The Inflation Rally Goes Global

Good news for global markets

Yesterday’s impressive rally in U.S. stocks and bonds has gone worldwide this morning, as investors see central banks making gains in their fight against inflation. Adding to the good news was a breakthrough in the House last night that could avert a government shutdown.

S&P 500 futures signal further gains at the opening bell. The question now is whether this represents a false dawn on inflation, or the start of a durable decline in rising costs — and interest rates.

Here’s what’s exciting investors: Yesterday’s cooler-than-expected Consumer Price Index data has shifted discussion in the markets from potential interest rate hikes to cuts, and what that might mean for stocks. President Biden, whose poll ratings have been hurt by inflation, also cheered the numbers.

Other promising data points came out this morning. Inflation in Britain fell to its lowest level in two years. And consumer spending and industrial output in China rebounded last month, a hopeful sign for the world’s No. 2 economy.

Market optimists have moved up their bets on rate cuts. Futures markets this morning pointed to the Fed starting to lower borrowing costs by May, sooner than previous estimates of closer to the end of 2024.

Less aggressive is Mohit Kumar, the chief financial economist at Jefferies, who wrote today that big rate cuts would begin after the presidential election next year. Jefferies predicts the Fed’s prime lending rate going to 3 percent by the end of 2025 from its current level of 5.25 to 5.5 percent.

Others are more cautious. Pessimists note that the “core” inflation data in yesterday’s C.P.I. reading, which strips out volatile energy and food prices, was just a tenth of a percentage point below estimates. “I’m afraid that inflation may not go away that quickly,” Jamie Dimon of JPMorgan Chase told Bloomberg Television.

Washington gave markets another reason to cheer. The House’s passage of a stopgap spending bill appears to remove the risk of a shutdown, which has been seen as a potential drag on the U.S. economy.

But even here, political tensions in Congress — including some threats of physical violence — provide reason to be cautious. (Remember that last week Moody’s lowered its U.S. credit outlook to negative, citing “continued political polarization” in Congress hampering legislation.) The House funding bill required Democratic support to pass, and Politico reports that hard-right Republicans may hold the House hostage with a flurry of procedural votes.

A reminder: David Zaslav of Warner Bros. Discovery, Jamie Dimon of JPMorgan Chase and others will appear at the DealBook Summit on Nov. 29; apply to attend here.

HERE’S WHAT’S HAPPENING

The U.S. and China strike a climate agreement. The countries pledged to ramp up their use of wind, solar and other renewable energy sources in hopes of displacing fossil fuels, ahead of a meeting between President Biden and the Chinese leader, Xi Jinping, in San Francisco today. Among the American C.E.O.s set to meet with Xi are Elon Musk of Tesla, Jane Fraser of Citigroup and Darren Woods of Exxon Mobil.

The F.D.I.C.’s chair faces tough questioning over the agency’s culture. Senators asked Martin Gruenberg yesterday about how the regulator handles accusations of harassment and discrimination after The Wall Street Journal reported on toxic work conditions there. (“What the hell is going on at the F.D.I.C.?” asked Senator John Kennedy, Republican of Louisiana.) Gruenberg said he was “personally disturbed” by the report and was conducting an internal review.

The Times takes a close look at David Zaslav. The Times Magazine published an in-depth profile of the Warner Bros. Discovery C.E.O., while another article looks at his tumultuous oversight of CNN. One question raised by the pieces: Will the debt-laden Warner Bros. Discovery soon be up for sale? “It’s there for the taking,” Barry Diller, the media mogul, told The Times. “Whether that will happen depends on whether someone wants to take it. Saudi Arabia? Don’t laugh.”

Rory McIlroy resigns from the PGA Tour’s board. The pro golfer stepped down five months after the tour announced an agreement with Saudi Arabia’s sovereign wealth fund, the backer of LIV Golf, to try to create a joint company that would end the sport’s money-fueled battle for supremacy. McIlroy has been among LIV’s most outspoken critics of that effort. Meanwhile, the PGA Tour said it would give players equity in that combined company if it’s formed.

Banking’s A.I. leaders and laggards

As the promises of artificial intelligence and its transformation potential grow, banks are among the businesses racing to incorporate the technology into almost everything they do.

But in its latest ranking of how the industry is adopting A.I., the data start-up Evident found a growing gap between the leaders and everyone else. Its founders shared the new report first with DealBook.

The methodology: Evident rates institutions on four main areas — talent, innovation, leadership and transparency — using publicly available data like news releases, research papers and job data. The company nearly doubled the number of banks it rates to 50, by expanding eligibility to institutions with $200 billion in total assets and including lenders in the Asia-Pacific region.

