Finance

Budget talks in the European Union are a game of 27-dimensional chess. Members play simultaneously against one another, negotiating over many spending items at any one time. Countries are already preparing for the contest that starts next year, which is likely to be particularly dramatic. The world around the EU has shifted, owing to the war in Ukraine, the continent’s increasingly difficult relationship with China and the growing urgency of climate change. That necessitates what Mario Draghi, a former president of the European Central Bank and prime minister of Italy, has called “radical change”. Yet the bloc’s biggest contributors, including Germany and the Netherlands, will be reluctant to stump up more cash. New outgoings for climate change and defence will have to be funded by cuts elsewhere. More

So much of finance is automated these days you can forget quite how strongly markets echo human rhythms. Yet stock exchanges still ring their opening and closing bells at either end of the working day designed a century ago in Henry Ford’s car factory; the more civilised of them even break for an hour at lunch. The foreign-exchange market notionally operates around the clock, but it is a brave soul who attempts a big order during London’s early hours, before the City is open for business. And it is not just daily routines that matter—seasonal ones do, too. Spare a thought, then, for the 20-somethings left to run the northern hemisphere’s trading desks over the next few weeks, while their bosses doze on a beach. More

Federal Reserve officials held short-term interest rates steady, but indicated that inflation is getting closer to its 2% target.
Central bankers made no obvious indications that a rate cut was imminent. Instead, they maintained their statement that more progress is needed before rate reductions can happen.
“The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance,” the Federal Open Market Committee’s post-meeting statement said.

WASHINGTON – Federal Reserve officials on Wednesday held short-term interest rates steady but indicated that inflation is getting closer to its target, which could open the door for future interest rate cuts.
Central bankers made no obvious indications, though, that a reduction is imminent, choosing to maintain language that indicates ongoing concerns about economic conditions, albeit with progress. They also preserved a declaration that more progress is needed before rate reductions can happen.

“The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance,” the Federal Open Market Committee’s post-meeting statement said, a slight upgrade from previous language.
“Inflation has eased over the past year but remains somewhat elevated,” the statement continued. “In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.”
However, speaking with the media, Chair Jerome Powell indicated that while no decision has been made about actions at future meetings a cut could come as soon as September if the economic data showed inflation easing.
“If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September,” Powell said.

Stocks react to Powell comments

Markets had been looking for signs that the Fed will reduce rates when it next meets in September, with futures pricing pointing to further cuts at the November and December meetings, assuming quarter percentage point moves. Stocks rallied to the highest levels of the day on Powell’s comments.

As for the Fed’s statement, its language also represented an upgrade from the June meeting, when the policy statement indicated only “modest” progress in bringing down price pressures that two years ago had been running at their highest level since the early 1980s. The previous statement also characterized inflation as simply “elevated,” rather than “somewhat elevated.”
There were a few other tweaks as well, as the FOMC voted unanimously to keep its benchmark overnight borrowing rate targeted between 5.25%-5.5%. That rate, the highest in 23 years, has been in place for the past year, the result of 11 increases aimed at bringing down inflation.
One change noted that committee members are “attentive” to the risks on both sides of its mandate for full employment and low inflation, dropping the word “highly” from the June statement.
Still, the statement kept intact one key sentence about the Fed’s intentions: “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
That phrase has underscored the Fed’s data dependence. Officials insist they are not on a predetermined course for rates and won’t be guided by forecasts.

Price pressures off 2022 peak

Economic data of late has indicated that price pressures are well off the boil from their peak in mid-2022, when inflation hit its highest level since the early 1980s.
The Fed’s preferred measure, the personal consumption expenditures price index, shows inflation around 2.5% annually, though other gauges indicate slightly higher readings. The central bank targets inflation at 2% and has been insistent that it will stick with that goal despite pressure from some quarters to tolerate higher levels.
Though the Fed has held to its tightest monetary policy in decades, the economy has continued to expand.
Gross domestic product registered a 2.8% annualized growth rate in the second quarter, well above expectations amid a boost from consumer and government spending and restocking of inventories.

Labor market data has been a little less robust, though the 4.1% unemployment rate is far from what economists consider full employment. The Fed statement noted that unemployment “has moved up but remains low.” A reading Wednesday from payrolls processing firm ADP showed July private sector job growth of just 122,000, indicating that the labor market could be weakening.
However, there was some positive inflation data in the ADP report, with wages increasing at their slowest pace in three years. Also Wednesday, the Labor Department reported that costs of wages, benefits and salaries increased just 0.9% in the second quarter, below expectations and the 1.2% level in the first quarter.
Fed officials have vowed to proceed carefully, despite signs that inflation is weakening and worries that the economy won’t be able to withstand the highest borrowing costs in some 23 years for much longer. Their position got some fortification Wednesday, when yet another economic report showed that pending home sales surged a stunning 4.8% in June, defying expectations for a 1% increase.

