Monopoly Man Strikes Again?

MONETARY

• In the most recent release of the Federal Reserve’s Beige Book, findings noted that overall economic activity in the period remained steady with some new developments regarding the Labor Market and Inflationary pressures²
  • Higher interest rate continued to affect spending in certain interest rate-sensitive areas of the economy²
    • (Beige Book) “Auto sales continued to vary by District, with some noting increases in sales and others reporting slowing sales because of elevated interest rates and high vehicle prices.”²
    • (Beige Book) “Residential construction and real estate activity were mixed, though most Districts’ reports indicated
    • softer home sales.”²
  • Observations of the Labor Market noted that overall employment remains strong and continued to grow modestly over the reporting period. Wage growth continued to tick upward, but at more modest paces²
    • (Beige Book) “Employment levels were generally flat to up slightly in recent weeks. Five Districts saw slight or modest increases in overall headcounts, but a few Districts reported that firms reduced shifts and hours, left advertised positions unfilled, or reduced headcounts through attrition—though accounts of layoffs remained rare.”²
    • (Beige Book) “On balance, wages rose at a modest pace, in line with the slowing trend described in recent reports. Skilled tradespeople and other workers with specialized skills remained in short supply and continued to see stronger wage increases, as did those in unions.”²
  • Inflationary pressures were largely reported as being mixed and varied greatly depending on region and product/service²
    • (Beige Book) “On balance, prices increased modestly in the most recent reporting period. However, three Districts reported only slight increases in selling prices”²

 

FISCAL

• Seven states sue the Biden Administration over the latest plan to cancel student debt for borrowers⁴
  • Those standing to benefit from this latest attempt included individuals with runaway interest, who currently owe more than what was originally taken out – and individuals who have been repaying their loans for over 20yrs⁴
  • This latest challenge to the ongoing efforts of the Biden Administration to legislate student loan forgiveness comes after a separate decision by the Supreme Court which declined to reinstate the SAVE Plan while legal challenges play out⁴
  • Prior to challenges to the SAVE Plan, the Supreme Court voted in a 6-3 majority to block the Biden Administration’s initial attempt at student loan forgiveness scheme which included around 430B of loan forgiveness for 43M Americans⁴

 

GEOPOLITICS

• In an effort to stave off the persistent effects of the country’s property bubble collapse, China’s government ponders implementing a two-step plan to reduce the interest rates on currently outstanding mortgages³
  • The total drop in borrowing rates would amount to about 80 basis points and would be carried out over 2 tranches³
    • The first of the borrowing cost cuts could come within a few weeks, while the final tranche would likely occur around the start of 2025³
  • In addition to lowering borrowing costs on outstanding mortgages, the Chinese government also considering allowing for an accelerated timeline for when mortgages are eligible to become refinanced³
    • Pursuant to the refinancing reforms proposed, individuals would also be able to refinance their outstanding mortgages with a different bank – something that has not been allowed in the country since the global financial crisis³
  • Bank margins have been under pressure as of recently, and lowering borrowing costs on outstanding mortgages would likely put further pressure on those margins³
    • (Bloomberg) “Lowering rates too aggressively would pile pressure on the banks, which have already seen their margin tumble to a record low of 1.54% as of end-June, well below the 1.8% threshold regarded as necessary to maintain reasonable profitability”³

 

MISCELLANEOUS

• The U.S. Department of Justice formally sends legally binding subpoenas to Nvidia, and other chipmakers, requesting information pursuant to an antirust probe¹
  • The probe is alleging anti-competitive business practices on behalf of Nvidia as the firm’s data center business has gained significant market share over the past 2 years¹
    • Antitrust officials are concerned that Nvidia is making it harder to switch to other suppliers and penalizes buyers that don’t exclusively use its artificial intelligence chips¹
  • Nvidia has vigorously maintained that it has not engaged in anti-competitive practices and has reiterated the higher quality of its offerings as a primary factor contributing to its rise in market share¹
    • (Nvidia) “Nvidia wins on merit, as reflected in our benchmark results and value to customers, who can choose whatever solution is best for them,”¹
  • Additionally, Nvidia’s recent acquisition of Run AI is coming under scrutiny pursuant to the probe as well¹
    • Run AI makes software for managing AI computing. Concerns have arisen from this acquisition as some believe it will make it harder for Nvidia clients to switch to competitors offerings¹

 

[See Below for Disclosures & Annotations]

 

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

 

ANNOTATIONS

1. Bloomberg. “Nvidia Gets DOJ Subpoena in Escalating Antitrust Probe”. September 3, 2024
2. Federal Reserve. “The Beige Book Summary of Commentary on Current Economic Conditions by Federal Reserve District”. September 4, 2024
3. Bloomberg. “China Weighs Cutting Mortgage Rates in Two Steps to Shield Banks”. September 4, 2024
4. Reuters. “Republican-led US states sue over new Biden student debt relief plan”. September 3, 2024.