A daily market update from FS Insight — what you need to know ahead of opening bell

“Look at the walls of Pompeii. That’s what got the internet started.” — Robin Williams

First news

• To Lionel Messi, and to his client Saudi Arabia, it’s all about the Benjamins, and that may be a good thing
• Tantalizing proof of concept for AI use case leaves classicists speechless with anticipation, potentially recasts origins of Western civilization.

Overnight

• Top Treasury officials head to Beijing to shore up economic ties after tense year. link
• OECD lowers inflation forecast for most economies, raises global GDP outlook. link
• King Charles III is undergoing outpatient cancer treatment; royal duties intact. link
• Mortgage rates jump back over 7% as economic data rolls in. link
• Tech layoffs continue to roil industry with 32,000 jobs cut. link
• Wall Street snubs China for India in historic shift. link
• Morgan Stanley and Goldman spoil private credit’s record deal. link
• Dow falls after Powell says caution needed on rate cuts. link
• Senators releases $118B bipartisan aid proposal for Israel, Ukraine, border security. link

MARKET LEVELS

MORNING INSIGHT

Good morning!

The equity markets are up for 13 of the last 14 weeks – a sign of strength. Seven preceding instances since 1927 show a near-term peak could occur in the next 2-3 weeks.

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TECHNICAL

Lessons we learned in January:

• The SPX, NASDAQ rally back to new all-time highs was certainly a bullish development despite some evidence of breadth waning. Neither the Equal-weighted SPX, Russell 3k, nor Small and Mid-cap indices have achieved this move.
• Broad-based recovery from October into December largely faltered in the month of January.  Despite a +1.5% gain for SPX, the Equal-weighted SPX, NASDAQ, and Russell 3k index all finished down. The difference in returns between SPX and RSP has had one of the largest divergences since 1990.
• Technology’s dominance in January resulted in this sector breaking back out to new all-time highs vs. SPX, which remains a very constructive development.
• Correlation between Equities and Treasuries has subsided somewhat in the last month. Despite a 40-basis-point lift in rates from late December into late January, Equities managed to rally to new all-time highs. 
• Weekly cycles show a bullish 2024, but daily cycles suggest 1Q-2Q weakness possible, which might approximate 7-10%. At present, this looks premature, but might materialize from March into April.  
• Breadth gauges have largely waned in January, showing that consolidation was necessary after the 700-point SPX rally from October into December 2023. This underperformance in Industrials, Discretionary, Materials isn’t necessarily a strong negative. Seasonality in election-year Februaries often brings about choppiness and lower-than-average returns for SPX.

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CRYPTO

Market Update

• The SPY (-0.44%) and QQQ (-0.40%) are moving lower to start the week following ISM Services data coming in at 53.4 vs. 52.0 expected, marking the highest level since October. The prices paid component surged to 64.0 vs 56.4 expected, causing rates and the DXY (+0.52%) to move higher. BTC -0.73% and ETH 0.14% pared early morning gains and are roughly flat on the day, trading at $42.5k and $2.3k respectively. Chainlink (LINK -4.72%) is continuing last week’s strength, rising 5.72% to $19.2 and reaching its highest level since February 2022. In contrast, RNDR is one of the worst performers in the top-100, falling 8.11% over the last 24 hours despite being one of the strongest tokens last week.
• The FTX bankruptcy estate has filed a motion that would enable the exchange to sell its approximately 8% stake in Anthropic, an AI company. Sam Bankman-Fried invested $500 million in Anthropic in October 2021, which represents one of FTX’s largest illiquid assets. The filing outlines how the Anthropic investment could be sold via auction or private sale, but the desired price was redacted from the filing for confidentiality reasons. Anthropic’s latest reported valuation was $18 billion, making FTX’s investment worth approximately $1.4 billion. The potential sale may give creditors and customers more confidence that they’ll receive full payment of their claims. Additionally, FTX filed a motion to shorten the deliberation period for the sale motion, so it can be heard at the next bankruptcy hearing on February 22.
• Perpetual decentralized exchange, Avantis, launched on Base mainnet on Friday, marking one of the first perp exchanges to launch natively on the L2. Avantis offers traders up to 100x leverage and offers crypto, forex, and commodities pairs and is backed by prominent crypto investors such as Pantera, Galaxy Digital, and Modular Capital. During its two-month testnet phase, Avantis facilitated over $5 billion in trading from over 50,000 wallets. Avantis differentiates itself from other perpetual exchanges by offering traders rebates on potential losses if they take contrarian positions, a novel design compared to funding rates, which are traditionally utilized by exchanges. Avantis plans to expand RWA trading opportunities, potentially integrating on-chain trading of crude oil and treasury rates.

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FIRST NEWS

Messi Cleans Up. Just a desert. Not much happening. Closed culture. Girls can’t. The words are written in block letters on a series of concrete walls. A nondescript man of medium height wearing simple sports attire and speaking his native Argentinian Spanish into the camera demolishes each wall in turn with a swift dispatch of a soccer ball. As he gets to the last one, he tees up the ball, but defers to a tween tomboy of a girl, who completes the job with relish.

As part of contractual obligations that go back to May 2022, Lionel Messi is back promoting Saudi Arabia in a campaign that says it wants to dismantle walls of misconception and break outdated stereotypes. Tourism opens minds, we are told.

Called Go Beyond What You Think, the campaign is meant to evoke the transformative power of travel via rousing music, dynamic action sequences, and colorful vistas. It’s also meant to whitewash some of the less palatable (to the West) aspects of Saudi culture, at least the way it’s been practiced for many years: few rights for women, the treatment of legal guest workers as second-class humans, and human rights abuses, among others.

Saudi Arabia is smart to be using its petrodollars to diversify beyond the low-cost, easily flowing oil that’s powered its economy and bankrolled its power. The country understands that, barring discoveries of voluminous new reservoirs, current reserves will run dry in about a quarter-century – decades before other countries’ sources of oil will tap out. Its push into new industries and sources of income, such as travel, is due to take off as uber-ambitious, under-40 Prince Mohammed Bin Salman (MBS) takes over from his 88-year-old ailing father King Salman, and priorities shift – however improbably this sounded as recently as a decade ago – from being driven by knee-jerk support for the trumped-up cause of the Palestinian Arabs (the purely ideological comfort food of the father) to a future-focused, purely pragmatic alignment with the most technologically and militarily advanced country in the Middle East – Israel – against Iran and the many tentacles of the Muslim Brotherhood, aiming for other-than-hydrocarbon-driven economic and even technological cooperation as part of an expanded future version of the Abraham Accords.

As part of the Saudi, Welcome to Arabia brand, the campaign is set to launch across key markets in Europe, India, and China over a three-month period, spanning TV, social media, and digital platforms. The deal is reportedly earning Messi – one of the all-time great practitioners of the beautiful game, now pre-retirement gigging at Inter Miami and captaining Argentina’s national team – $25 million over three years. Visit Saudi

A Magnificent Scroll through History with AI. In a once-in-a-generation breakthrough, the Vesuvius Challenge, a crowd-sourced effort that began with COVID boredom and progressed through privately funded passion project to a worldwide, AI-driven research contest, announced its first exciting result on Monday.

The challenge set out to achieve the seemingly impossible – peer inside burnt-through, disfigured, two-millennia-old scrolls for doubtful traces of ink that could reveal the precious writings inside. Buried on the premises of an Italian countryside villa in the same volcanic eruption (79 C.E.) that gave the world the frozen-in-time Pompeii, the Herculaneum papyri are a collection of scrolls that are the Holy Grail of the classical field. Only ~800 of the incinerated, log-like objects, which crumble into dust at any attempt to physically reveal their secrets, have been recovered from the small part of the villa excavated so far.

Senator Lucius Calpurnius Piso Caesoninus, none other than the well-heeled father-in-law of Julius Caesar, owned the villa, which boasted a vast library containing thousands of scrolls. A wealthy, educated man, Piso would have collected the modern classics of the day as well as works of history, law, and philosophy. Piso is known to have corresponded often with Cicero, and the apostle Paul had passed through the region a couple of decades before Vesuvius erupted, so it’s possible the grounds of the villa could reveal writings tied to his visit that comment on Jesus and Christianity.

Now, capping the first stage of the Vesuvius Challenge,* a group of contestants from around the world has delivered transcriptions of a few passages from one of the scrolls, becoming eligible for an initial prize of $700,000 by developing novel techniques for flattening images of the 3D-scanned scrolls into more readable sheets via specialized software, and then painstakingly, successively applying AI to reveal letters, then words.

While it’s early to draw any sweeping conclusions, Nat Friedman, the mastermind behind the effort, is confident the same techniques will deliver far more. His stated goal is to unlock the secrets in all of the scrolls. Finding and deciphering even some of them would deliver the largest collection of ancient texts ever discovered, multiplying manyfold the world’s treasury of ancient Greek and Roman poetry, plays, and philosophy. Scholars particularly wish to find works by Aeschylus, Sappho, and Sophocles. Intriguingly, some say there could be fresh revelations about Christianity’s earliest years.

As the CEO of GitHub, the giant software-development platform that Microsoft acquired in 2018; also a developer of one of the first coding assistants powered by artificial intelligence, and someone who had then left GitHub to become an AI-focused investor; Friedman was and remains uniquely positioned to drive this project toward its impossibly ambitious final goal.

“The idea that you are reading a text that was last unrolled on someone’s desk 1,900 years ago is unbelievable,” he marvels. “Even if there’s just one dialogue of Aristotle or a beautiful lost Homeric poem or a dispatch from a Roman general about this Jesus Christ guy who’s roaming around, all you need is one of those for the whole thing to be more than worth it.” Bloomberg

^{* Launched, in a transparent challenge to the fickle Roman gods, on the Ides of March – the same day Julius Caesar expired by, inter alia, the hand of Brutus, likely his biological son, to whom, stabbed and incredulous, Caesar is rumored to have turned and said, Kai su, teknon!}