They are starting to turn…

Thoughts of the Day

The BoE kept rates steady with 8-1 voting but two previous hawks changed their votes to keep interest rates unchanged this time. The one dissenter wanted a rate cut of 0.25% as expected. Meanwhile, the Swiss National Bank unexpectedly cut rates by 0.25%, marking the first change since their last hike in June 2023. They are the first central bank of the developed economies to start cutting interest rates. Expect more central bankers to start talking dovishly in the weeks ahead.

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Day Ahead

Fed Chair Powell is due to deliver opening remarks at a Fed Listens event, in Washington DC.

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What Happened Yesterday

Market Movements as of New York Close 21 Mar 24

The Bank of England held the Bank Rate unchanged at 5.25%, a peak not seen since 2008, as it looked for more definitive signs that the nation’s inflationary challenges were easing. The decision to keep rates constant was supported by an 8-1 vote (vs a more hawkish 7-2 vote split expected) within the Monetary Policy Committee, with a single member pushing for a reduction of -0.25% (the market was expecting 1 dissent for a 0.25% hike). The decision was announced following the release of data showing the country’s CPI rate falling to +3.4%, the lowest in over two years. Governor Bailey showed a positive outlook on the UK’s economic direction, indicating a good setting for the central bank to start lowering interest rates. However, he emphasised the need for more solid proof that the economy was effectively managing inflationary pressures. The GBP tried to go lower in reaction with a -0.16% fall against the USD which was erased almost immediately. However, the GBP then started to fall against the USD, resulting in a -1.00% fall on the day.

The Swiss National Bank reduced interest rates by -0.25% from 1.75% to 1.50% in its monetary policy meeting yesterday, marking the first cut in 9 years and being the first central bank to do so. The SNB noted that there is reduced inflationary pressures as well as an appreciation of the Franc in real terms, prompting the decision to cut. Inflation in Switzerland has been within the 0-2% band for the last 9 months. The USD appreciated +0.92% against the CHF from 0.8866 to 0.8943 in immediate reaction to the cut and continued appreciating further on through the day.

The US Treasury Yield curve inversion narrowed to 0.35% as the US 2-year bond yield rose +0.03% to 4.62% while the 10-year yield remained at 4.27%. 

Following the dovish results of the Federal Reserve meeting, the US stock futures drifted higher through the Asian and London trading hours. The S&P 500 futures were up +0.38% when the New York session began.

The US stock market opened higher from Wednesday. It then remained at elevated levels through the New York session despite a slight attempt to go lower in the later half. It was an active day of trading. The S&P 500 rose +0.32% (high: +0.70%, low: +0.31%), the Dow Jones increased +0.68% (high: +0.95%, low: +0.20%) while the Nasdaq climbed +0.44% (high: +1.23%, low: +0.42%).

The crypto market fell slightly on the day as news of continued outflows from the BTC ETFs weighed on sentiment.
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Headlines & Market Impact

Japan’s core inflation perks up, moderating price trend muddles BOJ outlook

Notable Snippet: Japan’s core inflation accelerated in February but an index gauging the broader price trend slowed sharply, data showed, highlighting uncertainty on how soon the central bank will hike interest rates again.

The core consumer price index (CPI), which excludes fresh foods but includes energy items, rose 2.8% in February from a year earlier, government data showed, matching median market forecasts.

It accelerated from a 2.0% gain in January due largely to the base effect from the launch of energy subsidies last year.

But inflation as measured by an index stripping away the effect of fuel, closely watched by the BOJ as an indicator of broader price trends, moderated to 3.2% in February from 3.5% in January, marking the slowest annual pace since January 2023.

Japan’s economy expanded an annualised 0.4% in the final quarter of last year, narrowly averting a technical recession as robust capital expenditure offset weaknesses in consumption.

But the BOJ revised down its economic assessment on Tuesday and warned of soft signs in consumption and output, casting doubt on the strength of Japan’s recovery.

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Elon Musk companies are gobbling up Nvidia hardware even as Tesla aims to build rival supercomputer

Notable Snippet: Nvidia is seeing soaring demand for its graphics processing units (GPUs) and related hardware and services, a boom that’s lifted the company’s market cap well past $2 trillion. Nvidia’s products, including new accelerator chips, provide computing power for generative artificial intelligence workloads, robotics, research and data centre projects.

Christian Szegedy, a co-founder and research scientist at xAI who previously worked at Google, spoke at a fireside chat with Bojan Tunguz, a data scientist at Nvidia. Another co-founder and research engineer from xAI, Igor Babuschkin, a veteran of OpenAI and Google, gave an overview of how Musk’s startup is using Nvidia GPUs to help “accelerate training and inference of their Grok model,” referring to the startup’s AI chatbot.

In Nvidia’s press release on Monday announcing the launch of its Blackwell AI chips, Musk was quoted saying, “There is currently nothing better than NVIDIA hardware for AI.”

Musk said in a post on X in January that while a Dojo supercomputer cost $500 million to build, “Tesla will spend more than that on Nvidia hardware this year.” He added, “The table stakes for being competitive in AI are at least several billion dollars per year at this point.”

Oracle founder Larry Ellison, a close friend of Musk’s, former Tesla board member and investor in X, said in December on his company’s earnings call that xAI had secured Nvidia GPUs through Oracle to create the first version of Grok, but that Oracle wasn’t able to meet Musk’s demands.

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Reddit pops 48% in NYSE debut after selling shares at top of range

Notable Snippet: Reddit shares jumped 48% in their debut on Thursday in the first initial public offering for a major social media company since Pinterest hit the market in 2019.

The 19-year-old website that hosts millions of online forums priced its IPO on Wednesday at $34 a share, the top of the expected range. Reddit and selling shareholders raised about $750 million from the offering, with the company collecting about $519 million.

The stock opened at $47 and reached a high of $57.80, marking a 70% increase at its peak for the day. It closed at $50.44, giving the company a market cap of about $9.5 billion.

At its IPO price, Reddit was valued at about $6.5 billion, a haircut from the company’s private market valuation of $10 billion in 2021, which was a boom year for the tech industry. The mood changed in 2022, as rising interest rates and soaring inflation pushed investors out of high-risk assets. Startups responded by conducting layoffs, trimming their valuations and shifting their focus to profit over growth.

Reddit is betting that data licensing could become a major source of revenue, and said in its filing that it entered “certain data licensing arrangements with an aggregate contract value of $203.0 million and terms ranging from two to three years.” This year, Reddit said it plans to recognize roughly $66.4 million in revenue as part of its data licensing deals.

Google has also entered into an expanded partnership with Reddit, allowing the search giant to obtain more access to Reddit data to train AI models and improve its products.

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Phan Vee Leung
CIO & Founder, TrackRecord