New All-time highs again…

Thoughts of the Day

The S&P500 and the Nasdaq stock indices continue to power to new all-time highs and this is happening when it is still uncertain if and when the US Federal Reserve will start cutting interest rates. This is a sign that the trend is strong.

The growth of AI-related companies is a big driver of this rally. If … Subscibe to read the full report…
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Tradertainment

“We’re entering this new era where computers not only understand us, but can actually anticipate what we want and our intent,” Nadella said at an event at the company’s headquarters in Redmond, Washington.

Do we actually need this? Considering that our thoughts are already being swayed by the content we are fed through social media, isn’t it becoming worse that it’s even controlled by AI? Eventually it will come to a point where we will start to question whether our thoughts are even ours? Are they just a byproduct of the companies that own these AI algorithms? The world is becoming increasingly grim indeed.

There are also concerns about privacy. Although they said that it is stored locally and that we can choose what information to be stored, what if the data gets into the wrong hands through exploits?

Day Ahead

Nothing noteworthy on the horizon. 
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What Happened Yesterday

Market Movements as of New York Close 22 May 24
  • RBNZ policy decision (interest rates kept at 5.5% as expected, pausing for the 7th consecutive time). The RBNZ believes that rates need to be kept at a restrictive level to ensure that inflation falls back to 1%-3% target (Q1’ 24 inflation rate is at 3-year low of 4%) even though labour market pressures are easing. The NZD shot up +0.66% against the USD from the 0.61 level to 0.614 level in immediate reaction as the comments were more hawkish than expected.
  • UK Inflation (headline: +2.3% YoY actual vs +2.1% expected and +3.2% prev; core: +3.9%  YoY actual vs +3.6% expected vs +4.2% prev). This is the lowest print since July 2021 but was higher than expected. The GBP rose +0.26% against the USD from 1.2709 to 1.2743 in immediate reaction.
  • The May 2024 Federal Reserve minutes revealed a wait-and-see approach towards future monetary policy, noting moderate economic growth and persistent inflationary pressures. In the midst of low unemployment, wage growth continues to contribute to inflation. The Fed remains divided on the necessity of future interest rate cuts, balancing the need to control inflation against supporting economic growth amid signs of a slowdown. Emphasising a data-dependent approach, the Fed indicated that future rate decisions would hinge on upcoming economic data, particularly concerning inflation and employment trends. Most notably, participants observed that while inflation had eased over the past year, in recent months there had been a lack of further progress toward the Committee’s 2 percent objective.
  • The US stock market opened almost unchanged from Tuesday. It traded steadily before falling at midday following the release of the FOMC minutes. It then clawed back some losses as investors braced themselves for Nvidia earnings after the bell. The S&P 500 finished -0.27% lower on the day (high: +0.03%, low: -0.67%), the Dow Jones fell -0.51% (high: +0.23%, low: -0.58%) while the Nasdaq edged -0.05% lower (high: +0.23%, low: +0.58%).
  • [Earnings]
    Nvidia (NASDAQ: NVDA, +6.06% in aftermarket trading) popped higher as its data centre business grew 427% in the last quarter. Additionally, Nvidia announced a 10-for-1 stock split following a 25-fold surge in the company’s share price over the past five years. Earnings: $6.12 vs. $5.59 expected, Revenue: $26.04 billion vs $24.65 billion expected.
  • The crypto market fell slightly due to weakened risk sentiment across the board. Bitcoin is down -0.84% while Ether is down -1.41%.
This is a partial analysis of what happened yesterday, for a more detailed analysis, subscribe to a membership plan.

Headlines & Market Impact

A Microsoft under attack from government and tech rivals after ‘preventable’ hack ties executive pay to cyberthreats

Nation-state attacks from China and Russia are increasing, and targeting corporations across the economy, as well as the U.S. government and social infrastructure. Microsoft has been a very big target, including hacks by Russia and China. There is growing pressure from the U.S. government for the company to improve its cybersecurity protocols, with its top corporate lawyer, Brad Smith, being called to testify on Capitol Hill.

The conversations about cybersecurity-linked executive pay have started taking place at other companies since Microsoft made its move, according to Aalap Shah, managing director at executive compensation consultant Pearl Meyer. It’s not prevalent as a compensation practice today, he said, but he added, “post-Microsoft’s announcement, I’ve gotten phone calls asking, ‘Should we do it? Would it work?’ … These conversations are very similar to the ones we were having a few years ago with ESG metrics and a significant percentage of companies adopted them.”

Shah said there is a case to be made that cybersecurity is a core issue that can be equated to mining or industrial safety. But there’s a big difference between a business in cybersecurity and, for example, a retailer, in making this case. And even in industries beyond technology and cybersecurity where keeping data secure is a core issue, such as financial services and health care — which have been targets of high-profile hacks — it’s not a clear case yet to tie executive compensation of the most senior people, such as a chief financial officer or general counsel, to cybersecurity, versus the chief information security officer or chief technology officer, specifically.

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Amid doubts, Fed officials kept disinflation faith at last meeting

Notable Snippet: “Participants … noted that they continued to expect that inflation would return to 2% over the medium term,” according to the minutes of the April 30-May 1 meeting, but “the disinflation would likely take longer than previously thought.”

While the policy response for now would “involve maintaining” the Fed’s benchmark policy rate in the current 5.25%-5.50% range, “various participants mentioned a willingness to tighten policy further should risks to inflation materialise in a way that such an action became appropriate,” the minutes said, employing a modifier not included in the usual set of words – like some, many, and most – used in the minutes to give a sense of how many officials voiced a particular opinion.

Fed Chair Jerome Powell and other policymakers have since said they feel further rate hikes are unlikely.

But the minutes released on Wednesday excluded specific reference to that notion and to the likelihood of rate cuts this year.

The March 19-20 meeting minutes said that participants had “judged that the policy rate was likely at its peak for this tightening cycle, and almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected.”

In place of that broad judgement, the latest minutes showed an emerging debate about just how tight monetary policy is, an important consideration that could bear on how fast inflation returns to the central bank’s 2% target – or whether it gets there at all.

The impact of high interest rates on the economy has not been as dramatic as some Fed officials expected, a positive development for the job market in particular but one that has left a question mark about inflation.

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US House passes crypto bill despite warnings from SEC

Notable Snippet:  The U.S. House of Representatives on Wednesday passed a bill that aims to create a new legal framework for digital currencies, despite an unusual warning from the U.S. securities regulator it could create new financial risks.

The Republican-sponsored Financial Innovation and Technology for the 21st Century Act passed in a bipartisan 279-136 vote. It is not clear if the Senate will take up the measure.

The bill’s supporters in the U.S. Congress argued that the bill will provide regulatory clarity and help promote the industry’s growth.

The House approval comes as the U.S. Securities and Exchange Commission (SEC) signals that it will likely approve applications for spot ether exchange-trade funds in a surprising boost to the industry.

But SEC Chair Gary Gensler said in a statement that the bill “would create new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk.”

The bill was backed by crypto supporters and industry organisations who have long viewed Gensler’s SEC as an impediment to the wider adoption of digital assets.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord