Powell, Fed’s Chair, Unleashes the Bulls

Higher for (not much) longer

The “everything rally” has gone global, sending stocks and bonds soaring in Asia and Europe and lifting U.S. stock futures, after investors got their clearest signal yet that the Fed would begin cutting interest rates soon. Hopes are growing, too, on Thursday that other central banks will follow suit.

The Fed delivered an unexpectedly dovish forecast on Wednesday, penciling in three rate cuts next year. Those moves are projected to lower the Fed’s prime lending rate to 4.6 percent, a notable drop from the central bank’s last estimate in September.

The revision sent the Dow Jones industrial average to a record high. The S&P 500 also achieved that marker on a so-called total return basis — which would take dividends into account — according to Deutsche Bank analysts. Treasuries rallied as well, with the yield on a 10-year note dipping below 4 percent on Thursday, its lowest level since July. (Yields fall when prices rise.)

That’s good news for borrowers because many common long-term loans, including mortgages, tend to track the yield on the 10-year Treasury.

Elevated borrowing costs appear set to come down. Over a 16-month stretch that ended in July, the Fed jacked up rates to a 22-year high to fight inflation. That aggressive approach forced businesses and households to cut back on borrowing. It also chilled global M.&.A activity and roiled the commercial real estate market.

Goldman Sachs economists have now revised their 2024 forecast, predicting that the Fed’s first rate cut would come in March.

The European Central Bank could add to the momentum, with a rate decision scheduled for 8:15 a.m. Eastern. Earlier on Thursday, the Bank of England left its prime lending rate unchanged.

Futures traders this on Thursday were betting that the E.C.B. would make the equivalent of six rate cuts of a quarter of a percentage point.

Will the Fed move aggressively during an election year? Mark Zandi, the chief economist of Moody’s Analytics, said he could see the central bank cutting twice next year. Beyond that, he told CNBC, “I’m a little skeptical in the context of what the election might mean,” adding that Jay Powell, the Fed chair, “desperately would like to avoid” any suggestion that the central bank’s policy was helping either political party.

The economic outlook isn’t that rosy. On Wednesday, Powell painted a picture of a cooling economy and jobs market. That slowdown has helped bring down inflation in recent months, but, he added, “the path forward is uncertain.” To wit, inflation is not expected to reach the Fed’s 2 percent target until 2026. And rate rises could again be back on the table if inflation were to increase again, Powell noted.

Investors are looking past Powell’s warning. “Powell played Santa Claus early,” said Diane Swonk, chief economist at KPMG.

HERE’S WHAT’S HAPPENING

The Senate passes an $886 billion defense bill despite objections from some Republicans. The legislation would help expand the Pentagon’s ability to develop hypersonic weapons and provide military aid to Ukraine and Israel. Hard-right lawmakers had sought to attach provisions limiting access to abortions and transgender health care. A separate bill that would provide Ukraine with additional aid remains stalled amid a fight over border security.

Apple reportedly faces tough antitrust penalties by the European Union. Regulators are readying a decision on Apple’s efforts to block music services like Spotify from directing iOS users to payment systems outside the App Store to avoid paying hefty fees to the iPhone maker, according to Bloomberg. It would be the latest blow to major app stores, after a jury ruled that Google violated antitrust laws with its tight control of its Play Store.

Tesla recalls more than two million vehicles over Autopilot software. The automaker said it would update the driver assistance program in nearly every car it has manufactured in the U.S. since 2012 to help prevent misuse. Tesla remains under investigation from federal regulators over safety concerns.

Media start-ups move to expand their offerings. Punchbowl News agreed to buy Electo Analytics, a legislation analytics provider, in a stock deal that values the Washington-focused media outlet at more than $100 million, The Times reports. And Semafor is partnering with Penny Pritzker, the former commerce secretary, and the Carlyle Group co-founder David Rubenstein on a conference in Washington that will take place during the I.M.F. and World Bank meetings in the spring.

COP28 by the numbers

The landmark deal reached on Wednesday at the United Nations climate summit in Dubai called for an explicit pledge to wean the world off fossil fuels. Now comes the hard part: turning that into reality.

The costs to accelerate decarbonization efforts are huge. The pact calls for the tripling of renewable energy capacity by 2030, restricting methane emissions, and halting carbon emissions by midcentury. Those measures are needed to keep global temperatures from rising by more than 1.5 degrees Celsius, and avert a climate crisis, according to scientists and climate activists.

The United Nations estimates that developing countries will need roughly $5.9 trillion in climate financing this decade to transition to relying on greener energy sources like wind, solar and nuclear.

Private investment will be key to achieving the climate goals, analysts note. The United Arab Emirates said it would team up with investment giants BlackRock, Brookfield and TPG on a $30 billion climate fund. And Vice President Kamala Harris announced $3 billion for a similar fund aimed at helping poorer countries make the transition. Despite that, the sums that have been committed fall well short of what’s needed.

