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In today’s edition,
- What is the Fed indicating?
- Tesco’s AI shopping revolution
- Intel is past a $7bn loss
- Mubadala backs Revolut
- Sony’s blockchain bet in Japan
Market Snapshot
Wall Street wrapped up a record-breaking week, with all three major indexes posting strong gains. The market’s rally was largely driven by the Federal Reserve’s 50-basis-point interest rate cut, which signaled optimism about falling inflation but also highlighted concerns over the labor market.
FedEx’s disappointing results during the week raised fresh concerns about the impact of a slowing economy on consumer and business demand. On the other hand, Intel saw a notable rise in its stock after reports of a potential takeover by Qualcomm, though no deal has been confirmed yet.
Looking ahead, investors are focused on upcoming labor market data, especially the September nonfarm payrolls report, while keeping an eye on jobless claims and layoffs for further clues on the economic outlook. Despite some mixed news, the S&P 500, Dow Jones, and Nasdaq all ended the week with gains, reflecting the market’s overall strength.
Stock market closing data for the week of Sep 16th to Sep 20th, 2024
Special Coverage: Fed’s Rate Cut Ripple Effect
The Federal Reserve’s recent half-point interest rate cut is setting off a chain reaction across global central banks. The Fed made the move to ease pressure on the US economy without triggering panic about a recession.
This decision gives other central banks, especially in emerging markets, some breathing room. Countries like Indonesia moved quickly, cutting rates just before the Fed’s announcement to take advantage of the reduced pressure on their exchange rates.
In Europe, things are a bit more complicated.
The European Central Bank (ECB) insists it makes decisions independently, but US monetary policy still affects the eurozone. The Fed’s move could push the ECB to reconsider its rate cuts in the coming months, even though officials have been hesitant. The strong Swiss franc is also causing headaches for the Swiss National Bank, which may feel more pressure to act as well.
Emerging markets that tie their currencies to the US dollar, like some in the Persian Gulf, followed the Fed’s lead and cut rates by half a point.
Other countries, with floating currencies like South Korea and India, now have room to ease their own rates. But they need to balance this with concerns about financial stability, so their decisions might not come as quickly.
In Asia, Japan is in a different position.
The Bank of Japan is just beginning to tighten its policies. While the Fed’s cut could influence their next steps, most expect Japan to hold steady on interest rates for now. However, updated forecasts could push them toward a small rate hike if wage and price increases continue.
Overall, the Fed’s decision is giving central banks worldwide the chance to recalibrate. But their responses will depend on local economic conditions and their own priorities. Each country will have to navigate this global shift in its own way.
News Summaries
Tesco (Explore: TSCDY) is planning to significantly increase its use of AI to personalise shopping for its 22 million Clubcard users. CEO Ken Murphy explained that AI could suggest healthier options, reduce waste, and help lower bills. For example, it might recommend cutting down on sodium if it notices high levels in a shopper’s basket. Tesco already uses AI for personalised offers, but Murphy believes more advanced AI could create a one-on-one relationship with customers. The company has heavily invested in building its own tech team, now with over 5,000 employees, and is hiring 300 more each year. While privacy concerns around personal data exist, Murphy emphasized that using AI will revolutionise customer interaction. He acknowledged Tesco is still smaller than AI giants like Amazon, but said they are ready to compete.
Intel (Explore: INTC) is making major cost-cutting and restructuring moves, including pausing chip plants in Germany and Poland and cutting two-thirds of its global real estate. CEO Pat Gelsinger is driving these changes to recover from poor earnings and a drop in stock value. The $34bn project in Germany, backed by $11bn in subsidies, has been paused, easing the burden on the German government. Intel also secured a key deal to produce AI chips for Amazon using its advanced 18A process, vital for staying competitive against Nvidia and AMD. After reporting a $7bn loss in its chipmaking unit this year, Intel is restructuring its manufacturing division with a new governance setup and cutting 15,000 jobs. The company is also receiving $3bn in US government support for military chip production. Intel shares rose 8% after these announcements.
Abu Dhabi’s Mubadala has invested in Revolut for the first time, joining a $500mn share sale by employees that valued the fintech at $45bn. This sale included founder Nik Storonsky selling $200mn to $300mn of his shares, around half of the total deal. The proceeds may help fund Storonsky’s venture capital firm, QuantumLight. Mubadala’s involvement is part of its growing interest in European ventures, with over 28 deals in the region in the past five years. This comes as Revolut continues its global expansion, having secured a UK banking licence in July, and is pushing for further regulatory approvals in markets like the US. Revolut, with more than 45 million customers, turned a pre-tax profit of £438mn in 2023, a major shift from its £25mn loss in 2022.
From the World of Crypto
Sony has stepped into the world of blockchain with its new platform, Soneium. The idea is to see how it can fit into their entertainment offerings like gaming, music, and movies. They’re still working out the details, but it’s clear they’re looking to expand what blockchain can do for them. Sony isn’t the only big name in Japan doing this—companies like Nippon Telegraph & Telephone, Toyota, and Mitsubishi UFJ are also exploring blockchain. Mitsubishi UFJ, for example, is looking into stablecoins, which are digital tokens that hold a steady value.
There’s a reason behind this push.
Crypto activity in Japan has been picking up this year. Monthly trading volumes at centralized exchanges are close to $10 billion, up from $6.2 billion last year. The boost comes as Bitcoin and other cryptocurrencies have made a comeback.
But even with this growth, Japan’s strict regulations are still a big hurdle.
Crypto gains are taxed at up to 55%, compared to just 20% for traditional investments. That’s a steep difference and makes it harder for new businesses to get going, even though the market is heating up.
Japan’s tough rules aren’t without reason.
They’re a response to past disasters like the Mt. Gox hack in 2014 and a $320 million breach at DMM Bitcoin more recently. These events pushed regulators to take a cautious approach, focusing on protecting investors. That’s why Japan now has stablecoin rules and a solid framework for crypto exchanges.
But for companies, this means there are hoops to jump through, which can slow down innovation. Bitbank, for instance, found it tough to navigate these rules when launching new services.
Still, Sony and other companies see real potential in blockchain. Soneium could be used for trading in-game items or managing creative content. But it’s too early to say if these ideas will stick. The real challenge is balancing innovation with the regulations in place, especially since Japan’s political leadership may soon shift away from fully backing blockchain and web3 initiatives.
