Inflation continues to ease lower

Thoughts of the Day

The US PCE Price Index indicates a slight decrease in inflation, with the headline and core indices adjusted to +3.4% and +3.8% respectively for August. The upcoming Fed meeting is expected to reflect cautious sentiment, as the likelihood of an interest rate hike this week remains low at 2%.

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Week Ahead

Monday:

Tuesday: The Bank of Japan is expected to keep interest rates at -0.1% in its monetary policy meeting. However, there are some expectations that the BoJ may raise the 10-year yield cap to 1.5% from 1.0% previously.Euro area inflation is expected to show that prices rose +3.2% Year-on-Year in October, down from +4.3% previously. The core inflation rate is expected to show a +4.2% gain YoY, lower than +4.5% previously.

Wednesday: The New Zealand unemployment rate is expected to rise slightly to 3.9% in Q3 from 3.6% in Q2. The US ADP Employment Change is expected to show +150k jobs being added to the economy in October, an increase from +89k previously. The US JOLTS job openings are expected to contract to 9.2M in September from 9.61M previously.The Federal Reserve is expected to keep interest rates unchanged at 5.5% in its monetary policy meeting. Expect the Federal Reserve to keep to the message that interest rates will be kept high for longer to stem inflation.

Thursday: The Bank of England is expected to keep interest rates at 5.25% in its monetary policy decision.

Friday: The US Nonfarm Payrolls is expected to show +188k jobs being added to the economy in October, down from +336k previously. The unemployment rate is expected to remain at 3.8%.

The Canadian employment change is expected to show +20k jobs being added to the economy in October, down from +63.8k previously. The unemployment rate is expected to rise to 5.6% from 5.5%.

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What Happened Yesterday

Market Movements as of New York Close 27 Oct 23 (29 Oct for Crypto)
  • The US PCE Price Index, the Fed’s preferred measure of inflation, showed that prices rose +3.4% YoY as expected in September as it did in August (revised from +3.5%). The core index showed a slower growth of +3.7%, compared to +3.8% in August (revised from +3.9%). The disinflationary trend seems to be underway.
  • The US University of Michigan data showed a revised print of 63.8 for consumer sentiment (compared to 63 expected and 68.1 previously) and +4.2% inflation expectations for the year ahead (compared to +3.8% expected and +3.2% previously).
  • The US Treasury Yield curve inversion narrowed to 0.15% as the US 2-year bond yield fell -0.03% to 4.99 while the US 10-year bond yield decreased -0.02 to 4.84%.
  • The US stock futures traded higher in the early Asian hours following Amazon’s strong earnings on Thursday. It then traded sideways through the rest of the Asian trading session and early London session. Market reaction to the PCE Price Index data released before the New York session was muted.
  • The US stock market opened higher from Thursday and remained buoyant in the early New York session. However, risk sentiment eventually waned and the market started trading lower through the rest of the session Consequently, the S&P 500 closed the day lower at -0.48% (high: +0.47%, low: -0.81%), the Dow fell -1.12% (high: +0.01%, low: -1.39%) while the Nasdaq managed to eke out a gain of +0.50% (high: +1.50%, low: +0.15%).
  • The crypto market managed to stay afloat despite the weakness in the US equity market due to current optimism over the Bitcoin ETFs. Bitcoin gained +1.31% while Ether rose +1.11%.
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Headlines & Market Impact

China’s foreign minister suggests road to Xi-Biden summit will not be smooth

Notable Snippet: China’s Foreign Minister Wang Yi said the “road to the San Francisco summit will not be a smooth one,” the foreign ministry said on Sunday, in a reference to an expected meeting between President Xi Jinping and U.S. President Joe Biden.

Wang met Biden and his top aides in Washington in recent days, agreeing to work together toward the expected bilateral meeting on the sidelines of an Asia-Pacific Economic Cooperation forum summit.

But in remarks on Saturday, Wang cautioned the road to the summit would not be a smooth one and travelling there would not be on “autopilot,” the ministry said in a statement.

Wang said China and the U.S. needed to “return to Bali,” referring to the last meeting between Biden and Xi, on the sidelines of a Group of 20 summit on the Indonesian resort island last November, where they discussed Taiwan, competition and communication.

Washington and Beijing must put into practice the consensus achieved then, “remove interference, overcome obstacles, enhance consensus and gather outcomes,” Wang said.

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Google commits to invest $2 billion in OpenAI competitor Anthropic

Notable Snippet: Google agreed to invest up to $2 billion in Anthropic, the artificial intelligence startup founded by ex-OpenAI executives, CNBC has confirmed.

The commitment involves a $500 million upfront cash infusion and an additional $1.5 billion to be invested over time, an Anthropic spokesperson told CNBC. The Wall Street Journal reported earlier on the planned financing.

A Google spokesperson didn’t immediately respond to request for comment.

Anthropic is the developer of Claude 2, a rival chatbot to OpenAI’s ChatGPT that’s used by companies including Slack, Notion and Quora. The company was founded in 2021 and, in addition to Google, has received funding from Salesforce and Zoom and was valued earlier this year at $4.1 billion.

Claude 2 has the ability to summarise up to about 75,000 words, which could be the length of a book. Users can input large data sets and ask for summaries in the form of a memo, letter or story. ChatGPT, by contrast, can handle about 3,000 words.

Research by Arthur AI, a machine learning monitoring platform, found Claude 2 to be the most reliable chatbot in terms of “self-awareness,” meaning accurately gauging what it does and doesn’t know, and answering only questions it had training data to support. Arthur AI tested chatbots from Meta, Cohere and OpenAI.

In April, Google invested $300 million in the company, taking a 10% stake. That same month, Anthropic was one of four companies invited to a meeting at the White House to discuss responsible AI development with Vice President Kamala Harris. Google parent Alphabet, Microsoft and OpenAI were the others.

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More China companies buyback shares as Beijing seeks to stabilise market

Notable Snippet:  More than 30 Chinese listed companies unveiled share buyback and purchase plans over the weekend while major mutual fund house E Fund Management Co said it would invest in its own product as Beijing steps up efforts to put a floor under a sliding stock market.

China has already announced a slew of measures, including share purchases by state fund Central Huijin, to stem declines in a stock market (.CSI300) that last week hit the lowest level since 2019.

Amid government calls to revive the market, more than 20 listed companies, including Hainan Mining Co (601969.SS), Vatti Corp (002035.SZ) and Zhejiang Sanmei Chemical (603379.SS), unveiled share buyback plans or proposals late on Sunday.

In addition, companies such as CRRC Corp (601766.SS) and Wuxi Lead Intelligent Equipment (300450.SZ) disclosed share purchase plans by their controlling shareholders.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord