The impact of the Fed on the ECB
Thursday is a big day for the European Central Bank. It is widely expected to cut interest rates by 0.25 percentage points, its first cut since 2019, and outperform the Fed in lowering borrowing costs. Investors will be watching to see how this affects monetary policy outside Brussels, as well as global trade, stock markets and the dollar.
The big question on our minds is whether central bank President Christine Lagarde will signal further rate cuts at the July and September meetings, and how far will the ECB go if the Fed stays put.
Good news: Economists say the days of high interest rates around the world are coming to an end. But they add that persistent inflation would tie central banks' hands and limit their ability to significantly reduce borrowing costs.
Holger Schmieding, an economist at Berenberg Bank, told Dealbook that policymakers are probably moving into a “shallower, shorter-term” phase, in which rate cuts would be gradual and interest rates would remain above pre-pandemic levels.
The ECB is considered to be one step ahead of the Fed. Futures markets on Wednesday were expecting the Fed to cut interest rates once before Election Day, possibly in September, though a surprise in Friday's jobs report could change that forecast.
Focus on the dollar and the stock. A rate cut by the ECB would likely boost the dollar against the euro, which could be good news for European exporters such as Airbus and automakers.
The same phenomenon could impact global investment flows. “In a scenario where the ECB cuts rates and the Fed doesn't cut rates, that would be positive for European stocks and we could see a period where European stocks outperform the U.S. S&P 500 index,” Dan McCormack, head of research at Macquarie Group, told DealBook.
The Federal Reserve remains another uncertainty. The strength of the U.S. economy is creating inflation risks and confusing the Fed's rate-cutting schedule. The longer the Fed keeps rates on hold, the greater the impact it could have on other central banks worried that policy divergences could push up a stronger dollar and, ultimately, domestic inflation.
“The key question is how far the ECB can deviate from the Fed, especially if inflation remains robust,” said Mohit Kumar, an economist and strategist at Jefferies Inc. “In a scenario where the Fed doesn't cut rates at all this year,” he sees the ECB cutting rates two times this year instead of three.
What's going on?
Intel sold its stake in an Irish semiconductor fab to Apollo for $11 billion. The deal will see the investment giant take a 49% stake in the venture that owns the factory and provide Intel with funding to expand its manufacturing. Meanwhile, NXP Semiconductors Inc. has announced plans to build a $7.8 billion chip wafer fab in Singapore in partnership with Taiwan Semiconductor Manufacturing Co.
Elliott Management is said to be targeting SoftBank again. The activist hedge fund has a large stake in SoftBank and is pressuring the Japanese tech giant to buy back billions of dollars' worth of stock, according to the Financial Times. The investment by Elliott, which pressured SoftBank to reform in 2020, comes as the gap between the value of the tech company's holdings and its market value widens.
Apple is reportedly in talks to bring its Apple TV+ streaming service to China. The tech giant was in talks with China Mobile about the matter last year, according to The Information. That would make Apple the only US company to offer streaming services in China, but the talks could have political ramifications, as the US government considers Beijing-controlled China Mobile a national security threat.
Wall Street giants back fledgling Texas stock market. Investors including BlackRock Inc. and Citadel have pumped about $120 million into the Texas Stock Exchange, which it says imposes fewer requirements on listed companies than the New York Stock Exchange or Nasdaq. The exchange, known as TXSE, is an unlikely winner because other challengers to the larger markets have done little to chip away at its dominance.
What's India Inc's next move?
Indian stocks rallied on Wednesday but uncertainty remains as investors digest election results that showed Prime Minister Narendra Modi received a weaker-than-expected vote count and could hamper the country's most powerful political leader in decades as he seeks to form a coalition government.
Investment is pouring into one of the world's fastest-growing economies, and companies are trying to figure out what's next.
DealBook spoke to James Crabtree, author of “The Billionaire Raj” and an Indian business and political analyst, about the election results and what they mean for business. This interview has been edited for clarity.
How much of a shock is this?
This comes as a big surprise: Modi appears unconcerned with the political pressures that are put on ordinary politicians.
Before Modi became prime minister, Indian politics had been dominated by a series of weak coalition governments. But over the past decade, Modi's grip on Indian politics has grown ever stronger. His party enjoyed a huge financial advantage in an election that cost a staggering $16 billion. And he is rarely criticized in the Indian press.
What kind of government will emerge, and what will it mean for the economy?
Markets typically see a weaker government as less energetic about pushing for growth-boosting reforms. Particularly hard hit have been stocks seen as politically aligned with Prime Minister Modi himself, particularly companies owned by tycoon Gautam Adani.
But many of India's most important economic reforms have been implemented by coalition governments. The election results also quell concerns that Modi is centralizing too much power. While corporations sometimes support autocratic leaders, democracy can be good for free markets and global business.
What does this mean for international investors?
Global investor admiration for India has been driven largely by factors that have nothing to do with New Delhi: Geopolitical tensions mean the United States and its allies will continue to see India as a regional bulwark against Beijing, and companies will still be looking for alternatives to China.
What next?
Investors will be closely watching to see who the new finance minister will be and what he or she has to say about plans to reform the country.
But even if they keep investors happy, voters in the world's largest democracy will ultimately need to be convinced the economy is working for them.
Wait for redstone
It's been more than 24 hours since Paramount controlling shareholder Shari Redstone received a revised proposal from Skydance to merge with the media giant, but all Wall Street has officially gotten is silence, despite confirmation on her behalf that the proposal had been received.
In the silence, we tell you what we know and what we wish we had known.
Paramount executives proposed a plan to form an independent company. At the media giant's annual investor conference on Tuesday, three members of the so-called Office of the CEO laid out their vision for Paramount: finding a partner to share the costs of operating its Paramount+ streaming service, cutting costs by $500 million and selling non-core assets.
This presentation was made by Paramount do not The need for a sale. Mr. Redstone told shareholders at the meeting that he believed in the merits of the plan. But investors seemed unconvinced, with the company's shares falling more than 4% on Tuesday.
Reports of behind-the-scenes infighting are creating intrigue. Is Mr. Redstone trying to bid more time in negotiations with potential rivals for National Amusements, his vehicle for control of Paramount?
Is she upset that Skydance lowered its proposed valuation for National Amusements, amending its offer to include more cash for Paramount shareholders?
As is often the case in deals, the reports may be intended to put pressure on either Skydance (to improve its proposal) or Redstone (to close the deal).
One thing we know is that It remains an open question as to which side will bear liability in lawsuits related to this transaction, though it's worth noting that this would not be a deal-breaker in most other transactions.
Everyone has to keep waiting. That includes employees at Paramount Pictures, whose executives postponed an internal town hall meeting from Wednesday to June 25, citing ongoing talks.
Bill Gates returns to his roots
Bill Gates has written books on climate change, technology, and the COVID-19 pandemic. Now he's turning his focus to himself.
The Microsoft co-founder announced that he is writing “Source Code,” a memoir of his life before founding the tech giant, which Penguin Random House will publish in February.
Gates wants to tell his origin story. The book will trace his life from his childhood to his decision to drop out of Harvard and start Microsoft with Paul Allen, a period that is less well known, he wrote in a blog post on Tuesday.
The book will avoid controversial moments. “Source Code” is not expected to mention Microsoft or the Gates Foundation, and given the planned timeline, it likely will not address his ties to convicted sex offender Jeffrey Epstein or allegations of questionable work-related behavior, or his divorce from Melinda French Gates.
A book about Gates is due to be published soon. Two of the stories were written by reporters from The Times. “Billionaire, Geek, Savior, King: Bill Gates and His Quest to Shape the World,” by Times financial editor Anuprita Das, will be published in August.
He is also working on a biography by Nicholas Krisch, a Times reporter who writes about his philanthropic work.
Speed Read
Bargain Deals
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Fast-growing Canadian artificial intelligence startup Cohere is said to have raised $450 million from investors including Nvidia and Salesforce at a $5 billion valuation. (Reuters)
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Hakluyt, a British consulting firm founded by former spies, has raised more than $50 million in its first venture capital fund as it expands into Silicon Valley. (Bloomberg)
2024 Election
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Trump is scheduled to attend fundraisers in California this week, including at the home of investor David Sachs, although the state's Republican Party has remained largely silent about the presumptive presidential nominee since his conviction last week. (Politico)
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President Biden's new immigration restrictions aim to address one of his biggest political weaknesses ahead of the election. (NYT)
Best remaining
I want to take a moment to remember Ben WhiteMy former Times colleague, Ben, who died on Saturday, was a smart and insightful reporter on Wall Street and the economy, and was generous with his time and notes. He will be deeply missed.
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