The most important data point…

Thoughts of the Day

Later today, the US FED’s preferred measure of inflation, the PCE Price Index, will be released. It is expected to show that inflation in January was 2.4%, lower than the 2.6% in December. A lower-than-expected number will boost expectations of an interest rate cut from the Fed and bolster risk sentiment.

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Day Ahead

The US PCE Price Index is expected to show that prices rose +2.4% YoY in Jan, down from +2.6% in December.

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What Happened Yesterday

Market Movements as of New York Close 28 Feb 24

Fedspeak:
Williams (current voter, known hawk):
“Inflation outlook has improved, three rate cuts in 2024 a good baseline for Fed.”
Collins (2025 voter, known hawk): “Inflation threat has receded, but need more evidence before policy normalisation”
(Williams continues to emphasise on the impending rate cuts this year. Collins continues to leave the door open for rate cuts this year.)

The US economy saw a +3.2% annualised growth rate in the fourth quarter of 2023, just under the initial estimate of +3.3%, after experiencing a +4.9% growth rate in the third quarter. Over the entirety of 2023, the US economy achieved a +2.5% growth, an improvement from the +1.9% growth recorded in 2022.

The US Treasury Yield curve inversion narrowed to 0.37% as the US 2-year bond yield and the 10-year yield fell -0.04% to 4.64% and 4.27% respectively.

The US stock futures traded quietly during the early Asian trading hours but started falling mid-Asian session with the S&P 500 futures falling to a low of 5063.25 (-0.54%) during the early London session. It then recovered +0.17% from the lows and the S&P 500 futures were down -0.37% from open when the New York session began.

The US stock market opened lower from Tuesday. It then traded within a range through the New York session. As a result, the S&P 500 slipped -0.17% (high: -0.02%, low: -0.39%), the Dow Jones inched -0.06% lower (high: -0.04%, low: -0.59%) while the Nasdaq fell -0.54% (high: -0.22%, low: -0.73%).

The crypto market continues to pop higher with Bitcoin now above the 60,000 level. BlackRock’s bitcoin ETF traded $3.3 billion Wednesday, twice as much as its previous volume record. Bitcoin saw a -5% flash crash to the 57,000 level after Coinbase had a glitch causing users to see a balance of zero when accessing their accounts but it quickly bounced back above 61k.
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Headlines & Market Impact

Apple CEO Tim Cook says company is ‘investing significantly’ in generative AI

Notable Snippet: The company sees “incredible breakthrough potential for generative AI, which is why we’re currently investing significantly in this area,” Cook said at Apple’s annual shareholder meeting, which was held virtually. “We believe it will unlock transformative opportunities for our users when it comes to productivity, problem-solving and more.”

Apple hasn’t unveiled competing products to models like OpenAI’s GPT or Google’s Gemini, but he teased a major announcement coming this year.

“Later this year, I look forward to sharing with you the ways we will break new ground in generative AI, another technology we believe can redefine the future,” Cook said.

He also reframed several announced Apple products as “AI-powered,” to emphasise that the company has been working on the technology for years. In the past, the company tended to avoid the term AI in favour of machine learning.

At the meeting, Cook was not asked about the Apple Car project, which he’d previously called the “mother of all AI projects.” Employees were told Tuesday that the program was being disbanded.

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Japan issues fresh warning against excessive yen moves

Notable Snippet:  Japan stands ready to take appropriate action against excessive exchange-rate moves, its top currency diplomat said following yen declines to levels seen by traders as heightening the chance of currency intervention.

The warning by Masato Kanda, Japan’s vice finance minister for international affairs, likely reflects Tokyo’s desire to prevent further falls in the yen that would hurt households and retailers by boosting the cost of importing raw materials.

“I won’t comment on recent currency moves. But it’s desirable for exchange rates to move stably reflecting fundamentals,” Kanda told reporters on Wednesday on the sidelines of the G20 finance leaders’ meeting in Sao Paulo.”

“We’re watching currency moves with a strong sense of urgency, and ready to respond appropriately if we see excessively volatile moves,” he said.

The yen is the worst-performing major currency this year as funds and others have traded on the huge U.S.-Japan interest rate and bond yield gap, and bet that it will persist.

It has shed 6% of its value against the dollar so far this year, falling below 150.00 per dollar to within sight of its post-1990 lows around 152.00 per dollar.

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Water scarcity threatens chipmakers like TSMC and could push prices higher, according to S&P

Notable Snippet: “There is a direct line between water use and chip sophistication, as fabs use ultrapure water — fresh water processed to extremely high purity — to rinse wafers between each process. The more advanced the semiconductor, the more process steps, the more water consumed,” said S&P Global Ratings credit analyst Hins Li.

TSMC’s water consumption per unit grew over 35% after it advanced to 16-nanometer process nodes in 2015, data from S&P revealed.

“We believe this was mainly due to the migration to advanced nodes, which require more fabrication processes,” S&P said. “Given TSMC’s dominance in advanced chipmaking, potential water-related disruptions to operations could disrupt the global tech supply chain.”

The report noted that water consumption in the semiconductor industry is on track to increase by a mid- to high-single-digit percent each year, driven by capacity expansion and the demands of advancing process technology.

The world’s chipmakers already consume as much water as Hong Kong, a city with a population of 7.5 million, said S&P.

“Water security will be an increasingly important factor to semiconductor firms’ credit profiles. Mishandling of water resources could disrupt a firm’s operations, hurt financial performance, and potentially hit customer relationships,” said Li.

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Phan Vee Leung
CIO & Founder, TrackRecord