports of goods and services contracted at a quicker pace than expected.

“The data signals the continued decline in the Chinese economic outlook driven by deteriorating demand in the country’s largest export destination: the West,” City Index analyst Fiona Cincotta said.

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An AI just negotiated a contract for the first time ever — and no human was involved

Notable Snippet: British AI firm Luminance developed an AI system based on its own proprietary large language model (LLM) to automatically analyse and make changes to contracts. LLMs are a type of AI algorithm that can achieve general-purpose language processing and generation.

Jaeger Glucina, chief of staff and managing director of Luminance, said the company’s new AI aimed to eliminate much of the paperwork that lawyers typically need to complete on a day-to-day basis.

In Glucina’s own words, Autopilot “handles the day-to-day negotiations, freeing up lawyers to use their creativity where it counts, and not be bogged down in this type of work.”

“This is just AI negotiating with AI, right from opening a contract in Word all the way through to negotiating terms and then sending it to DocuSign,” she told CNBC in an interview. 

“This is all now handled by the AI, that’s not only legally trained, which we’ve talked about being very important, but also understands your business.”

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord