Is there going to be a hard landing?

Thoughts of the Day

In the coming days, there will be an increasing talk of a potential hard landing for the economy, which means a painful economic slowdown. The data is starting to show the labour market and the economy are not growing as strongly as expected. The US Fed is aware of this risk, hence they’re more focused on the jobs market, not just inflation. If the economy slows further, they’re more willing to cut interest rates if inflation doesn’t spike.

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Day Ahead

Reserve Bank of Australia Monetary Policy Meeting (expect interest rates to be kept unchanged at 4.35%)

Earnings: Walt Disney (DIS), Datadog (DDOG), GlobalFoundries (GFS), Reddit (RDDT), Lyft (LYFT), Match Group (MTCH), Twilio (TWLO), Upstart (UPST), Occidental Petroleum (OXY)

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What Happened Yesterday

Market Movements as of New York Close 6 May 24

Fedspeak:
Barkin (current voter, slight hawk):
“Believes that current rates are restrictive enough.” “Have not yet seen signs that inflation is actually on track.” “GDP growth still seems strong, Fed is now focusing on the job market.”
Williams (current voter, slight hawk): “Eventually there will be rate cuts. The Fed is looking at the totality of economic data. It is worrisome when monthly inflation prints come in higher.”
(Barkin continues to reiterate that the Fed can be patient in cutting rates with emphasis that inflation is not on track this time. Williams previously mentioned that there is no urgency to cut rates but the Fed is data dependent. However, due to the latest stream of data, it is likely he has changed his tone to the current one.)

The US 2-year bond yield rose +0.01% to 4.83% while the 10-year yield fell -0.02% to 4.49% resulting in the US Treasury Yield curve inversion widening to 0.34%. 

The US stock futures traded within  a small range during the Asian trading hours. However, it started to edge slightly higher when the London session began. Hence, the S&P 500 futures was up +0.23% when the New York session began.

The US stock market opened higher from Friday. It popped higher in the opening hour but traded sideways through the middle of the day before experiencing another spike as the session ended. The S&P 500 finished +1.03% higher on the day (high: +1.04%, low: +0.29%), the Dow Jones rose +0.46% (high: +0.55%, low: +0.04%) while the Nasdaq increased +1.13% (high: +1.14%, low: +0.26%).

[Earnings] Berkshire Hathaway (NYSE: BRK.B, +1.01%) had operating earnings soaring +39% from a year ago due to an increase in insurance underwriting earnings.

Palantir Technologies Inc (NYSE: PLTR, +8.06% on the day and -8.37% aftermarket) reported better-than-expected earnings (3 cents vs 1 cent expected) and revenue ($634.34 million vs $615.41 million expected) for the first quarter but gave a disappointing current quarter forecast of $649 million to $653 million vs expectations of $653 million.

The crypto market experienced a volatile day with Bitcoin rising as high as 65,579 (+2.4% from day open) as the market attempted to erase losses made last week. However, it traded to a low of 62,736 (-4.3% from the highs) as Robinhood (HOOD) disclosed its crypto arm received a Wells Notice over the weekend from the U.S. Securities and Exchange Commission (SEC). This suggests that the SEC may take enforcement action against Robinhood’s crypto arm.
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Headlines & Market Impact

Citigroup CEO Jane Fraser says low-income consumers have turned far more cautious with spending

Notable Snippet: Citigroup CEO Jane Fraser said Monday that consumer behaviour has diverged as inflation for goods and services makes life harder for many Americans.

Fraser, who leads one of the largest U.S. credit card issuers, said she is seeing a “K-shaped consumer.” That means the affluent continue to spend, while lower-income Americans have become more cautious with their consumption.

“A lot of the growth in spending has been in the last few quarters with the affluent customer,” Fraser told CNBC’s Sara Eisen in an interview.

“We’re seeing a much more cautious low-income consumer,” Fraser said. “They’re feeling more of the pressure of the cost of living, which has been high and increased for them. So while there is employment for them, debt servicing levels are higher than they were before.”

“I think, like everyone here, we’re hoping to see the economic conditions that will allow rates to come down sooner rather than later,” Fraser said.

“It’s hard to get a soft landing,” the CEO added, using a term for when higher rates reduce inflation without triggering an economic recession. “We’re hopeful, but it is always hard to get one.”

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China’s Ant Group doubles down on global expansion with cross-border payments offering Alipay+

Notable Snippet: Chinese fintech major Ant Group is looking to boost its global presence via its digital offering, Alipay+, as it seeks to connect mobile payment apps around the world.

“What we found is that people want to use their home e-wallets when they travel abroad. So they don’t want to have to load their card into another app that they don’t know as well,” Douglas Feagin, senior vice president of Ant Group, an affiliate of Chinese tech giant Alibaba, told CNBC.

The group’s global arm, Ant International, introduced Alipay+ in 2020, allowing foreigners to use apps from their home countries to make payments in China by scanning QR codes of Alipay – Ant Group’s largely domestically-focused platform – and in other countries via local partners.

“We see a huge opportunity for expansion and the relatively broad coverage we have in Asia – we [would] like to replicate in places like the Middle East, Latam and Europe,” said Feagin. “People from all these regions are going to other regions, so a big opportunity to expand.”

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Microsoft readies new AI model to compete with Google, OpenAI

Notable Snippet: Microsoft (MSFT.O) is training a new, in-house AI language model large enough to compete with those from Alphabet’s Google (GOOGL.O) and OpenAI, the Information reported on Monday.

The new model, internally referred to as MAI-1, is being overseen by recently hired Mustafa Suleyman, the Google DeepMind co-founder and former CEO of AI startup Inflection, the report said, citing two Microsoft employees with knowledge of the effort.

The exact purpose of the model has not been determined yet and will depend on how well it performs. Microsoft could preview the new model as soon as its Build developer conference later this month, the report said.

Microsoft declined to comment when contacted by Reuters.

MAI-1 will be “far larger” than the previous smaller, open source models Microsoft had previously trained which means it will be more expensive, according to the report.

Microsoft has been setting aside a large cluster of servers equipped with Nvidia’s (NVDA.O) graphic processing units along with large amounts of data to improve the model, according to the report.

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Phan Vee Leung
CIO & Founder, TrackRecord