That shortfall could be one reason investors shrugged off the COP28 news. The S&P 500’s energy sector index climbed by nearly 1.3 percent on Wednesday, amid a wider market rally, even as oil demand appears to be weakening.

Oil industry executives seemed unfazed by the headlines coming out of Dubai. Sultan Al Jaber, COP28’s president and the chairman of Abu Dhabi National Oil Company, hailed the pact, noting “many said this could not be done.” But Adnoc plans to spend at least $150 billion to expand drilling over the next five years.

The COP28 deal could reinvigorate market enthusiasm for green investments. “We anticipate a recovery in investor confidence around many climate- and emissions-related investment themes,” UBS analysts wrote to investors on Wednesday. They specifically highlighted clean air and carbon reduction investment opportunities as especially promising.

One such technology that was singled out in the COP28 agreement was carbon capture, a technology that is backed by petrostates like the U.A.E. and Saudi Arabia. The process, which sucks carbon dioxide out of the sky and buries it deep underground, has attracted billions in investment in recent years, even if skeptics question the economics of it.

Former Vice President Al Gore applauded the final deal, but added that the “influence of petrostates is still evident in the half measures and loopholes included in the final agreement.”

£32.4 million (about $40 million)

— The compensation that Bernard Looney, BP’s former C.E.O., is forfeiting after he was forced out for “knowingly” misleading the board about his relationships with colleagues. The energy giant officially fired him on Wednesday even though he had resigned in September, further depriving him of salary and pension benefits.

A media giant reaches a truce with OpenAI

As media publishers spar with technology companies over the use of their content by artificial intelligence systems, OpenAI has reached a potentially transformative deal: a broad licensing pact with Axel Springer, the parent of Politico, Business Insider and Bild, the German newspaper.

It’s the latest effort by media outlets to grapple with the rise of A.I. — and put a price on content that tech companies are desperate to train their models on.

What’s in the deal: OpenAI will be able to summarize articles from Springer publications, including content behind paywalls, in products like ChatGPT, with links to the original websites. The tech company will also be able to train its A.I. models on Springer’s content; tech companies tend to like using news articles because of their higher editorial quality than other information online.

It’s a more expansive deal than the one OpenAI struck with The Associated Press over the summer, which gave the ChatGPT parent access to the publisher’s archives only for training purposes. “This partnership with Axel Springer will help provide people with new ways to access quality, real-time news content through our A.I. tools,” Brad Lightcap, OpenAI’s C.O.O., said in a statement.

It isn’t clear how much OpenAI is paying Springer, though The Wall Street Journal reports that it’s expected to give the media company “substantial revenue.” Springer can also strike similar deals with other A.I. companies.

The breakthrough comes amid a bigger fight on A.I.’s use of content. A trade group representing more than 2,000 American media companies (including The Times) has contended that tech companies are training their A.I. models on their output without permission or compensation. And Barry Diller of IAC has urged publishers to sue under copyright laws to protect their content, or “there will be no publishing.”

Authors have also objected to the use of their work to train A.I. models without compensation, with prominent writers including John Grisham and Jodi Picoult suing OpenAI.

There’s another potential benefit for OpenAI. Springer is outspoken in policy circles, bending lawmakers’ ears on issues like tech giants paying to summarize news content and Google’s plans to drop trackers from its Chrome browser. (Such pressure has succeeded in Germany, where Google agreed to pay millions annually to republish media content there.)

• In other A.I. news: New research suggests that fears about A.I.-enabled cheating by students are overblown — for now. And a report has found that China is using A.I.-enhanced content to push anti-U.S. messaging on YouTube.

THE SPEED READ

Deals

• Shares in Vivendi, the French media conglomerate, are up over 7 percent after the company said it may break itself up. (FT)

• How an American entrepreneur spent $1 billion buying soccer clubs around the world out of his love for the sport — and ended up mired in scandal and defeats. (WSJ)

Policy

• The House voted along party lines to formally open an impeachment inquiry into President Biden. (NYT)

• Gavin Newsom, California’s governor, ordered a spending freeze as the state faces a record $68 billion budget shortfall. (Bloomberg)

• The S.E.C. ordered more trading in U.S. Treasury bonds to go through central clearinghouses, an effort to help stabilize the $26 trillion market. (Reuters)

Best of the rest

• How Sally Kornbluth, the president of M.I.T., avoided the same level of backlash as her counterparts at Harvard and the University of Pennsylvania. (NYT)

• Elon Musk plans to build a new university in Austin, backed by a roughly $100 million gift from the tech billionaire. (Bloomberg)

• Scientists have pinpointed the cause of severe morning sickness, which could lead to more effective treatments. (NYT)

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