🐂 The enforcer

Markets

Rising Long-Term Rates Loom Over Autumn on Wall Street

Jerome Powell's highly anticipated speech on Friday did little to ease the ongoing market uncertainty this late summer. The central issue revolves around whether the rapid surge in interest rates will negatively impact the unexpected stock market rally of 2023.

During the address at the annual symposium of the Kansas City Fed, the Chair of the Federal Reserve acknowledged that inflation remains excessively high, and he emphasized that policymakers are willing to consider further interest rate hikes if necessary. Powell indicated that the elevated interest rates could persist for the foreseeable future. This would result in continued high borrowing costs, which could consequently put pressure on stocks as investors become more cautious about the future profitability of companies.

While analysts and investors noted that Powell's message wasn't drastically different from his previous statements, it was not well-received by many portfolio managers. These managers had been hoping that the exceptionally fast cycle of interest rate increases, the quickest in decades, might finally be coming to a close.

Politics

Communist Party Priorities Complicate Plans to Revive China’s Economy

China's economic policy is currently being significantly influenced by ideology, to a degree reminiscent of the period when the country first opened up to the West almost fifty years ago. This ideological stance is causing the country's leaders to hesitate in implementing measures to invigorate its struggling economy.

Economists and investors have been urging Beijing to adopt more assertive approaches to enhance economic output. This includes potentially encouraging consumer spending through methods like providing cash assistance, similar to the measures taken by the U.S. during the pandemic.

Many economists argue that expediting China's shift towards an economy driven by consumer spending, similar to the model in the U.S., would contribute to more sustainable long-term growth.

However, insiders familiar with the decision-making process in Beijing reveal that Xi Jinping, the top leader of China, holds strong philosophical reservations about the type of growth propelled by Western-style consumption patterns. Those who understand Xi's thinking state that he perceives such growth as extravagant and conflicting with his ambition of positioning China as a global leader in industry and technology.

Xi is of the opinion that Beijing should adhere to strict fiscal responsibility, particularly given the substantial debt China carries. This perspective reduces the likelihood of implementing stimulus or welfare strategies comparable to those seen in the U.S. and Europe.

Tech

This Company Is Nvidia’s AI Chip Partner—and Its Stock Is Soaring

In a sector of the semiconductor industry that has gained significant prominence, a relatively lesser-known South Korean company, SK Hynix, has taken a dominant position. While Nvidia is widely associated with driving the current surge in artificial intelligence technology, the specialized memory chips that facilitate the rapid and intricate computations essential for AI applications are often overshadowed. These memory chips are an integral part of Nvidia's advanced H100 processors.

SK Hynix stands as the primary supplier of the latest high-bandwidth memory chips for Nvidia's premier AI processor chip. Although SK Hynix has historically been a prominent player in the volatile realm of memory chips, it wasn't always regarded as an industry trailblazer.

Around ten years ago, SK Hynix made a more substantial commitment compared to its competitors towards high-bandwidth memory (HBM), a technology involving the stacking of memory chips, resembling floors of a skyscraper. Park Myeong-jae, the leader of the company's product design for advanced memory, mentioned that this field was relatively unexplored at that time.

With the ascent of AI applications that heavily rely on high-bandwidth memory, SK Hynix has emerged as an early frontrunner in hardware innovation. However, the competition is growing fiercer, and its local competitor, Samsung Electronics, is gradually closing the gap.

According to SK Hynix, their upcoming generation of HBM chips has the capability to process the equivalent of 230 full high-definition movies within a single second.

Finance

Digital Payments Can’t Serve Up a Free Lunch

For investors, the expansive realm of digital payments once appeared to be a rare haven of growth-oriented companies with a combination of low risk and oligopolistic business models. The fact that Cathie Wood is reaffirming her confidence in this sector should serve as a signal that the seemingly ideal situation might have been overly optimistic.

Cathie Wood's ARK Investment Management is renowned for its strategic bets on rapidly expanding technological endeavors, often increasing its stakes when other investors are retreating. In the past week, ARK revealed that its holdings in the Dutch payments-processing firm, Adyen, had nearly doubled. However, the value of Adyen's shares had plummeted by half since the previous Wednesday, following disappointing half-year revenue and earnings reports.

This situation highlights the transformation of the payments technology, or "paytech," landscape from an initially perceived safe bet within the digital transformation of consumer spending into a fiercely competitive market that demands supporters who are at ease with substantial risk.

A recent survey conducted by Deutsche Bank across the United States, the United Kingdom, France, Germany, and Italy indicated a decline in the use of cash as a payment method between 2019 and 2022. Simultaneously, the adoption of digital wallets, with Apple Pay leading the way, experienced significant growth. While much of this shift is attributed to the surge in e-commerce, it's also a result of the realization that physical forms of payment like paper money and plastic cards are notably less convenient than using a smartphone for in-store purchases.

Sports

FIFA Suspends Spanish Soccer Chief After Unwanted Kiss in World Cup Celebration

On Saturday, the global governing body of soccer took the step of temporarily suspending Luis Rubiales, the head of the Spanish federation, from all soccer-related activities for a duration of 90 days. This decision followed an incident where Rubiales forcibly kissed Jenni Hermoso, a player on the women's national team, subsequent to their World Cup victory.

FIFA imposed this provisional suspension as a preliminary measure pending complete disciplinary proceedings against Rubiales. This action comes a day after he staunchly declined to step down from his position, despite widespread calls for his removal due to the turmoil within the federation. The entire women's national team, consisting of 23 players who achieved their first-ever world championship by defeating England in Sydney the previous Sunday, has expressed their refusal to continue representing Spain under the existing leadership.