Annuity.org | April 17th, 2024

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GOOD MORNING

Here's everything you need to know today: Federal Reserve Chair Jerome Powell has poured cold water on hopes for quick interest rate cuts, stressing that high rates are here to stay a bit longer thanks to stubborn inflation. Meanwhile, Microsoft is playing chess, not checkers, by investing a cool $1.5 billion in a UAE-based AI firm, aiming to outmaneuver geopolitical and tech rivals alike.

In a dramatic twist of corporate strategy, Trump Media's Truth Social took a nosedive after announcing TV streaming ambitions—perhaps the market's way of saying, "You're canceled." And across the Pacific, the Chinese yuan continues to play second fiddle to the mighty dollar, as Chinese firms hoard greenbacks like there's no tomorrow, exacerbating the yuan's sag.

Bank of America presented a mixed financial bag this quarter, beating some estimates but disappointing on net income. It's like getting a burger with all the fixings but no patty.

Let’s dive into more detail below.

RATES

FED Powell Cautions on Quick Rate Cuts

As inflation persists, Federal Reserve's Jerome Powell indicates that interest rates will remain high

BREAKING NEWS
Federal Reserve Chair Jerome Powell once again emphasized the persistent challenge of inflation in the U.S. today, signaling that interest rates are unlikely to drop soon. At a U.S.-Canada economic forum, Powell noted that recent data does not inspire confidence in a quick return to the central bank's 2% inflation target.

On Tuesday, Fed Vice Chair Philip Jefferson omitted previous references to the likelihood of rate cuts this year, suggesting the Fed may not carry out the three cuts it had previously projected.

WHAT HAPPENED
In a detailed update at the policy forum, Powell outlined the Federal Reserve's current stance in response to the slower-than-anticipated progress on inflation. Despite a robust labor market and solid growth, the Fed has maintained interest rates at their highest level in 23 years, between 5.25% and 5.5%.

This decision follows 11 consecutive rate hikes initiated in March 2022. Recent consumer price index reports show inflation at a 3.5% annual rate, a modest decrease from its mid-2022 peak but an uptick since October 2023. Powell stressed the necessity of maintaining current policy levels until more definitive progress toward the inflation goal is observed.

In March, U.S. consumers showed resilience against rising inflation by shopping more than expected, as reported by the Commerce Department. Retail sales climbed by 0.7%, surpassing the Dow Jones consensus forecast of a 0.3% increase, although this was a slight decrease from February's upwardly revised 0.9% gain. This data, provided by the Census Bureau, is adjusted for seasonal variations but not for inflation.

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ARTIFICIAL INTELLIGENCE

Microsoft Invests $1.5 Billion in UAE's AI

Microsoft has deepened its AI market footprint, enhancing its competitive edge globally against major tech rivals

BREAKING NEWS
Microsoft is not slowing down with its investments in AI, and it looks like it wants nothing more than to be the frontrunner in the space. On Tuesday, they announced a $1.5 billion investment in the United Arab Emirates-based artificial intelligence firm G42. This financial infusion grants Microsoft a minority stake and a board seat, signaling a robust partnership between the tech giant and the AI innovator.

This strategic move is set against a global race for technological supremacy, particularly in AI and digital infrastructure.

WHAT HAPPENED
In a landmark deal with geopolitical and future technological ramifications, Microsoft's investment aims to bolster its presence in the Middle East and align closely with the U.S. efforts to counteract Beijing's technological strides. As part of the agreement, G42 will integrate Microsoft's cloud services to power its AI applications, stepping away from Chinese technologies, including Huawei's hardware, which has raised security concerns in the West. Microsoft's cloud services have over 722 million users in 2024 and counting.

The U.S. and UAE governments officially endorsed this partnership, underscoring its significance in international tech and security dialogues. Microsoft's commitment includes significant corporate governance participation, with Microsoft President Brad Smith joining the G42 board.

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TRUTH

Truth Social Tanks on Streaming Pivot

Share values tumble as Trump Media announces TV streaming ambitions

BREAKING NEWS
Trump Media's stock faced a sharp rebuke from the market Tuesday, plunging over 10% following an announcement about venturing into TV streaming via Truth Social. This significant downturn adds to a previous 18% drop, seemingly signaling the market's critical response to the company's "strategic pivot." The market, harkening to former President Trump's show "The Apprentice," appears to feel fine saying "you are fired" to these moves.

WHAT HAPPENED
This stock plunge, part of a troubling trend for the company, followed a significant 18% drop just the day before. As the company prepares to broaden its digital footprint with this ambitious streaming venture, its financial performance starkly contrasts with larger tech giants. Research from SimilarWeb highlights that Truth Social drew 5 million website visitors in February, a fraction of Instagram's 2 billion monthly users. Financially, Truth Social reported a mere $3 million in revenue over the first nine months of 2023 against $49 million in net losses. Instagram's parent company, Meta, reported nearly $135 billion in revenue last year. Finance experts like Jay Ritter have expressed skepticism, labeling Truth Social's current business model a colossal failure, especially in user engagement and advertising revenue capture.

