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

“We have not yet seen the predicted flood in misinformation. We still might.” — Sam Altman, OpenAI CEO

Overnight

Sweden becomes second major central bank to cut rates (MW)

Top E.U. diplomats agreed Wednesday to use windfall profits from frozen Russian assets to arm Ukraine (Semafor)

After 3+ billion dozes and an estimated 6 million lives saved, AstraZeneca withdraws its COVID-19 vaccine, citing low demand (Semafor)

Google DeepMind’s latest AI model poised to revolutionize drug discovery (TIME)

Uber fell ~6% after reporting an unexpected net loss due to equity markdowns (CNBC) 

Airbnb beat on Q1 top and bottom lines but gave weaker-than-expected guidance despite expectations of robust travel demand causing shares to fall ~8% (CNBC) 

Shopify plunged ~19% despite better-than-expected Q1 earnings and revenue due to sales guidance that represented a slowdown in growth (CNBC) 

Robinhood rose ~4% after beating Q1 earnings and revenue estimates driven by the recent stock and crypto rally (CNBC) 

Toyota smashed Q4 earnings estimates on booming hybrid demand but forecast a 20% FY profit decline citing looming investment in suppliers and strategy (RT)

PE targets India healthcare sector with record investments (FT)

India boom drives Asian junk bond sales to five-year high (BBG)

43 of 50 best stocks of Covid are down since 2020 (FT)

Texas spot electricity prices soared ~10,000% on tight supply (BBG)

PIMCO adds bond exposure outside U.S. on inflation risks (RT)

Billions in phantom debt is lurking in BNPL services (BBG)

Sweden becomes second rich nation to cut rates (WSJ)

More BOJ board members see need for more rate hikes (RT)

NYCB remains the cheapest U.S. bank stock among big lenders (RT)

Saudi Arabia’s $100B AI fund will divest China if US asks (BBG)

Rents remain final obstacle in inflation fight (BBG)

High-level talks address sweeping espionage campaign by Volt Typhoon, a state-sponsored Chinese actor active since mid-2021 and targeting U.S. critical infrastructure (TR)

China seen sing hacks to build profiles of U.K. defense personnel (BBG)

U.K. expels Russian diplomat it says is a spy (WSJ)

Hackers behind MGM attack target financial sector in new campaign (BBG)

After years of taunts, brash leader of LockBit charged by the U.S. (BBG)

U.S. spy agencies adopt rules for purchasing commercial data on Americans (WSJ)

The Biden administration mulls an export ban on advanced closed-source AI models like OpenAI’s GPT-4 (RT)

FTX might be able to repay almost everyone, with creditors owed less than $50k expected to get more than they actually put in (Sherwood)

AI, Gen Z, the global economy, and conflicts in Ukraine and the Middle East are on the agenda for the WSJ CEO Council, where IKEA, Cohere, Swarovski, UniCredit chiefs will appear (WSJ)

OpenAI says it’s building a tool to let content creators opt out of AI training (TC)

Americans are racking up BNPL ‘phantom debt’ that Wall Street can’t track (BBG)

Hong Kong court upholds government effort to ban protest song on Google (WSJ)

Google employees question execs over ‘decline in morale’ after blowout earnings (CNBC)

Intel’s stock drops after U.S. revokes licenses for exports to China customer (MW)

U.K. challenger bank Monzo nabs another $190M as U.S. expansion beckons (TC)

Meta launches new AI tools for advertisers (WSJ)

Reddit tests automatic, whole-site translation using LLM-based AI as its stock jumps after bigger-than-expected jump in users (WSJ) (TC)

Instacart taps Uber vet for CFO job as revenue beats estimates (BBG)

The world has just passed a major clean-energy milestone (CNN)

Baltimore bridge investigators probe whether crew, companies broke 1830s steamboat law (WSJ)

Combative billionaire’s bank accused of bribing a Texas Democrat (WSJ)

Deutsche Bank’s DWS inflated client asset inflows by billions of euros (FT)

JPMorgan, Nomura limit Segantii exposure on Hong Kong case (BBG)

Bain pursues takeover of education-software provider (WSJ)

TPG profit slips as PE firm digests growth efforts (WSJ)

Bond king Bill Gross to bond funds: drop dead (Barron’s)

Credit scores got ‘artificially higher’ during COVID. Now many borrowers can’t pay their debts (MW)

Funds that double Nvidia’s return – and risk; assets in leveraged single-stock ETFs have doubled this year (WSJ)

Wells Fargo hires ex-JPMorgan investment-bank boss Fernando Rivas (WSJ)

Refinery29’s new owner plans to cover sports, buy more media companies (WSJ)

Will Tesla’s EV charging slowdown supercharge competitors? (WSJ)

A third of content writers updated their LinkedIn profile to add AI to their skills, per new data from Microsoft (Sherwood)
One in 24 NYC residents, ~350K people, are now millionaires – more than in any other city globally (BBG) 

The mastermind behind North Korea’s cult-of-personality propaganda dies, gets state funeral (WSJ)

After invading Ukraine more than two years ago, Russia puts on annual parade marking victory over Nazi Germany, which started WWII (Semafor)

French air traffic controllers granted legal right to turn up late for work (SKY)

An actual reason to call it eXpresso: scientists say hourslong cold-brewing process takes < 3 min. with ultrasonic reactor (Semafor)

Epic NASA video takes you to the heart of a black hole – and destroys you in seconds (LS)

First news

• A new economics paper argues that the conventional approach to carbon taxes is completely backward
• Seem too obvious? Researchers should not be using language models such as ChatGPT for automatic peer review of papers.

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

Fifty-nine companies are reporting this week.

Of the 448 companies that have reported so far (90% of the S&P 500):

• Overall, 81% are beating estimates, and those that “beat” are beating by a median of 8%.
• Of the 19% missing, those are missing by a median of -5%.
• On the top line, overall results are beating estimates by a median of 5% and missing by a median of -4%, and 60% of those reporting are beating estimates.

Click HERE for more.

TECHNICAL

In yesterday’s report we discussed the comeback in Semiconductor issues, Transportation stocks, Emerging market and Biotechnology names, along with some mean reversion in Solar energy and Homebuilding issues as rates have drifted lower. This looks to be an ongoing theme given the start of rates dropping over the last week, and all of these groups have technical appeal as a “catch-up” trade between now and August. (Those who missed Tuesday’s report (5/7/24) should reference Tuesday’s Technical missive for more information.)

As of today, the brief stalling out doesn’t look too important, as minor consolidation following a  3.3% rally in the last four trading sessions is quite normal. 

Click HERE for more.

CRYPTO

The likely cause of the crypto market’s drawdown yesterday was upward pressure on the DXY0.00% and a lack of follow-through in flows. Among the few outperformers of the day were RUNE6.19%, the native token of the cross-chain swapping protocol Thorchain, and Ethereum Classic (ETC1.25%), possibly driven by traders speculating on the SEC chair’s critical comments toward ETH and its PoS mechanism. Major equity indices opened lower and were nearing flat performance for the day. Adding to the relative USD strength yesterday was the interest rate cut by the Swedish central bank, accompanied by some reversion to the mean from the JPY. We will have to wait until the CPI data next week to see if we follow in Sweden’s footsteps at some point this calendar year. Meanwhile, rates are rising at the long end of the curve, with the 10Y and 30Y each up 22 bps ahead of the 10Y note auction yesterday and a 30Y auction today.

FIRST NEWS

No pain, no gain. A new economics paper argues that the conventional approach to carbon taxes is completely backward – and anyone who has done band-assisted pullups may just intuitively agree, and know how to fix it. In case you think you might have wondered into a joint podcast episode featuring a gym bro and a finance bro, fear not – you’re still reading a markets newsletter. This is a sports (medicine) analogy. Bear with us.

The cap-and-trade system, such as the one the E.U. has, operates on the principle that the price of carbon should start low and increase over time, financially stressing high-emissions industries more and more as the costs of climate impacts rise and the cost of clean alternatives falls. The assumption here is that, since the most extreme possible future economic impacts are unlikely, there’s no economic justification for the sort of disruption to industry that high carbon prices would cause today. Yet that approach, says NYU economist Gernot Wagner, is effectively a high-stakes gamble that climate change won’t be as bad as many scientists warn and that maintaining high growth will help pay for future damages. (A world in which warming stays within the Paris Agreement targets will have higher economic growth than one that overshoots those targets, Wagner says.) A better strategy, he argues, would be a carbon price that starts high today – somewhere around $250 per ton – and then falls over the next few decades. Back to our analogy.

Pullups are a classic bodyweight exercise, training most of the major muscle groups and focusing, crucially – if life extension is what you’re after – on grip strength. Recommended for both men and women, they are, however, not something most people can just stride into doing regularly. It’s important to train with a fraction of your body weight to develop the strength necessary to work with all of it, and that’s where resistance bands come in. Attached to the pullup bar, the band – its bottom loop stepped into – supports part of your weight, making it easier to start pulling. Crucially, the degree of assistance the band provides is greatest at the start of the movement, when it is most needed, and when the band is at its most stretched. As the pulling motion progresses, the band contracts and the tension it is under decreases, providing progressively less and less support. Thus, resistance bands for pullups help a lot in the beginning, very little in the end.

If, as in our analogy, a company stretches itself in the beginning to pay a higher carbon price, the resulting “stringent mitigation of carbon dioxide emissions in the near term… will provide “economic support for stringent warming targets across a variety of specifications”. Thus, “a systematic incorporation of climate-related risk [early on] influences optimal emissions abatement pathways [going forward].” Semafor, Springer

Defund the Self-policing. Major AI conferences and academic publishers are raising concerns about researchers using language models such as ChatGPT for automatic peer review of papers. Organizers warn that this practice could undermine the intellectual integrity of the peer review process via which experts vet new research and assess its merits.

Asking an AI like ChatGPT to analyze and critique manuscripts without actually reading the papers goes against the core principles of peer review. As a result, conferences such as NeurIPS (Neural Information Processing Systems) and ICLR (International Conference on Learning Representations) are considering updating their policies to explicitly prohibit using LLMs for processing submissions.

Their current guidelines state that researchers cannot share submissions with anyone without approval, and that language models are ineligible for authorship roles – wording meant to cover both research papers and peer review comments. A NeurIPS spokesperson said they may form a committee to clarify the rules around AI use for peer review.

Major publishers like Springer Nature, publisher of the study on carbon pricing that we discuss above, emphasize that true peer review requires expert human evaluation. Not surprisingly, their spokesperson stated that AI tools still lack up-to-date knowledge and can produce nonsensical, biased, or false critiques, undermining scientific integrity and reproducibility. Other leading publishers, such as Taylor & Francis and Sage, have already prohibited reviewers from using AI due to transparency and confidentiality concerns. Semafor