Symax Fintech Daily Market Insights 11.01.24

Fed, CPI.

Federal Reserve Bank of New York President John Williams said monetary policy is now tight enough to guide inflation back to the Fed’s target, but suggested policymakers need more evidence of cooling inflation before cutting interest rates. Inflation has slowed, and the consumer price index data to be released Thursday is expected to show further softening. BB

US inflation looks like it will keep slowing through the rest of this year, perhaps ending 2024 near the Federal Reserve’s 2% target. Prices for some goods have even started dropping. The downdraft should keep the US central bank on course to start lowering interest rates, with the more optimistic hoping for cuts as soon as March. Coupled with a still-booming American employment landscape, the taming of inflation is good news for the Fed’s goal of a soft landing. It’s also a boon for President Joe Biden as he launches his re-election campaign in earnest. But whether or not the central bank overshot with its record rate-hike campaign is still an open question. Lower inflation could augur a broader economic slowdown, which would be less-than-pleasant news for the Democrat. BB

Thursday’s report on consumer prices will probably give a taste of the disinflation to come for the American consumer. Goods prices overall have stopped rising and some, like those for cars, are falling. Surveys of consumers have shown improvements in sentiment about the outlook for inflation with declines in gas prices leading the way. Grocery costs are still up from a year ago—though they’re not rising as fast as they were. Still, some forecasters on Wall Street anticipate the effect of elevated interest rates has yet to be fully felt on growth and hiring. “If some of that deceleration is coming at the expense of weakening demand—and that being tied to the job market—that could be an offsetting factor,” said Sarah House, a senior economist at Wells Fargo.  BB

Treasuries fell and big tech fueled gains in stocks Wednesday, with investors awaiting Thursday’s inflation data for clues on the outlook for Federal Reserve policy. Aside from the US CPI and initial jobless claims Thursday, traders will be watching Australia’s trade balance, Malaysia’s industrial production and South Korea’s rate decision. BB

The Bank of Japan is “completely ready” to put an end to the world’s last negative interest rate, according to former board member Makoto Sakurai. April is the most likely timing for when it might do so, and “they are just waiting for one last push” from one or two pieces of economic data, Sakurai added, speaking in an interview on Wednesday. What may surprise market players will be the slow pace at which Japan’s central bank conducts its normalization process following its first hike since 2007, as it won’t resemble what traders saw in the US and Europe, Sakurai said. BB

China’s Foreign Minister Wang Yi spoke with his Russian counterpart Sergey Lavrov in a phone call Wednesday, according to a statement from the ministry in Beijing. China is highly confident Russia will achieve its goals on its key domestic political agenda and maintain stability and growth, said Wang. Both countries vowed to make joint efforts for a cease-fire in Gaza. BB

With aid to Ukraine still blocked by Congressional Republicans, the Biden administration is now backing legislation that would let it seize some of $300 billion in frozen Russian assets to help pay for reconstruction of Ukraine. The administration welcomes “in principle” a bill that would allow it to confiscate the funds, according to a November memo from the National Security Council to the Senate Foreign Relations Committee. The shift however has engendered fears in some quarters that it could taint the reputation of the US financial system and spark a flight from the dollar. BB

When Xi Jinping attended talks with Joe Biden in November, seated to his right was a man who is quietly emerging as one of China’s most influential figures. Not only does Cai Qi sit on the seven-man Politburo Standing Committee, China’s most powerful body, but he serves as Xi’s chief of staff—the first person to hold both positions since the era of Mao Zedong. Those dual titles have given Cai another privilege: He’s the only member of China’s top decision-making body to have publicly traveled overseas with Xi. Cai may officially be China’s No. 5, but he has unusual clout for the position.  BB

Over the past two years, Amazon fired more than 27,000 of its employees, part of a flood of terminations by technology companies tied to pandemic fallout and a recession that never came. Now it’s 2024, and Amazon is dismissing its workers again. The company announced it’s terminating hundreds of people in its Prime Video and studios business. BB

Ecuador’s embattled President Daniel Noboa said he received a pledge of aid from the US to help contain the terror campaign by drug traffickers. The nation’s dollar bonds erased losses. Meanwhile, inmates are holding 125 security guards and 14 workers hostage in several jails. BB

Rishi Sunak announced a new law to exonerate nearly 1,000 wrongfully convicted UK post office workers.

