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Markets

Stocks took a nosedive yesterday following the latest government inflation report, resembling that shy classmate who underwent a stunning transformation before the reunion and surprised everyone with their newfound attractiveness. Home Depot was among the companies that felt the brunt of the impact.

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Finance

Investors waiting for the Rate Cut

The most recent inflation figures have exceeded expectations, with the Consumer Price Index indicating that inflation remained persistently above the Federal Reserve's desired level. This has significantly dampened the optimism of the American stock market, which had been banking on an interest rate cut in June but now finds itself in a less favorable position.

Key takeaways from the latest data:

• In March, inflation increased by 3.5% compared to the previous year, up from 3.2% in February.

• The "core" CPI, which excludes volatile food and fuel prices, also rose, reaching 3.8% annually, the same as February, but signaling a more serious concern this time.

• Half of these inflationary pressures stemmed from surging gas prices and housing costs.

Why is this problematic? Following a 3% decline in inflation throughout 2023, Federal Reserve officials had interpreted the higher inflation readings in January and February 2024 as temporary deviations from a downward trend. However, the unexpectedly high March figures suggest a more enduring issue, effectively quashing hopes for an interest rate cut in June.

The political implications:

• Traders in the Fed funds futures market now anticipate that Jay Powell won't consider an interest rate reduction until September, according to the CME Group.

• UBS economists also foresee September as a likely scenario, while those at Goldman Sachs are slightly more optimistic, predicting a potential rate cut in July.

• Notably, these projected rate-cut dates coincide with the lead-up to the presidential election, injecting an element of political intrigue into the typically mundane realm of monetary policy.

• Chief Global Strategist at Principal Asset Management, Seema Shah, highlighted that even a July decision would be influenced by the looming election, suggesting that Fed decision-making will be increasingly influenced by political considerations.

Moreover, while global market challenges also play a role in driving consumer prices, the frustration of citizens grappling with inflationary pressures is likely to spill over into political discourse and potentially impact election outcomes.

Politics

Japan’s PM feted at state dinner, as Biden works to counter China.

While relishing salmon tempura, dry-aged rib-eye beef, cherry blossom decor, and a performance by Paul Simon at the recent state dinner, Japanese Prime Minister Fumio Kishida probably engaged in discussions about bolstering military and industrial partnerships. This lavish affair, along with the entirety of the Japanese leader's visit to the US, underscores the concerted efforts of both nations to fortify their alliance in response to potential threats emanating from China. However, amidst this gesture of goodwill toward Japan, a crucial ally, President Biden confronts the challenge of navigating the decision regarding whether to permit Japan's Nippon Steel to acquire US Steel.

Tech

Amazon CEO Touts AI Revolution While Committing to Cost Cuts

Amazon's stock (AMZN) surged by 1.67% following CEO Andy Jassy's remarks about the potential of generative artificial intelligence (AI) to revolutionize technology in his annual letter to shareholders.

In his letter, Jassy outlined a vision where generative AI could become a significant driver of growth for Amazon, complementing its existing pillars such as the online retail Marketplace, Amazon Prime, and Amazon Web Services.

Jassy emphasized that generative AI could spark one of the most significant technological transformations since the advent of the cloud and even the Internet itself. He highlighted the importance of leveraging the cloud as the foundation for this transformative shift and anticipated substantial societal and business benefits from the solutions that emerge.

Jassy's shareholder letter, his third since assuming the role of CEO, continues Amazon's tradition of releasing annual letters that provide insights into the company's achievements and future aspirations. This tradition, established by Amazon's founder Jeff Bezos during his tenure as CEO, was known for its storytelling flair and was closely followed by the tech industry and beyond.

Meme of the Day