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CURRENCY

Dollar Dominance Challenges Chinese Yuan

As Chinese firms cling to the US dollar over the yuan, a challenging cycle of currency devaluation is emerging

BREAKING NEWS
China is currently caught in a challenging cycle of currency devaluation and dollar hoarding. Chinese businesses increasingly retain US dollars instead of converting them into yuan, anticipating further weakening their domestic currency. This behavior intensifies the yuan's depreciation, which is already under pressure from unstable stock markets and sluggish economic growth. The same issues can also be seen in Japan, which, according to the IMF blog, has depreciated by 14% against the dollar.

WHAT HAPPENED
The phenomenon of dollar hoarding by Chinese firms has added $53.7 billion to foreign exchange deposits since September, now totaling $832.6 billion, according to data from the People's Bank of China (PBOC). This self-reinforcing loop is fueled by the allure of higher yields available in dollar deposits than in yuan. For instance, dollar deposits offer a 6% return compared to a mere 1.5% for yuan deposits domestically. This situation is compounded by the stark difference in interest rates between the U.S. and China, with the latter's exporters gaining significantly from the favorable exchange rate. Despite regulatory caps on dollar deposit rates and other financial controls, Chinese corporations and exporters opt to park their dollars offshore, waiting for an opportune moment to exchange them, potentially at a more favorable rate.

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BANKING

BAC Earnings Show a Mixed Financial Bag

BAC surpasses EPS estimates while falling short on net income

BREAKING NEWS
Bank of America Corp (BAC) has reported its quarterly earnings, delivering mixed results that surpassed analyst estimates for adjusted earnings per share but fell short of net income expectations. This announcement reflects both the robust segments within the company and the broader economic challenges impacting the financial sector. The bank's stock price was up slightly in pre-market trading but has retreated to its 50-day moving average, indicating the potential for a breakout or breakdown.

WHAT HAPPENED
In its latest 8-K filing, BAC announced an adjusted EPS of $0.83, slightly higher than the anticipated $0.77, showcasing its ability to exceed profitability forecasts. However, its net income of $6.7 billion did not reach the projected $6.229 billion. Revenue met the mark at $25.8 billion, matching analyst projections. The provision for credit losses saw an uptick to $1.3 billion from the previous year's $931 million, and net charge-offs rose significantly to $1.5 billion, indicating a cautious outlook on credit performance. Simultaneously, the bank experienced a swell in operating expenses due partly to an exceptional FDIC assessment, culminating in a 67% efficiency ratio.

Despite these pressures, average deposit balances and loans increased slightly, and the CET1 capital ratio remained robust at 11.8%.

Bank of America's first-quarter results were somewhat mixed, with earnings beating expectations but revenue and net interest income declining compared to the prior year. The bank's stock performance suggests uncertainty around the outlook for the company.

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1. S&P 500 Closes Lower Following Powell's Remarks on Interest Rates

The S&P 500 fell after Federal Reserve Chair Jerome Powell indicated that interest rates may need to remain elevated due to ongoing inflation concerns, affecting investor sentiment and market performance.

2. Dow Jones Ends Six-Day Losing Streak

The Dow Jones Industrial Average managed to snap its six-day losing streak, closing higher thanks to strong performances by companies like UnitedHealth, despite broader market fluctuations.

3. Nasdaq Composite Experiences Minor Decline

The Nasdaq Composite saw a slight decline, influenced by mixed corporate earnings and Jerome Powell's comments on the economic outlook and interest rates.

4. UnitedHealth Boosts Dow with Strong Earnings

UnitedHealth's shares surged after the company reported better-than-expected revenue for the first quarter, providing significant support to the Dow's performance on the day.

5. Mixed Results from Major Corporations Influence Market

Morgan Stanley and Bank of America reported contrasting quarterly results, affecting their stock prices and contributing to market volatility. Morgan Stanley exceeded expectations, while Bank of America reported a decrease in profit and revenue.

6. Boeing Potentially Ending Losing Streak

Boeing shares were on track to end an 11-day losing streak, showing signs of recovery amid a challenging month for the aerospace giant.

7. Powell Maintains Hawkish Stance on Interest Rates

Fed Chair Jerome Powell reiterated the need for high interest rates to combat inflation, noting that economic indicators have not yet aligned with the Federal Reserve's goals.

8. Tensions in the Middle East Continue to Affect Global Markets

Geopolitical concerns, especially surrounding recent developments in the Middle East, continued to influence global market sentiments and volatility levels.

9. Technology and Healthcare Sectors Show Disparate Performance

While technology stocks faced challenges, healthcare stocks, particularly UnitedHealth, outperformed, highlighting sector-specific dynamics in the market.

10. Market Responds to Corporate Earnings and Economic Indicators

The market's response to new corporate earnings reports and economic data reflects the ongoing adjustments investors are making in anticipation of future interest rate movements and economic conditions.

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Today's insights are courtesy of Annuity.org. Retirement shouldn't be a gamble. get guaranteed income with Annuities.

Learn More About Annuity.org ➔

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