The Fed’s message remains the same

Thoughts of the Day

Since the US Federal Reserve’s policy meeting, a few Fed officials have spoken to the press, and their message is consistent. They are cheered by the latest inflation data (especially the Consumer Price Index data released last week) but they still need more data to be sure that inflation is headed decisively towards their 2% target.

They are waiting to see more confirmation of that before starting their interest rate cutting cycle. They do believe that they will have that confidence before the year ends if everything evolves as they project. So, in summary, they want to cut interest rates when more data confirms that inflation is headed lower, and they will continue to make their decisions based on the latest data releases.

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Nvidia passes Microsoft in market cap to become most valuable public company

Nvidia has about 80% of the market for AI chips used in data centres, a business that’s ballooned as OpenAI, Microsoft, Alphabet, Amazon, Meta and others have raced to snap up the processors needed to build AI models and run increasingly large workloads.
For the most recent quarter, revenue in Nvidia’s data centre business rose 427% from a year earlier to $22.6 billion, accounting for about 86% of the chip maker’s total sales.

As we are still in the beginning of the AI revolution, we can expect a lot more from Nvidia ahead.

Day Ahead

  • UK Inflation[Consumer Price Index] (Headline: +2% YoY expected vs +2.3% prev, Core: +3.5% expected vs +3.9% prev)
  • US stock and bond markets are closed for the Juneteenth Holiday in the US.
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What Happened Yesterday

Market Movements as of New York Close 18 Jun 24
  • [Fedspeak]
    Musalem (2025 voter, slight hawk): “I would support additional tightening if inflation becomes stuck above 2%”
    Kugler (current voter, known dove): “Inflation is too high, but I am encouraged by the renewed recent progress & trajectory. It is likely appropriate to begin easing policy sometime later this year if the economy evolves as expected.”
    Logan (2026 voter, known hawk): “Inflation is still too high, but has made tremendous progress. ‘Great to see’ cpi data, will need to see ‘several more months’ to have confidence heading to 2%. Neutral rate is probably higher now than it was before the pandemic.”
    Collins (2025 voter, slight hawk): “It is too soon to say if inflation is retreating again to 2%.”
    (Musalem is a new Fed official. Kugler remains on the dovish end with expectations of rate cuts. Logan and Collins are still in the wait and see camp.)
  • The US stock market opened slightly higher from Monday. It then traded within a small range with some upside drift. The S&P 500 was up +0.25% on the day (high: +0.31%, low: -0.03%), the Dow Jones rose +0.15% (high: +0.41%, low: -0.13%) while the Nasdaq edged +0.03% (high: +0.19%, low: -0.33%). The S&P 500 and Nasdaq closed at record highs once again.
  • The crypto market traded lower on the day with Bitcoin down -2.02% and Ether down -0.77%.
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Headlines & Market Impact

US pushing Netherlands, Japan to restrict more chip making equipment to China, source says

Notable Snippet: A U.S. official was headed to Japan after meeting with the Dutch government in an effort to push allies to further crack down on China’s ability to produce cutting-edge semiconductors, a person familiar with the matter told Reuters on Tuesday.

Alan Estevez, the U.S. export policy chief, was again trying to build on a 2023 agreement between the three countries to keep chip making equipment from China that could modernise its military.

The U.S. first imposed sweeping restrictions in 2022 on shipments of advanced chips and chip making equipment to China from the likes of California-based Nvidia (NVDA.O) and Lam Research (LRCX.O).

Last July, to align with U.S. policy, Japan, home to chip equipment makers Nikon Corp (7731.T), opens new tab and Tokyo Electron (8035.T) curbed exports of 23 types of equipment, from machines that deposit films on silicon wafers to devices that etch out the microscopic circuits.

Then the Dutch government began to regulate Netherlands-based ASML’s (ASML.AS) deep ultra violet (DUV) semiconductor equipment to China and the U.S. imposed restrictions on additional DUV machines to a handful of Chinese factories, claiming jurisdiction because ASML’s systems contain U.S. parts and components. ASML is the world’s top chip equipment maker.

Washington is now talking to allies about adding 11 more Chinese chip making factories to a restricted list, the person said. There are currently five factories on the list, the person said, including SMIC, China’s largest chipmaker.

The U.S. also is saying it wants to control additional chip making equipment, the person said.

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Steve Cohen is set to make a big push into investing in AI

Notable Snippet:  Billionaire investor Steve Cohen’s Point72 plans to launch a separate, artificial intelligence-focused hedge fund to capitalise on the boom, according to a person close to the firm’s plans.

The new long/short equity fund, to be launched later this year or early 2025, will be focused on AI and AI-related hardware, the person said.

The firm is aiming to raise $1 billion, with Cohen himself and Point72 employees expected to contribute, the person added. This stand-alone public equity offering will live outside the main fund due to the need for a more-flexible net exposure, the person said.

Cohen recently came out as a long-term AI bull. He has called AI a “really durable theme” for investing, comparing the rise to the technological developments in the 1990s.

“I don’t see it as a bubble. I think the markets are discounting some of what we … think AI is going to do for companies,” the Point72 founder said in a CNBC interview in April.

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Warren Buffett buys Occidental shares for 9 straight days, pushes his stake to nearly 29%

Notable Snippet:  Warren Buffett’s Berkshire Hathaway has scooped up more shares of Occidental Petroleum over each of the past nine trading sessions, driving his gigantic stake in the Houston-based oil and gas producer to almost 29%, according to regulatory filings.

The Omaha, Nebraska-based conglomerate purchased Occidental shares every trading day from June 5 to Monday, totaling an additional 7.3 million shares with purchase prices slightly under or above $60, filings showed.

The purchases brought Berkshire’s holding to over 255 million shares, representing a 28.8% stake. Occidental is Berkshire’s sixth-biggest stock holding, and the conglomerate has become Occidental’s biggest institutional investor by far.

Berkshire also owns $10 billion of Occidental preferred stock and has warrants to buy another 83.9 million common shares for $5 billion, or $59.62 each. The warrants were obtained as part of the company’s 2019 deal that helped finance Occidental’s purchase of Anadarko Petroleum.

Buffett has clarified that he wouldn’t take full control of the oil company, once known for being founded by legendary oilman Armand Hammer. There had been speculation of a takeover after Berkshire received regulatory approval to purchase as much as a 50% stake.

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Stock Indices

Phan Vee Leung
CIO & Founder, TrackRecord