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

“When you meet anything that’s going to be human and isn’t yet, or used to be human once and isn’t now, or ought to be human and isn’t, you keep your eyes on it and feel for your hatchet.” — C.S. Lewis, The Lion, the Witch, and the Wardrobe

Over the Weekend

U.S. sends carrier, missile submarine to Middle East as Iran tensions grow WSJ

OPEC slightly trims oil demand forecast, citing softness in China WSJ

Treasury yields rise as attention turns to inflation data CNBC

Stock futures rise slightly as traders look to build on last week’s comeback CNBC

Investors borrowed like crazy during the rally; now they’re paying the price WSJ

Five big takeaways from this earnings season WSJ

Delays hit 40% of Biden’s major IRA manufacturing projects FT

Foreign investors pull record amount of money from China BBG

After failing investors for years, bonds are back as a hedge BBG

Following Ukraine’s incursions into Russia, rouble falls to weakest level since May FT

Russia evacuates second border area as Ukraine presses on with incursion FT

Trump campaign blames Iran for hacked emails FT

The low-tax countries wooing the world’s wealthy FT

How Bank of America ignores its own rules to prevent dangerous workloads WSJ

Automation is coming for private equity’s junior roles FT

U.S. junk loan funds suffer biggest outflows in 4 years FT

Trucking industry shows signs of life after long downturn in U.S. FT

Disney unveils billions of dollars in theme-park expansions WSJ

India’s Bharti to buy Drahi’s $4 billion stake in BT, the former state monopoly and Britain’s biggest broadband and mobile company CNBC

How Brazil’s military is fighting the illicit gold trade FT

The uninsurable world: rethinking how to cover for climate damage FT

Flood plans and flowerbeds: City of London prepares for climate change FT

What are the biggest stock market ‘superstonks’ of all time? FT

Former YouTube chief Susan Wojcicki dies at 56 FT

Ken Derr, who embraced social change as Chevron’s CEO, dies at 87 WSJ

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

Probabilities favor that the worst is behind us for August. That is, the S&P 500 fell to 5,119 on August 5th (close 5,344 on Friday 8/9) and this is likely the low for summer (August to October). This does not mean that markets go straight up, as bottoms are a process. Mark Newton, Head of Technical Strategy, also sees the probabilities this way until at least mid-September.

There are three things we are watching closely this week. At the top of the list is a potential imminent attack by Iran on Israel.

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TECHNICAL

As Mark Newton is on break, there will be no new reports or videos this week.

The early-week stabilization in SPX last week has been encouraging, but technical structure remains a work in progress ahead of this week’s important CPI report. At present, despite last week’s wild cross-asset volatility, it looks correct to favor risk assets for gains into September, despite more progress being needed technically. As discussed in recent days, we feel that lows are likely in place for now after this sharp decline from mid-July. Equal-weighted S&P 500 and Equal-weighted QQQ remain in much better shape, following just a scant 3% decline from all-time highs in recent weeks. U.S. Dollar and U.S. Treasury yields should be ready to turn back lower; SPX should turn up in a more direct fashion after August expiration. Bottom line: the risk/reward favors a return to growth and a Technology bounce after the recent pullback to support. 

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CRYPTO

Andrena, an internet services company, raised $18 million in an extended Series A round led by Dragonfly Capital, with participation from ParaFi Capital, Wintermute, 6^th Man Ventures, Robot Ventures, and others. The funding will be used to continue developing its decentralized autonomous wireless network (DAWN), a dePIN network aimed at providing affordable decentralized internet services at multi-gigabit speeds. The round was structured as a SAFE agreement with token warrants and brings Andrena’s total funding to $38 million.

Vessel, a zero-knowledge powered DEX, raised $10 million in a seed round from Sequoia Capital, Avalanche Foundation, Folius Ventures, and others. One of the tradeoffs among crypto exchanges is balancing transparency with efficiency. With Vessel’s ZKP techniques and off-chain transaction processing with on-chain verification, they plan to transform crypto trading. Vessel uses a hybrid orderbook AMM, combining the best features of both models, giving traders optimal price execution and enhanced market participation. Vessel also claims to have extremely high throughput, able to handle over 1000 transactions per second with latency under 50 milliseconds. Vessel will offer spot and perpetual trading and plans to add other crypto derivatives to the platform. The funds will be used to integrate CEX efficiency with DEX transparency, enhance liquidity efficiency, and develop ZKP solutions for DeFi.

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First News

All Her Fault. Some might remember the ambitious but cringeworthy film Her (2013), memorable for all the wrong reasons: Scarlet Johansson’s disembodied voice (audiences look for the chance to see her) and Joaquin Phoenix as a mustachioed, googly-eyed, pretentiously dressed loser (his fans thrive on seeing him clean-shaven and shirtless – defiantly imperfect, exhibitionistic, and profoundly unhinged. The most salient part of the film was Phoenix’s character falling in love with an AI assistant that was Johansson’s character.

Now, OpenAI says users could become emotionally hooked on its voice mode. In late July, the company began rolling out an eerily humanlike voice interface for ChatGPT and, in a safety analysis released a few days ago, OpenAI acknowledged that the anthropomorphic voice may make some users emotionally attached to their chatbot. The warnings are included in what’s known as a ‘system card’ for GPT-4o – a technical document listing the potential risks associated with the model, the details of safety testing, and any mitigation efforts by the company. 

The risks explored in the new system card are frighteningly wide-ranging, and include the potential for GPT-4o to amplify societal biases, spread disinformation – and, on a previously underreported note – aid in the development of chemical or biological weapons. The card also discloses details of testing designed to ensure that AI models won’t try to break free of their controls, deceive people, or make catastrophic plans.

Some outside experts say it could go further. Others note that risks could change as tools are used in the wild, as many risks only manifest when AI is used in the real world. AI risks are evolving rapidly with the development of powerful new features, and one of these is OpenAI’s voice interface. Unveiled May, the company’s new voice mode can respond swiftly and handle interruptions in a natural back-and-forth pattern. Many users noted that it appeared too-too flirtatious. Ironically, the company later faced criticism from the actress Scarlett Johansson, who accused it of copying her style of speech. 

Joaquin “No Relation to Phoenix” Quiñonero Candela, who works on AI safety at OpenAI, opines that the sort of emotional effects seen with GPT-4o can be positive – say, by helping those who are lonely or who need to practice social interactions. He promises that the company will study anthropomorphism and the emotional connections closely, by, among other things, monitoring how beta testers interact with ChatGPT.

OpenAI isn’t alone in recognizing the risk of AI assistants mimicking human interaction. In April, Google DeepMind released a lengthy treatise on the ethical challenges raised by more capable AI assistants. After all, current-version chatbots’ ability to use language creates this impression of genuine intimacy, especially since experimental voice interfaces for Google DeepMind’s AI have already been found to be especially sticky, leading to potential emotional entanglement.

Such emotional ties may be more common than we would like to believe or accept. Some users of chatbots such as Character AI and Replika report antisocial behavior developing as a result of their chat habits. A recent TikTok with almost a million views shows one user apparently so addicted to Character AI that they use the app while watching a movie in a theater. It’s not clear whether the following is less or more worrying: some users said they would have to be alone to use the chatbot because of the intimacy of their interactions. “I’ll never be on [Character AI] unless I’m in my room,” one user wrote. Wired