Financial services media highlights - May 2024

Financial services media highlights - May 2024

The Briefing

13 May 2024
10 minute read
  Key highlights
  • Many tech companies have found that financial success is at least partially dependent on investment in AI technology. 
  • Japan’s yen hit a 34-year low, prompting intervention from the government and concerns from both local and international organizations. 
  • The US Federal Reserve failed to cut interest rates due to lack of progress on inflation. 
  • Trade tensions remain high in the Middle East due to the ongoing conflict between Israel and Hamas. 
  • The US government recently announced new sanctions against Russia, some of which targeted Chinese companies. 

For tech companies, falling behind in the AI race could mean falling behind financially. 

The AI race is heating up as tech companies around the world rush to add AI features to their products and hardware makers push to develop powerful AI-capable systems. Many companies have found that their finances have become directly tied to their progress in developing AI technology. 

For example, Apple is set to report a significant revenue decline in its upcoming earnings report. While the company is working to add AI capabilities to iPhones, that integration hasn’t taken place yet. The promise of integrating gen-AI tools in the future just hasn’t been enough to win over customers now as iPhone sales have fallen. 

Amazon also posted earnings last week, yielding better results than its big-tech competitor and beating earnings estimates. This was partially due to the high demand for AWS cloud services, which companies are relying on heavily to power their generative AI operations. 

For tech hardware companies, betting big on AI has yielded very positive financial results. For example, Qualcomm recently beat earnings estimates for the fiscal second quarter, reporting $9.39 billion in revenue compared to the $9.34 billion expected. This is in part due to high demand for expensive AI-capable chips in the Chinese market. Qualcomm noted that sales to Chinese smartphone makers have increased by 40% over the last two quarters as they have implemented AI chatbot features in their phones. 

Now, many other organizations are pivoting their focus to AI technology hoping to see the same results. Intel recently dedicated $28 billion in spending for a future mega-factory in Ohio to produce new AI-capable computer chips. The US government is betting big on this factory as a source of economic revival and has offered up $19.5 billion in federal loans and grants for the project. 

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These changes underscore just how important AI development will be to the tech industry financially. This could be a volatile time as organizations work to determine what developments will be necessary to stay afloat in a cutthroat economy.  

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A weak yen threatens to harm Japan’s economy. 

Japan’s economy has faced some historic challenges over the past month as the yen hit a 34-year low in mid-April. It appears that the Japanese government intervened twice in one week to keep the yen stable, spending approximately $35 billion to prevent the currency’s value from sinking further. However, Japanese representatives haven’t officially confirmed the intervention. 

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The yen’s value initially dropped further due to news of a possible intervention. The weakness of the yen could have far-reaching effects on the Japanese economy. Japanese exporters are concerned about stability in the wake of these currency lows, and airlines are concerned that the weakness of the yen could result in diminished travel plans this year. 

US financial officials are monitoring the situation closely, and it’s possible they could get more involved to prevent an economic crisis in Japan. The yen’s value against the dollar has hit a low not seen in three decades, which has sounded alarm bells for international officials. 

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The US Federal Reserve is opting to hold interest rates steady. 

After months of speculation, the US Federal Reserve recently announced that it would be holding interest rates steady for the time being. While the Fed won’t be raising rates, it also won’t be making any significant cuts in the near future. This news caused both the stock and bond markets to fall overall on the day of the announcement. 

Federal Reserve chair Jerome Powell has indicated that the Fed will not make changes to interest rates until it sees more progress on inflation. The Fed has set a goal of 2% inflation and will consider cutting rates if the US economy makes notable progress toward this goal in the near future. Inflation rates in March were 2.7%, an increase from February. 

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These interest rates will affect Americans looking to purchase properties in the near future. There is some speculation that high interest rates could reflect negatively on the Biden administration and affect the upcoming election. However, the Fed makes decisions on interest rates independently. While President Biden has stated that he expects interest rates to come down, there’s no indication that the Fed will follow suit in time for the election. 

While many economists and investors are concerned about possible “stagflation”, Powell has made it clear that he doesn’t see it happening. This is a scenario where the economy stagnates amid high rates of inflation. During the most recent Fed announcement, Powell pointed out that inflation rates remain significantly lower than they were in the 1970s, the last time a stagflation event occurred. 

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The Israel-Hamas war has exacerbated trade tensions in the Middle East. 

On May 2nd, Turkey reportedly cut all trade with Israel after mounting disagreements over the ongoing war with Hamas. The two countries had long been trade partners, but this latest announcement indicates that the tide is shifting. 

Turkey isn’t the only country that is shifting its relationship with Israel in response to the ongoing conflict. At the beginning of May, Colombia announced that it will break diplomatic ties with Israel, after previously having been one of the country’s largest supporters in Latin America.  

Houthi rebels based in Yemen have also launched ongoing attacks on ships in the Red Sea. These attacks have made it difficult for ships to navigate through the Suez Canal, resulting in dramatically-increased trade times between Asia and Europe and supply chain issues throughout the entire world. 

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The US government is targeting Chinese companies in its sanctions against Russia. 

The US government has continued to expand its sanctions against Russia as a response to the ongoing war in Ukraine. At the beginning of May, the US Treasury Department announced nearly 300 new sanction targets, with the State Department adding over 80 new targets. These included 20 companies based in China and Hong Kong. 

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These companies have been specifically targeted due to their relationships with Russia and ongoing material support of the war. The US claims that Russia has relied on companies in China and other allies to evade existing sanctions. 

The relationship between the US and China has been tense despite recent attempts at improvement. This new development could exacerbate tensions further. The Chinese government has already stated that it opposes the sanctions, claiming that trade with Russia is legal and follows World Trade Organization principles. 

Final Thoughts: Questions to Stay One Step Ahead

Financial markets around the world have been heavily affected by current political conflicts and new technological developments. Financial services consultants will need a global mindset to develop innovative new strategies and stay ahead of the pack. 

Understanding public perceptions of these turbulent markets is key to success. Questions to consider include: 

  • AI technology: Are consumers willing to invest more money in AI-powered technology? Do they perceive brands who have committed to AI technology more positively than brands who haven’t?
  • Federal interest rates: How will US Federal Reserve interest rates affect voter perceptions ahead of the upcoming election? 
  • Middle East trade tensions: Have business owners been impacted by recent global trade tensions? How are they adjusting their operations?

Interested in launching a study on these topics? Reach out to Potloc today to jumpstart a market research study for your strategic projects. 

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