Good news for global markets
Yesterday's impressive rally in U.S. stocks and bonds has spread around the world this morning as investors expect central banks to make gains in the fight against inflation. Adding to the good news was a breakthrough in the House of Representatives last night that could prevent a government shutdown.
S&P 500 futures signal further gains at the opening bell. The question now is whether this is a false start to inflation or the start of a permanent decline in rising costs – and interest rates.
This is interesting for investors: Yesterday's weaker-than-expected Consumer Price Index data shifted the market discussion from possible rate hikes to rate cuts and what that could mean for stocks. President Biden, whose poll numbers have been hit by inflation, also welcomed the numbers.
More promising data points were released this morning. Inflation in Britain fell to its lowest level in two years. And consumer spending and industrial production in China rebounded last month, a hopeful sign for the world's second-largest economy.
Market optimists have increased their bets on interest rate cuts. Futures markets this morning suggested the Fed will begin cutting borrowing costs in May, earlier than previously thought, towards the end of 2024.
Less aggressive is Mohit Kumar, chief financial economist at Jefferies, who wrote today that big rate cuts would begin after next year's presidential election. Jefferies forecasts that the Fed's key interest rate will rise to 3 percent by the end of 2025 from the current 5.25 to 5.5 percent.
Others are more cautious. Pessimists point out that “core” inflation data in yesterday's CPI measure, which excludes volatile energy and food prices, came in just a tenth of a percentage point below estimates. “My concern is that inflation may not go away anytime soon,” Jamie Dimon of JPMorgan Chase told Bloomberg Television.
Washington gave markets another reason to cheer. The passage of a stopgap bill by the House of Representatives appears to remove the risk of a shutdown that has been seen as a potential drag on the U.S. economy.
But here too, political tensions in Congress – including some threats of physical violence – raise caution. (Recall that Moody's cut its U.S. credit outlook to negative last week, citing “ongoing political polarization” in Congress that is hampering legislation.) Passage of the House funding bill required Democratic support, and Politico reports that far-right Republicans may be holding the House hostage with a barrage of procedural votes.
As a reminder, David Zaslav of Warner Bros. Discovery, Jamie Dimon of JPMorgan Chase and others will appear at the DealBook Summit on November 29; Register here to take part.
Here's what's happening
The USA and China conclude a climate agreement. Ahead of a meeting between President Biden and Chinese leader Xi Jinping in San Francisco today, countries pledged to increase the use of wind, solar and other renewable energy sources in hopes of displacing fossil fuels. American CEOs who will meet with Xi include Tesla's Elon Musk, Citigroup's Jane Fraser and Exxon Mobil's Darren Woods.
The FDIC chairman is facing tough questions about the agency's culture. Yesterday, senators asked Martin Gruenberg how the regulator is handling allegations of harassment and discrimination after the Wall Street Journal reported toxic working conditions there. (“What the hell is going on at the FDIC?” asked Sen. John Kennedy, Republican of Louisiana.) Gruenberg said he was “personally troubled” by the report and was conducting an internal review.
The Times examines David Zaslav. The Times Magazine published an in-depth profile of the CEO of Warner Bros. Discovery, while another article looks at his turbulent leadership at CNN. One question raised the pieces: Will debt-ridden Warner Bros. Discovery soon be up for sale? “It’s there for the taking,” Barry Diller, the media mogul, told the Times. “Whether that will happen depends on whether someone wants to take it. Saudi Arabia? Do not laugh.”
Rory McIlroy is stepping down from the PGA Tour board of directors. The professional golfer resigned five months after the tour announced an agreement with Saudi Arabia's sovereign wealth fund, LIV Golf's backer, to try to form a joint venture that would end the sport's money-driven battle for dominance would. McIlroy was among LIV's harshest critics of these efforts. Meanwhile, the PGA Tour said it would give players shares in that combined company if it were formed.
AI pioneers and laggards in banking
As the promises of artificial intelligence and its transformative potential grow, banks are among the companies struggling to integrate the technology into almost all of their operations.
But in its latest ranking of how the industry is using AI, data startup Evident found that the gap between the leaders and everyone else is widening. Its founders first shared the new report with DealBook.