• Theywere wrongly chargedwith theft and false accounting between 1999 and 2015 due to an IT error, in what Sunak called “one of the greatest miscarriages of justice in our nation’s history.”
• Of the 980 convicted,only 93 have managed to overturn their convictions. Many were imprisoned and some died by suicide.
• The scandalshows the trouble that results from managers trusting systems over their own people, Adrian Wooldridge writes. With the growth of AI, that problem may be about to get worse. BB

Economists, on the whole, are bit of a dour bunch. After all, it’s not called the dismal science for nothing.

But when it comes to artificial intelligence, there’s a smattering of optimism in the profession about its economic benefits — at least judging by the Jan. 5-7 gathering of the American Economic Association in San Jose.

“I’m very encouraged by it and the impact it can have on productivity,” Morgan Stanley chief US economist Ellen Zentner said, based in part on the extent to which her firm is already using it.

• More than a dozen research papers on AI were presented to the AEA annual meeting. They ranged from the practical — combating cheating in classrooms that use OpenAI’s ChatGPT — to the philosophical — how AI will influence the direction of economic research.
• In the parlance of economics, generative AI is a general-purpose technology. That means it has the capacity to spread widely, affecting numerous industries and workers. Traditionally, economists think that’s a good thing. Yes, jobs are destroyedas the technology spreads, but new ones are also created. The economy is better off as productivity and living standards rise.
• That’s how Conference Board chief economist Dana Peterson sees it.
• “AI is going to displace some labor, but it’s going to create a lot of new jobs,” she said. “I’m optimistic that this is a big technological innovation like the internet that can help make the economy effectively workfor everyone.” BB

Germany’s ruling coalition has approved the sale to Saudi Arabia of 150 air-to-air missiles, the first weapons delivery to the Gulf nation that the government has granted in more than five years. Chancellor Olaf Scholz’s administration signaled this week that it’s also prepared to back the sale of additional Eurofighter aircraft to Saudi Arabia. BB

TRUMP

For Donald Trump, the economy is Joe Biden’s problem. Poll after poll shows that voters overwhelmingly trust the former Republican president more than the Democratic incumbent to handle economic issues. A Bloomberg News/Morning Consult survey from December had voters in seven battleground states expressing more confidence in Trump’s ability to tackle a wide range of pocketbook issues, including housing, interest rates and inflation, along with balancing the budget.

Stephen Moore, an informal adviser to Trump and a fellow at the Heritage Foundation, says inflation and the state of the middle class will be among Trump’s major lines of attack against Biden in 2024. “It is all about: ‘Are you better off than you were four years ago?’ That is shaping up to be one of the major themes of his campaign,” Moore says.

Trump’s counselors on economic issues include former National Economic Council Director Larry Kudlow and former Council of Economic Advisers Chair Kevin Hassett.

While some elements of Trump’s agenda signal continuity with his first term as president, others—in areas such as trade—present scope for shock and awe. Here’s a snapshot of some of the presumptive Republican candidate’s economic policy positions.

Trade and investment

Trump has made it clear he plans to double down on his “America First” agenda. He’s floated the idea of encircling US industry with a 10% tariff, which would bring a fresh wave of disruptions to supply chains. Such a move would pressure allies including Canada, Mexico and even Japan to the table to negotiate concessions, a playbook the former president used during his first term.

China

Beyond tariffs, Trump would push for a decoupling of the world’s two biggest economies with measures that include ending most-favored-nation status for China, which would raise tariffs and potentially other trade barriers to Chinese imports. Additional restrictions on investment and the flow of capital to China would also be likely. There are signs of congressional support for Trump’s hawkish trade agenda: A bipartisan group of lawmakers in December recommended raising tariffs on goods from China and further restricting investment in the country.

Taxes

The Trump team plans to make permanent the individual tax cuts he enacted as president, which are set to expire in 2025. The cuts primarily benefit wealthy households, small-business owners and those in the real estate industry. Moore says Trump may use any revenue from additional tariffs to fund their extension or deepening. During Trump’s term, negotiations between his administration and Congress led to the corporate tax rate being lowered from 35% to 21%. People familiar with Trump’s plans say that as the Republican front-runner campaigns for the support of working- and middle-class voters, he won’t be pushing to lower the rate further, to 15%, as was his goal at the start of his presidency.

Fiscal policy

Trump has never been known for fiscal austerity. His 2017 tax cuts exploded the budget deficit; he also refuses to touch Social Security and Medicare, among the biggest drivers of the long-term growth in the deficit. On the campaign trail, Trump promises to rein in what he calls excessive government spending on foreign aid, climate subsidies, immigration and other areas. Part of his message to voters is that his isolationist stance will save taxpayers money by, among other things, freeing the country from involvement in expensive overseas conflicts such as the war in Ukraine. BB