Resilience in face of an increasingly dangerous world…

Thoughts of the Day

Last week, US stock markets remained stable despite higher-than-expected US inflation data and Middle East tensions. This could be a sign that investors who have been cautious all year remain underinvested. Fed officials’ dovish tone also contributed to market resilience, although volatility is likely to persist due to ongoing uncertainties.

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Week Ahead

Monday: – 

Tuesday: The RBA Meeting Minutes is likely to explain in detail behind the pause in interest rate hike at the RBA Oct meeting.

The Canadian Consumer Price Index (CPI) is expected to show that prices rose 4% Year-on-Year in September as it did in August.

The US Retail Sales is expected to rise +0.3% Month-on-Month in September, lower than +0.6% in August.

Wednesday: The Chinese GDP is expected to gain 4.4% YoY (vs 6.3% prev) and 1% Quarter-on-Quarter (vs 0.8% prev) in Q3. Chinese Unemployment Rate will also be released.

The UK CPI is expected to show that prices rose 6.5% Year-on-Year in September, lower than 6.7% in August. The core index is expected to show a 6% rise in prices YoY, lower than 6.2% previously.

The final print for the Euro Area CPI is expected to show that prices rose 4.3% Year-on-Year in September lower than 5.2% in August. The core index is expected to show a 4.5% rise in prices YoY, lower than 5.3% previously.

Thursday: Australian labour data is expected to show that the Australian added +20K jobs in September, a significant moderation from the +64.9K jobs added in the previous month.

Federal Reserve Chairman Powell is due to have a speech at the Economic Club of New York Luncheon and the market will be watching out for comments about monetary policy and the impact of rising bond yields on future policy steps. 


Friday:

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What Happened Yesterday

Market Movements as of New York Close 13 Oct 23 (15 Oct for Crypto)
  • Fedspeak:
    Harker (2023 voter, known centrist): “We are at the point where we can hold rates where they are. It will take time for Fed rate hikes to be fully felt.” However, Harker added that he “would have no hesitancy to support further rate increases” if inflation were to rebound.
  • The preliminary print for the US University of Michigan Consumer Sentiment was 63 (vs 67.4 expected), lower than the previous print of 68.1. UoM Inflation expectations for the year ahead was at 3.8% (vs 3.3% expected), up from 3.2% in September while the 5-Year inflation expectations came in higher at 3% (vs 2.9% expected) from 2.8%.
  • The US Treasury Yield curve inversion widened to 0.41% as the US 2-year bond yield fell -0.02% to 5.04% while the US 10-year bond yield fell -0.07% to 4.63%. US bond yields fell despite the higher-than-expected inflation expectations survey because of rising geopolitical risks in the Middle East.
  • The US stock futures drifted slightly higher through the Asian hours (S&P 500 futures:  +0.23%) before falling -0.54% from the highs in the London session as Industrial Production in the Euro Area came in much worse than expected (-5.1% Year-on-Year vs -3.5% expected and -2.2% previous). The fall was short lived following a slew of stronger than expected earnings from the JP Morgan ($4.33 vs $3.89 expected), BlackRock ($10.91 vs $8.57 exp), Citibank ($1.52 vs $1.26 exp), Wells Fargo ($1.39 vs $1.25 exp) and PNC Financial Services Group, Inc. ($3.60 vs $3.18 exp) which sent the S&P 500 futures bouncing +0.64% before the New York session began.
  • The US stock market opened higher from Thursday. The market was then boosted by Fed Harker’s dovish comments before the release of the UoM survey dented risk sentiment through the rest of the session. Consequently, the S&P 500 closed -0.50% lower (high: +0.63%, low: -0.87%), the Dow inched higher by +0.12% (high: +0.97%, low: -0.24%) due to the stronger earnings from the banking sector while the Nasdaq fell -1.24% (high: +0.32%, low: -1.59%).

The crypto market was boosted by news that the SEC will not appeal its loss in the Grayscale case, thus boosting the odds of a GBTC ETF being approved. Bitcoin rose +1.09% while Ether eked out a gain of +0.2%.

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Headlines & Market Impact

Exclusive: US tackles loopholes in curbs on AI chip exports to China

Notable Snippet: The latest crackdown on tech exports to China coincides with U.S. efforts to thaw difficult relations between the world’s two largest economies. Several senior members of the Biden administration have met their Chinese counterparts in recent months, and the latest round of rules risks complicating the diplomatic effort.

The U.S. now plans to introduce new guidelines for AI chips that will restrict certain advanced datacenter AI chips that are not currently captured, the U.S. official said.

In order to keep AI chips the U.S. views as too powerful from China, the official said the U.S. planned to remove one of the parameters – the “bandwidth parameter” – it has used to restrict exports of certain AI data centre chips. By removing this parameter, another guideline kicks in, widening the scope of chips covered. This would likely mean the speed at which AI chips talk to each other would be reduced.

The U.S. also plans to introduce a “performance density” parameter to help prevent future workarounds, the official said, but declined to elaborate.

The updated rules also are meant to cover AI chips as technology evolves. The U.S. will require companies to notify the government about semiconductors whose performance is just below the guidelines before they are shipped to China, the official said. The government will decide on a case-by-case basis whether they pose a national security risk but they can be shipped unless the chipmaker is told otherwise.

The updates to the October 2022 rules may also close a loophole that gives Chinese companies access to American artificial intelligence chips through Chinese units located overseas, as Reuters reported last week.

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Major US banks show profit boost, but some caution from consumers

Notable Snippet: JPMorgan (JPM.N), Wells Fargo (WFC.N) and Citigroup’s (C.N) earnings indicated higher U.S. Federal Reserve interest rates had allowed them to charge more on loans while raising rates on deposits more slowly. Consumers were starting to deplete savings, the banks said, and Citibank and Wells Fargo noted that losses on credit cards and other debts were starting to rise.

Citigroup CEO Jane Fraser said she was seeing a continued deceleration in spending, indicating “an increasingly cautious consumer.”

The third-largest U.S. lender said delinquency levels were still low compared to historical levels, but it set aside more money to cover souring loans.

Wells Fargo said it was seeing charge-offs, or loans written off, increasing in its credit card portfolio. Average commercial and customer loans were down from the second quarter as higher rates and a slowing economy weakened loan growth, Wells Fargo CEO Charlie Scharf said on an analyst call.

“While the economy has continued to be resilient, we are seeing the impact of the slowing economy with loan balances declining and charge-offs continuing to deteriorate modestly,” said Scharf in the bank’s press release.

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Ferrari to accept crypto as payment for its cars in the US

Notable Snippet: Ferrari (RACE.MI) has started to accept payment in cryptocurrency for its luxury sports cars in the U.S. and will extend the scheme to Europe following requests from its wealthy customers, its marketing and commercial chief told Reuters.

The vast majority of blue-chip companies have steered clear of crypto as the volatility of bitcoin and other tokens renders them impractical for commerce. Patchy regulation and high energy usage have also prevented the spread of crypto as a means of payment.

These include electric carmaker Tesla (TSLA.O), which in 2021 began to accept payment in bitcoin, the biggest crypto coin, before CEO Elon Musk halted it because of environmental concerns.

Ferrari’s Chief Marketing and Commercial Officer Enrico Galliera told Reuters cryptocurrencies had made efforts to reduce their carbon footprint through the introduction of new software and a larger use of renewable sources.

The Italian company, which sold 13,200 cars in 2022, with prices starting at over 200,000 euros ($211,000) and going up to 2 million euros, plans to extend the crypto scheme to Europe by the first quarter of next year and then to other regions where crypto is legally accepted.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord