💼 AI Buzz, Rate Cuts & Euro Highs!
Welcome to this week’s edition of How Do I Know That?—your go-to source for market insights, tech news, and investment tips. Pour yourself a coffee, and let’s dive in!
🗓️Saturday, August 24
🍵Weekly RoundUp
📈Market and Economic Highlights
Fed Chair Powell Signals Upcoming Interest Rate Cuts:
Federal Reserve Chair Jerome Powell indicated that interest rate cuts are on the horizon, although he didn't specify the timing or extent. Speaking at the Fed’s annual Jackson Hole retreat, Powell emphasised that the time has come for policy adjustments as inflation declines and the labour market stabilises. He noted that the focus could now shift equally to maintaining full employment alongside controlling inflation. Powell’s remarks caused stocks to rise and Treasury yields to drop, with markets anticipating a potential rate cut in September. While Powell acknowledged the significant progress in taming inflation, he also reflected on the lessons learned from the recent surge and the Fed's aggressive response.
Vanguard Warns U.S. Stocks Are Overvalued Due to AI Hype:
Vanguard cautions that U.S. stocks may be overvalued, driven by overly optimistic expectations for AI-driven economic growth. The firm notes that to justify current stock prices, corporate profits would need to grow by 40% annually over the next three years—an unlikely scenario. While Vanguard sees long-term potential in AI, it warns that the expected boom is not likely to happen as quickly as some investors hope.
Eurozone Inflation at 2.6% in July, Euro Hits 9-Month High:
Eurozone inflation increased slightly to 2.6% in July, up from 2.5% in June, driven mainly by services inflation. This rise, coupled with expectations of Federal Reserve rate cuts, pushed the euro to its highest level against the US dollar since December 2023. Core inflation held steady at 2.9%, indicating ongoing price pressures. European stocks also saw modest gains, with the Euro Stoxx 50 up 0.2%.
👔Corporate News
Skydance Accuses Paramount of Breach Amid Bronfman Bid:
Skydance Media has accused Paramount Global of breaching their deal by extending the negotiation period for other bidders following Edgar Bronfman Jr.'s $6 billion offer. This move threatens Skydance's planned acquisition of Paramount. Skydance has reserved the right to terminate the agreement but has yet to do so. If Paramount accepts Bronfman's offer, it could face a $400 million break-up fee. Can Paramount end this saga and sell itself to anybody?
Alibaba Upgrades Hong Kong Listing to Primary, Unlocking Potential Billions:
Alibaba is upgrading its Hong Kong stock listing to primary status, which could attract up to $19.5 billion in new investments through the Stock Connect program, linking Hong Kong to mainland Chinese investors. This decision comes as Alibaba faces challenges from new competitors and a sluggish recovery in China's consumer spending. Despite these headwinds, Alibaba's cloud computing division grew by 6% in revenue last quarter, though its overall earnings fell short of expectations. The upgrade to a primary listing takes effect on August 28.
Workers at Google DeepMind Urge Company to Drop Military Contracts:
Nearly 200 employees at Google DeepMind, the AI division of Google, have signed a letter urging the tech giant to end its contracts with military organizations, citing concerns over the use of AI in warfare. The letter highlights a growing internal conflict between DeepMind's commitment to ethical AI and Google Cloud's contracts with governments, including Israel. Despite the concerns raised, Google has yet to take action, leading to increasing frustration among the employees. This internal debate reflects broader concerns about the ethical implications of AI in military applications.
Subway Joins Value Menu Battle with $6.99 Footlongs:
Starting August 26, Subway is slashing the price of its footlong subs to $6.99 as part of a limited-time offer, down from as much as $14 in some areas. This move marks Subway's entry into the value menu wars as fast-food chains compete to win back customers facing rising living costs. The promotion, available through the Subway app or website with the code "699FL," runs until September 8. As inflation pressures consumers to cut back on dining out, other chains like McDonald’s and Target have also reduced prices to attract budget-conscious shoppers.
AMD to Acquire Server Builder ZT Systems for $4.9 Billion:
AMD has announced its acquisition of server manufacturer ZT Systems for $4.9 billion, a strategic move aimed at bolstering its portfolio of AI chips and hardware in the battle against rival Nvidia. The deal, which is 75% cash and 25% stock, will enhance AMD’s ability to scale its AI offerings, particularly for cloud computing giants like Microsoft. AMD plans to retain around 1,000 of ZT Systems' 2,500 employees and expects the acquisition to contribute positively to its financial performance by the end of 2025. Following the deal's closure, AMD intends to sell off the server manufacturing business, focusing instead on expanding its AI chip sales.
Qualcomm to Acquire Sequans' 4G IoT Technology, Sending French Company's Stock Soaring by 200%:
Qualcomm has announced the acquisition of Sequans Communications' 4G IoT technologies, including certain employees and assets, as part of its strategy to strengthen its Industrial IoT portfolio. The deal, which awaits French regulatory approval, allows Sequans to retain a license for the 4G technology while maintaining full ownership of its 5G assets. The acquisition has provided Sequans with significant capital to invest further in its IoT business, leading to a remarkable 200% surge in its stock price.
Couche-Tard Eyes $86 Billion Acquisition of 7-Eleven’s Parent Company:
Alimentation Couche-Tard Inc. has made a bold move, proposing an $86 billion acquisition of Japan's Seven & i Holdings Co., the parent company of 7-Eleven. This potential deal is the culmination of a decades-long ambition for Couche-Tard’s founder, Alain Bouchard, who first eyed 7-Eleven in the early 2000s. If successful, the acquisition would mark the largest foreign takeover by a Canadian company and significantly expand Couche-Tard's global presence, especially in Asia. However, the deal could face competition concerns in the U.S. due to the combined scale of 7-Eleven’s and Couche-Tard’s operations.
🚀Tech and Innovation
Meta Cancels High-End Mixed Reality Headset After Apple Vision Pro Struggles:
Meta has scrapped plans for a high-end mixed-reality headset intended to compete with Apple's Vision Pro. The decision follows disappointing market interest in the Vision Pro and high production costs. Meta will now focus on its more affordable Quest 4, expected in 2026, and software development.
Second Human to Use Neuralink Brain Chip Plays Counter-Strike 2:
Neuralink’s second human patient, "Alex," who lost control of his limbs after a spinal cord injury, is using the brain chip to play the PC game Counter-Strike 2. The implant allows him to aim with his thoughts while simultaneously moving with a mouth-operated controller, significantly enhancing his gameplay. Alex has also used the chip for 3D design work. Unlike the first patient, Alex's implant has shown no issues with electrode displacement, a problem Neuralink addressed with new surgical techniques. The company aims to further enhance the chip’s functionality, including controlling robotic arms and wheelchairs.
Apple Targets September 10 for New iPhone, AirPods, and Apple Watch Launch:
Apple is preparing for its biggest product event of the year on September 10, where it plans to unveil the iPhone 16, new Apple Watches, and updated AirPods. The iPhone 16 Pro models will feature larger screens and enhanced camera capabilities, while the Apple Watch Series 10 will be thinner with larger displays. Additionally, Apple is revamping its AirPods lineup, introducing noise cancellation to its mid-tier version for the first time. This launch is crucial as Apple faces sluggish sales in its smartphone and wearable segments. The products are expected to hit the market by September 20, just in time to boost Apple’s fiscal fourth-quarter earnings.
Epic Games Store Now on Mobile:
Epic Games has launched its digital storefront on mobile devices, available worldwide on Android and in the EU for iPhones. Fortnite returns to mobile via the store, alongside Fall Guys and Rocket League Sideswipe. This marks the first mobile availability for these games through the Epic Games Store, with CEO Tim Sweeney calling it a win for competition in the mobile market.
Microplastics Found in Human Brains, Raising Alarms:
A recent study reveals microplastics are now accumulating in human brains, with samples from 2024 showing 0.5% plastic by weight. This finding adds to growing concerns, as microplastics have already been detected in organs like lungs and kidneys. Scientists are calling for urgent global action to address this widespread pollution, warning that "nowhere is left untouched."
💡The Informed Investor: Understanding Currency Values and the Forex Market
Hello and welcome back to The Informed Investor! You're not alone if you’ve ever scratched your head over why the euro is worth $1.10 or wondered why the Japanese yen sits at 144.40 to the dollar. These numbers might seem arbitrary at first, but they result from a dynamic global market that never sleeps. Today, we will dive into the fascinating world of currency values, explore what drives these numbers, and why the Forex market is the biggest financial market on the planet.
Why Do Currencies Have Different Values?
Currencies don’t come with a fixed value. Instead, their worth is decided by the foreign exchange (Forex) market, where they’re traded against each other. So, why is the euro worth $1.10 or the yen 144.40? It’s all about supply and demand. If more people want to buy euros with dollars, the value of the euro rises. Conversely, if fewer people are interested, its value falls.
Here’s what influences this delicate balance:
Interest Rates: Higher interest rates can attract more foreign capital, leading to a stronger currency because investors want higher returns.
Economic Performance: A country’s economic health plays a big role. Strong GDP growth, low unemployment, and stable inflation make a currency more attractive to investors, driving up its value.
Political Stability: Investors prefer stable environments. Countries with solid, predictable governments often see their currencies strengthen as they’re seen as safer bets.
Market Sentiment: Sometimes, it’s all about how traders feel. If the market believes a currency is going to rise in value, that belief can become a reality as more people start buying it.
The Forex Market: The World’s Largest Market
Now, why is the Forex market considered the largest financial market in the world? It all comes down to its size and scope. With over $7 trillion traded every day, the Forex market dwarfs others like the stock or bond markets. Here’s why:
Global Participation: Every country has a currency, and those currencies need to be exchanged constantly for various reasons—trade, travel, investment, you name it. This constant demand keeps the Forex market bustling.
24/5 Trading: The Forex market doesn’t stop. From Sydney to Tokyo, London to New York, trading continues around the clock, five days a week. This continuous trading cycle is driven by the world’s need to exchange currencies for goods, services, and investments.
Liquidity and Leverage: Forex markets are incredibly liquid, meaning you can buy or sell large amounts of currency without causing major price shifts. Leverage also plays a role, allowing traders to control large positions with relatively small investments—though this comes with its own set of risks.
The Pros and Cons of a Strong or Weak Currency
Let’s break down the impact of a currency’s value:
Strong Currency:
Pros: If a country’s currency is strong, imports are cheaper. That’s great news for consumers, as it can lower the cost of goods and keep inflation in check.
Cons: However, a strong currency can be tough on exporters because their products become more expensive for buyers in other countries, potentially reducing sales.
Weak Currency:
Pros: A weaker currency makes a country’s exports cheaper and more competitive internationally, which can be a big boost for economic growth.
Cons: On the downside, imports become more expensive, which can lead to higher consumer costs and potentially drive up inflation.
Why Understanding This Matters
So, why should you care about the value of the euro, yen, or any other currency? Well, these values influence much more than just your travel budget. They affect the prices of imported goods, the profitability of companies that do business internationally, and even the overall economic health of nations. By understanding the basics of currency values and the Forex market, you’re better equipped to grasp the broader economic picture and make informed decisions in your financial life.
For more insights and updates, subscribe to the How Do I Know That newsletter, where you can find me your informed investor. Feel free to ask any questions or share your tips and experiences.
Stay curious, stay informed, and I’ll see you next week, cheers!
🔎Infographic Highlight: Better Understanding the Forex Market.
The data from the infographic below reflects values from 2020.
Source: Medium.com (2020)
