Midweek Report: Powell Nothingburger, Threading with Chinese Needles, AI, Vision Outlook

In this Midweek Report - our team dives into the latest AI risks further, highlighting a flatlined return in the space, discusses the FOMC nothingburger, and the Vision Team delivers a macro outlook.

Good Wednesday evening all,

In the news… This evening we’re learning of a major aviation disaster in Washington DC - with an American Airlines flight colliding with a military helicopter over the Potomac, it appears ~60-70 were onboard. Prayers to all involved there.

Today in markets - we’ll keep this Midweek Macro Note brief - with excellent contributions from Six & John.

Powell today said a lot of nothing, contradictory statements on inflationary and labor pressures, but left rates unchanged. In Canada, rates were lowered by 25bp to 3%, and in Brazil increased by 100bp to 13.25%.

Pretty much noise from Powell but supports the slightly higher for longer narrative until inflation breaks, or employment does. Powell noted that they would be comfortable cutting again even if inflation wasn’t yet 2%. Inflation risks aren’t materializing without participation from oil and natural gas currently, which have fallen since Trump assumed office - even though they may register higher in the January CPI energy reading - then they did in December.

Let’s dive into ‘Threading a Chinese Needle’ and the Trump Risk Matrix.

Threading a Chinese Needle

With Chinese AI headlines flooding out over the last several days - it’s the first real downside threat we’ve seen to the elevated AI/Semiconductor names that saw a massive rally from January 2023-June/July 2024 (with exceptions being the leaders for new all-time highs). The semiconductor index has struggled to make new highs (going on 7-8 months of sideways action in most of these names) - China being able to copy and produce models at scale for a lower cost puts pressure on anything semiconductor correlated/related.