Higher for (not much) more
The “everything rebound” has gone global, sending stocks and bonds soaring in Asia and Europe and lifting U.S. stock futures, after investors received the clearest signal yet that the Federal Reserve would begin cut interest rates soon. Hopes are also growing on Thursday that other central banks will follow suit.
The Federal Reserve issued an unexpectedly dovish forecast on Wednesday. planning three rate cuts next year. Those measures are projected to reduce the Federal Reserve’s prime lending rate to 4.6 percent, a notable drop from the central bank’s last estimate in September.
The revision took the Dow Jones Industrial Average to a record high. The S&P 500 also hit that marker based on so-called total return, which would take dividends into account, according to Deutsche Bank analysts. Treasuries also rallied, with the 10-year yield falling below 4 percent on Thursday, its lowest level since July. (Yields fall when prices rise.)
That’s good news for borrowers because many common long-term loans, including mortgages, tend to track the 10-year Treasury yield.
High borrowing costs appear set to decline. Over a 16-month period ending in July, the Federal Reserve raised rates to a 22-year high to combat inflation. That aggressive approach forced businesses and households to cut back on their borrowing. It also cooled global mergers and acquisitions activity and roiled the commercial real estate market.
Economists at Goldman Sachs have now revised their 2024 forecast. predicting that the Federal Reserve’s first rate cut would occur in March.
European Central Bank could increase momentum, with a rate decision scheduled for 8:15 a.m. Eastern Time. Earlier on Thursday, the Bank of England left its prime interest rate unchanged.
Futures traders this Thursday they were betting that the ECB would make the equivalent of six rate cuts of a quarter of a percentage point.
Will the Federal Reserve act aggressively during an election year? Mark Zandi, chief economist at Moody’s Analytics, said he could see the central bank making two cuts next year. Beyond that, he told CNBC“I’m a little skeptical in the context of what the election might mean,” adding that Jay Powell, chairman of the Federal Reserve, would “desperately want to avoid” any suggestion that the central bank’s policy was helping either party. politicians.
The economic outlook is not so rosy. On Wednesday, Powell painted a picture of a cooling economy and job market. That slowdown has helped reduce inflation in recent months, but, he added, “the path forward is uncertain.” That is, inflation is not expected to reach the Federal Reserve’s 2 percent target until 2026. And rate increases could be back on the table if inflation were to rise again, Powell noted.
Investors are ignoring Powell’s warning. “Powell played Santa Claus early,” he said. Diane SwonkKPMG chief economist.
THIS IS WHAT’S HAPPENING
Senate passes $886 billion defense bill despite objections from some Republicans. The legislation would help expand the Pentagon’s ability to develop hypersonic weapons and provide military aid to Ukraine and Israel. Far-right lawmakers had sought to include provisions limiting access to abortions and health care for transgender people. A separate bill that would provide additional aid to Ukraine remains stalled amid a fight over border security.
Apple is reportedly facing tough antitrust sanctions from the European Union. Regulators are preparing a decision on Apple’s efforts to block music services like Spotify from directing iOS users to payment systems outside of the App Store to avoid paying high fees to the iPhone maker. according to Bloomberg. It would be the latest blow to major app stores, after a jury ruled that Google violated antitrust laws with its tight control of its Play Store.
Tesla recalls more than two million vehicles due to Autopilot software. The automaker said it would update the driver assistance program on nearly every car it has made in the United States since 2012 to help prevent misuse. Tesla remains under investigation by federal regulators over safety concerns.
New media companies are moving to expand their offerings. Punchbowl News agreed buy Electo Analytics, a provider of legislative analysis, in a stock deal that values the Washington-focused media outlet at more than $100 million, The Times reports. And Semafor is partnering with Penny Pritzker, the former Commerce Secretary, and Carlyle Group co-founder David Rubenstein on its World Economy Summit conference in Washington that will take place during the IMF and World Bank meetings in the spring.
COP28 in figures
The historic agreement reached Wednesday at the United Nations climate summit in Dubai required an explicit commitment to wean the world off fossil fuels. Now comes the hard part: making that a reality.