Here are the top 10 banks:

• JPMorgan Chase

• Capital One

• Royal Bank of Canada

• Wells Fargo

• UBS

• CommBank

• Goldman Sachs

• ING

• Citigroup

• DBS

Early adopters have extended their leads. While all banks have committed to A.I. — “I don’t think there’s a single bank in the index that hasn’t doubled down on A.I.,” said Alexandra Mousavizadeh, Evident’s C.E.O. — some are clearly ahead. JPMorgan, which led the last survey, was again on top, ranking first or second in each of the four main criteria.

But Capital One, a smaller U.S. rival and a new entrant to the list, came on strong. It ranked first in talent, with the highest proportion of A.I. developers and engineers to overall head count of any institution. And in May, it hired Prem Natarajan, a former executive at Amazon’s Alexa business, as its chief scientist and head of enterprise A.I.

Other notable developments:

• Banks have increasingly focused on generative A.I. — spurred by the rise of tools like ChatGPT — for help in customer service, fraud detection and more.

• Banks are taking different steps to show their A.I. credentials. JPMorgan and the Royal Bank of Canada are leaders in research, while Capital One and Bank of America (15th) are among the most prolific in seeking patents.

• Europe has some strong performers, including UBS, which retained much of Credit Suisse’s A.I. talent when it bought its Swiss rival. But many of the region’s lenders still prioritize specific solutions over comprehensive plans, according to Annabel Ayles, Evident’s co-C.E.O.

• Canadian lenders continue to punch above their weight, ranking strongly across the talent, leadership and transparency and ethics criteria. “Some of the highest quality patents come from Canada,” Ayles said.

Haley’s rising fortunes may draw more big backers

Things are looking up for Nikki Haley in the Republican presidential primary (relatively speaking, given Donald Trump’s dominance). Her poll numbers have risen in recent weeks on the back of strong performances in the G.O.P. debates, as rivals like Tim Scott drop out of the race.

Now reports suggest that Haley may be gaining ground in another important area: backing from deep-pocketed corporate donors.

Ken Griffin of Citadel is close to deciding whether to back her. “We’re at the finish line on that choice,” the billionaire financier told Bloomberg Television yesterday. Griffin, who has said he wouldn’t back Trump, is one of the most prolific Republican donors, having given around $72.7 million in the 2022 election cycle alone.

His support could provide Haley with crucial financial ballast as she battles Ron DeSantis to become the leading anyone-but-Trump candidate.

And Haley has reportedly impressed Jamie Dimon, according to Axios. An unnamed source told the publication that the JPMorgan Chase C.E.O. — who has given to both Democrats and Republicans in recent election cycles — liked her positions on the economy and the role of business in governing.

Haley already has support from notable wealthy donors,including the oil magnate Harold Hamm, Jim Haskel of the hedge fund Bridgewater Associates and the deal maker Aryeh Bourkoff.

How Microsoft’s 1990s case could apply to Google

A two-month Google antitrust trial is nearing its conclusion in Washington while the search giant faces a separate legal challenge in a San Francisco courtroom, where it’s accused of wielding monopolistic power over the running of its app store.

One of the government’s last major wins against Big Tech came against Microsoft in the 1990s. That fight has loomed large in the Google trial, writes Steve Lohr for The Times: The Justice Department and a group of states say Google is running something similar to the Microsoft monopoly playbook in dominating the search market. Google rejects that analogy.

Those cases have these things in common:

Digital platform economics: The Microsoft case highlighted the power of the “network effect,” in which a digital product becomes more valuable the more people use it. In the Google case, the government argues that the huge search usage gives Google more data to train and improve its search algorithms.

That, in turn, attracts more users and advertisers. Google has argued that its in-house innovation and investment account for its market lead.

Contracts with competitors: With Microsoft, deals with personal computer makers and internet service providers were a big focus. Some of those partners felt that they had to strike a deal with Microsoft to get access to its Windows desktop software, prime virtual real estate in the early days of the web.

Google’s case involves big payments — known as pay-for-default contracts — to Apple, Samsung, Mozilla and others to make Google the featured search engine on their devices and browsers.

A potential outcome: If the government and states prevail in the Google case, a potential remedy could involve the banning of pay-for-default deals. That, too, would mirror the outcome in the Microsoft case, where the company was prohibited from making exclusive deals that thwarted competition.

THE SPEED READ

Deals

• E.U. antitrust regulators reportedly plan to officially challenge Adobe’s $20 billion takeover bid for Figma, the design software company, as soon as this week. (FT)

• Wall Street bonuses are expected to fall by as much as 25 percent this year. (FT)

Policy

• Taiwan’s opposition parties agreed to team up for the presidential election next year, raising the chances of a pro-China candidate taking over the government. (Bloomberg)

• How Russian oil that’s meant to be under sanctions ended up in the U.S. military supply chain. (WaPo)

Best of the rest

• “Inside Man: How FIFA Guided the World Cup to Saudi Arabia” (NYT)

• Analysts are cutting back on congratulating C.E.O.s for a good quarter. (Bloomberg)

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