Currently, traders are giving a 25-basis point hike a nearly 77% chance versus just 23% for a 50-basis point hike at the next Fed meeting on January 31-February 1. The fact that he didn't try to warn Wall Street against that thinking is viewed by many bulls as a sort of confirmation that there could be another step down in rate hikes.
Bears however are pointing to comments made by other officials that reiterate the Fed's pledge to move rates into "restrictive" territory and keep them there for longer than in past tightening cycles. Most still think rates will top out around 5% but bears warn that Wall Street bulls are underestimating how long those rates might remain there, as well as the degree to which high rates will slow the economy. Bears are further warning that bulls are underestimating the damage being inflicted to the economy and corporate margins by high inflation, which they believe will remain stubbornly elevated for much of this year and possibly into 2024.
Thursday's Consumer Price Index will be a critical inflation test with consensus looking for headline CPI to drop to +6.6% year-over-year from +7.1% previously. Insiders warn that with Wall Street overwhelmingly expecting another monthly decline, things could get very ugly, very fast if the gauge surprises with an increase instead.
There is not a lot on the calendar today with the Energy Information Administration's Petroleum Status Report the only economic data of note and just KB Home on US earnings front.
Friday is the big day for the banks to report earnings i.e., Bank of America, BlackRock, Citigroup, JPMorgan-Chase, and Wells Fargo. Interestingly, Wells Fargo, once the No. 1 player in mortgages, announced yesterday that it is stepping back from the housing market. Remember, they were our country's top lender as recently as 2019 when it had +$201.8 billion in home loan volume. Interesting to see them stepping back.
Largest Loss of Personal Fortune in History Goes to... Elon Musk! I guess you could argue that at least he had it to lose. The Tesla and Twitter CEO erased so much of his money since November 2021 that he's broken the world record for the "largest loss of personal fortune in history." Guinness reported the record after Forbes assessed Musk lost $182 billion, although other sources suggest that it could actually be closer to $200 billion. Prior to Musk, the previous record for the largest personal fortune wiped out was set by Softbank founder and CEO Masayoshi Son in 2000. According to Guinness, Son lost $58.6 billion. According to Forbes, Musk’s net worth dropped from a peak of $320 billion in 2021 to $138 billion as of January 2023. But before anyone counts Musk out, just remember, he is still deploying rockets through Space-X, and has changed the war in Ukraine with his StarLink satellites. And yes, he was also the one with the vision to back ChatGPT from the very beginning. Remember, ChatGPT, the AI powered “everything app” that is getting so much attention right now, was developed by a company called OpenAI. A company that began life in 2015 as a not-for-profit funded by Musk, Sam Altman, Reid Hoffman and other tech luminaries. The group pooled $1 billion of personal capital and hired some of the best AI talent in the Valley. Musk resigned from the OpenAI board in 2018, and it is unclear how much (if any) stock he may own. Musk clearly is a visionary and will continue to be a massive disrupter. I don't think we've seen the last of Musk or the fortunes he will continue to amass... Source Forbes & Datatrek
Microsoft Reportedly Closing In On $10 Billion Investment into ChatGPT Creator OpenAI: Microsoft and OpenAI, the company behind the viral artificial intelligence chatbot ChatGPT are in discussions for a deal that would value the latter at $29 billion, according to several reports, as the legacy technology giant throws its weight behind the latest viral sensation and encroaches on its longtime rival Google. The deal, which would eventually net Microsoft a 49% stake in the upstart firm, also includes a clause that Microsoft would receive three-quarters of OpenAI’s profits until it recovers its investment, according to Semafor, with additional investors taking 49% and OpenAI retaining the remaining 2% in equity. Increased search competition from ChatGPT presents one of the five greatest risks to the stock of Google parent company Alphabet in 2023, according to a Tuesday note to clients from Bank of America analysts Justin Post and Joanna Zhao. Source Forbes
America's Public Schools are Losing Students: The pandemic has supercharged a trend that has plagued school districts across the U.S. for years, which is students are leaving public schools. Keep in mind, public schools lose funding as they lose students, and some schools have been forced to shutter altogether. Unfortunately, this disadvantages the many millions of students, typically lower-income students in cities who can't turn to private schools or homeschooling. Public schools lost more than -1,000,000 students from fall 2019 to fall 2020, according to the National Center for Education Statistics. Enrollment fell from 50.8 million to 49.4 million. Widespread teacher and staff shortages exacerbated the problem and as students rapidly fell behind, frustrated parents chose to pull their kids out. As a result, private schools and charter schools gained students and the number of homeschooled students doubled to about 5 million. Source Axios
Apple’s Push for In-House Chips Hits Suppliers: Apple's drive to produce more of its own chip components has hit the stocks of a number of its suppliers in recent years. Broadcomm and Qualcomm were the latest to feel the heat on the back of a report that Apple is seeking to replace some key parts by around 2025. Apple is looking to replace a combined chip from Broadcom that handles Wi-Fi and Bluetooth functions in 2025, while also readying a cellular modem chip that could substitute for parts made by Qualcomm by the end of 2024 or early 2025. Analysts at Oppenheimer wrote in a research note that Apple’s move was more serious for Qualcomm than Broadcom. Source Barrons
Binance Bleeding Assets... -$12 Billion Gone in Under 60 Days: Binance, the world’s largest cryptocurrency exchange, is struggling to hold onto assets. In the wake of the collapse of rival FTX, investors have been pulling their crypto in recent weeks, and despite assurance from CEO Changpeng Zhao that the situation had stabilized, outflows are accelerating. Customers withdrew a net $360 million on Friday, according to data from crypto data firm Defillama. Investors’ lack of trust is best seen in the performances of Binance Coin (BNB) and Binance USD (BUSD), the two tokens bearing the exchange’s name. BNB lost 29% of its value in the past two months, and Forbes estimates that leaves about 29 million of the tokens at Binance, 51% less than disclosed by the exchange on November 10. Meanwhile the number of BUSD stablecoins at the firm sank by 40%. Source Forbes
Industries Most Likely to Experience Layoffs: Getting laid off sucks. But the chances of it happening to you can increase depending on what industry you work in. And despite the looming threat of a recession, not all industries are impacted to the same degree during an economic downturn. While the tech industry has made headlines with layoffs announced at several major companies recently, widespread layoffs still have remained relatively scarce over the last six months. But other industries did experience layoffs—nearly triple the rate compared to others. The arts, entertainment, and recreation sector, in particular, had an average layoff rate of 3.1% from June to November, according to data from the Bureau of Labor Statistics. The other top sectors for layoffs included construction, professional and business service—which includes jobs in accounting, engineering and computer services—and the information industry. That sector covers those working in publishing, media, and telecommunications, as well as data processing. Source Fortune
World Bank Cuts 2023 Forecasts and Warns of Global Recession: The World Bank slashed its growth forecasts for most countries and regions, and warned that new adverse shocks could tip the global economy into a recession. Global gross domestic product will probably increase 1.7% this year, about half the pace forecast in June, the Washington-based lender said Tuesday. That would be the third-worst performance in the last three decades or so, after the contractions of 2009 and 2020. The bank, which also cut its growth estimates for 2024, said persistent inflation and higher interest rates are among the key reasons. It also cited the impact of Russia’s invasion of Ukraine, and a decline in investment. “The crisis facing development is intensifying” and the setbacks to global prosperity will likely persist, World Bank President David Malpass wrote in a foreword to the bank’s semi-annual Global Economic Prospects report. He said GDP in emerging-market and developing economies at the end of next year will be about 6% below the level expected on the eve of the Covid-19 pandemic. Source Bloomberg
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