The costs to accelerate decarbonization efforts are enormous. The pact calls for tripling renewable energy capacity by 2030, restricting methane emissions and halting carbon emissions by mid-century. Such measures are necessary to prevent global temperatures from rising more than 1.5 degrees Celsius and avoid a climate crisis, according to scientists and climate activists.
The United Nations Dear All that developing countries will need approximately $5.9 trillion in climate finance this decade to transition to relying on greener energy sources such as wind, solar and nuclear.
Private investment will be key to achieving climate goals, analysts note. The United Arab Emirates saying would partner with investment giants BlackRock, Brookfield and TPG on a $30 billion climate fund. And Vice President Kamala Harris announced $3 billion for a similar fund to help poorer countries make the transition. Despite this, the sums committed are far below what is needed.
That shortfall could be one of the reasons why investors ignored the COP28 news. The S&P 500 energy sector index rose nearly 1.3 percent on Wednesday, amid a broader market rally, even as oil demand seems to be weakening.
Oil industry executives seemed unfazed by the headlines coming out of Dubai. Sultan Al Jaber, president of COP28 and chairman of the Abu Dhabi National Oil Company, praised the pact, noting that “many said this could not be done.” But Adnoc plans to spend at least $150 billion to expand drilling over the next five years.
The COP28 agreement could reinvigorate market enthusiasm for green investments. “We anticipate a recovery in investor confidence around many climate and emissions-related investment themes,” UBS analysts wrote to investors on Wednesday. They specifically highlighted investment opportunities in clean air and carbon reduction as especially promising.
One such technology that was highlighted in the COP28 agreement was carbon capture, a technology backed by petrostates such as the United Arab Emirates and Saudi Arabia. The process, which sucks carbon dioxide from the sky and buries it deep underground, has attracted billions of dollars in investment in recent years, even as skeptics question its economics.
Former vice president Al Gore applauded the final agreement, but added that “the influence of petrostates remains evident in the half measures and loopholes included in the final agreement.”
£32.4 million (about $40 million)
—The compensation that Bernardo Looney, former BP chief executive, is resigning after he was forced to resign for “knowingly” misleading the board about his relationships with colleagues. The energy giant officially fired him on Wednesday even though he had resigned in September, further depriving him of salary and pension benefits.
A media giant reaches a truce with OpenAI
As media publishers argue with tech companies over the use of their content by artificial intelligence systems, OpenAI has reached a potentially transformative deal: a extensive licensing agreement with Axel Springerparent of Politico, Business Insider and Bild, the German newspaper.
It’s the media’s latest effort to grapple with the rise of AI and price the content that tech companies are desperate to train their models on.
What’s in the deal? OpenAI will be able to summarize articles from Springer publications, including content behind paywalls, in products like ChatGPT, with links to the original websites. The technology company will also be able to train its AI models with Springer content; Technology companies often like to use news articles because of their higher editorial quality than other online information.
It’s a broader deal than the one OpenAI struck with The Associated Press over the summer, which gave ChatGPT parents access to the publisher’s files for training purposes only. “This partnership with Axel Springer will help give people new ways to access quality news content in real time through our AI tools,” Brad Lightcap, COO of OpenAI, said in a statement.
It’s unclear how much OpenAI is paying Springer, although The Wall Street Journal reports that it is expected to give the media company “substantial income.” Springer may also strike similar deals with other AI companies.
The development comes amid a larger fight over AI’s use of content. A trade group representing more than 2,000 American media companies (including The Times) has argued that technology companies are training their artificial intelligence models in their production without permission or compensation. And IAC’s Barry Diller has urged publishers to file lawsuits under copyright laws to protect their content, or “there will be no publication.”
Authors have also objected to the use of their work to train AI models without compensation, and prominent writers such as John Grisham and Jodi Picoult sued OpenAI.
There is another potential benefit to OpenAI. Springer is outspoken in political circles, misleading lawmakers on issues such as paying tech giants to summarize news content and Google’s plans to drop trackers from your Chrome browser. (This pressure has been successful in Germany, where Google agreed pay millions annually to republish media there).
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