The methodology: Evident evaluates institutions in four key areas – talent, innovation, leadership and transparency – using publicly available data such as press releases, research papers and jobs data. The firm nearly doubled the number of banks it rates to 50, broadening the sample to include institutions with $200 billion in total assets and including lenders in the Asia-Pacific region.
Here are the top 10 banks:
Early adopters have grown their leads. While all banks are committed to AI – “I don’t think there’s a single bank in the index that hasn’t doubled down on AI,” said Evident CEO Alexandra Mousavizadeh – some are clearly ahead. JPMorgan, which topped the last survey, was again at the top, ranking first or second in each of the four key criteria.
But Capital One, a smaller US competitor and new addition to the list, held strong. It ranked first in talent with the highest proportion of AI developers and engineers to total employees of any institution. And it has hired Prem Natarajan, a former executive of Amazon's Alexa business, as chief scientist and head of enterprise AI
Other notable developments:
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Banks are taking various steps to demonstrate their AI skills. JPMorgan and the Royal Bank of Canada are leaders in research, while Capital One and Bank of America (15th) are among the most active patent applicants.
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There are some powerful companies in Europe, including UBS, which retained much of Credit Suisse's AI talent when it bought its Swiss rival. However, according to Annabel Ayles, co-CEO of Evident, many lenders in the region are still prioritizing specific solutions over comprehensive plans
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Canadian lenders continue to punch above their weight, scoring highly on talent, leadership, and transparency and ethics. “Some of the highest quality patents come from Canada,” Ayles said.
Haley's rising fortune could attract more big supporters
Things are looking good for Nikki Haley in the Republican presidential primary (relatively speaking, given Donald Trump's dominance). Their poll numbers have risen in recent weeks due to strong performances in the GOP debates as rivals such as Tim Scott dropped out of the race.
Now reports suggest Haley could be gaining traction in another key area: support from wealthy corporate donors.
Citadel's Ken Griffin is on the verge of deciding whether to support her. “We’re on target with this decision,” the billionaire financier told Bloomberg Television yesterday. Griffin, who has said he would not support Trump, is one of the most prolific Republican donors, giving around $72.7 million in the 2022 election cycle alone.
His support could provide Haley with crucial financial ballast as she battles Ron DeSantis to become the leading candidate, who is none other than Trump.
And Haley has reportedly impressed Jamie Dimon, according to Axios. An unnamed source told the publication that the CEO of JPMorgan Chase — which has voted for both Democrats and Republicans in recent election cycles — liked her positions on the economy and the role of business in government.
Haley already has support from big-name wealthy donors, including oil tycoon Harold Hamm, Jim Haskel of hedge fund Bridgewater Associates and dealmaker Aryeh Bourkoff.
How Microsoft's 1990s case could be applied to Google
A two-month antitrust trial against Google is nearing its conclusion in Washington, while the search giant faces a separate legal challenge in a San Francisco courtroom accusing it of exercising monopolistic power over the operation of its app store.
One of the government's last major victories against Big Tech came at Microsoft in the 1990s. That fight played a big role in the Google trial, writes Steve Lohr for The Times: The Justice Department and a group of states say Google is using something similar to the Microsoft monopoly game to dominate the search market. Google rejects this analogy.
These cases have the following in common:
Digital platform economy: The Microsoft case highlighted the power of the “network effect,” in which a digital product becomes more valuable the more people use it. In the Google case, the government argues that the massive search usage gives Google more data to train and improve its search algorithms.
This in turn attracts more users and advertisers. Google has argued that its internal innovation and investment is responsible for its market leadership.
Contracts with competitors: At Microsoft, the focus was on deals with PC manufacturers and Internet service providers. Some of these partners felt they had to make a deal with Microsoft to get access to the Windows desktop software, which was prime virtual real estate in the early days of the Internet.
The Google case involves large payments – so-called pay-for-default contracts – to Apple, Samsung, Mozilla and others to make Google the preferred search engine on their devices and browsers.
A possible outcome: If the federal government and states prevail in the Google case, a possible remedy could be to ban pay-for-default deals. This would also correspond to the result in the Microsoft case, where the company was prohibited from entering into exclusive deals that distorted competition.
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