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This is a comparison of Wednesday’s Federal Open Market Committee statement with the one issued after the Fed’s previous policymaking meeting in June.
Text removed from the June statement is in red with a horizontal line through the middle.

Text appearing for the first time in the new statement is in red and underlined.
Black text appears in both statements.

Arrows pointing outwards

Follow along with Federal Reserve Chair Jerome Powell’s press conference here.

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An automated financial advisor called PortfolioPilot has quickly gained $20 billion in assets in a possible preview of how disruptive artificial intelligence could be for the wealth management industry.
The service has added more than 22,000 users since its launch two years ago, according to Alexander Harmsen, founder of Global Predictions, which launched the product.
The San Francisco-based startup raised $2 million this month from investors including Morado Ventures to fund its growth, CNBC has learned.

AI-generated responses are becoming more common, whether travelers know or not.
Westend61 | Getty Images

An automated financial advisor called PortfolioPilot has quickly gained $20 billion in assets in a possible preview of how disruptive artificial intelligence could be for the wealth management industry.
The service has added more than 22,000 users since its launch two years ago, according to Alexander Harmsen, co-founder of Global Predictions, which launched the product.

The San Francisco-based startup raised $2 million this month from investors including Morado Ventures and the NEA Angel Fund to fund its growth, CNBC has learned.
The world’s largest wealth management firms have rushed to implement generative AI after the arrival of OpenAI’s ChatGPT, rolling out services that augment human financial advisors with meeting assistants and chatbots. But the wealth management industry has long feared a future where human advisors are no longer necessary, and that possibility seems closer with generative AI, which uses large language models to create human-sounding responses to questions.
Still, the advisor-led wealth management space, with giants including Morgan Stanley and Bank of America, has grown over the past decade even amid the advent of robo-advisors like Betterment and Wealthfront. At Morgan Stanley, for instance, advisors manage $4.4 trillion in assets, far more than the $1.2 trillion managed in its self-directed channel.
Many providers, whether human or robo-advisor, end up putting clients into similar portfolios, said Harmsen, 32, who previously cofounded an autonomous drone software company called Iris Automation.
“People are fed up with cookie-cutter portfolios,” Harmsen told CNBC. “They really want opinionated insights; they want personalized recommendations. If we think about next-generation advice, I think it’s truly personalized, and you get to control how involved you are.”

AI-generated report cards

The startup uses generative AI models from OpenAI, Anthropic and Meta’s Llama, meshing it with machine learning algorithms and traditional finance models for more than a dozen purposes throughout the product, including for forecasting and assessing user portfolios, Harmsen said.
When it comes to evaluating portfolios, Global Predictions focuses on three main factors: whether investment risk levels match the user’s tolerance; risk-adjusted returns; and resilience against sharp declines, he said.
Users can get a report card-style grade of their portfolio by connecting their investment accounts or manually inputting their stakes into the service, which is free; a $29 per month “Gold” account adds personalized investment recommendations and an AI assistant.
“We will give you very specific financial advice, we will tell you to buy this stock, or ‘Here’s a mutual fund that you’re paying too much in fees for, replace it with this,'” Harmsen said.
“It could be simple stuff like that, or it could be much more complicated advice, like, ‘You’re overexposed to changing inflation conditions, maybe you should consider adding some commodities exposure,'” he added.
Global Predictions targets people with between $100,000 and $5 million in assets — in other words, people with enough money to begin worrying about diversification and portfolio management, Harmsen said.
The median PortfolioPilot user has a $450,000 net worth, he said.  
The startup doesn’t yet take custody of user funds; instead it gives paying customers detailed directions on how to best tailor their portfolios. While that has lowered the hurdle for users to get involved with the software, a future version could give the company more control over client money, Harmsen said.
“It’s likely that over the next year or two, we will build more and more automation and deeper integrations into these institutions, and maybe even a Gen 2 robo-advisor system that allows you to custody funds with us, and we’ll just execute the trades for you.”

‘Massive shake up’

Harmsen said he created the first version of PortfolioPilot a few years ago to manage his own newfound wealth after selling his first company.
He’d grown frustrated after meeting more than a dozen financial advisors and realizing that they were “basically just salespeople trying to give access to this fairly standard” approach, he said.
“It felt like a very real problem for me, because the only alternative I saw on the market was, you know, basically becoming a day trader and becoming my own portfolio manager,” Harmsen said.
“I wanted hedge fund-quality tools and ways to think about risk and downside protection, and portfolio management across all of my different accounts and the buckets of money in crypto and real estate,” he said.
So around the time he was starting a family and buying a home in San Francisco, he began coding a program that could manage his investments.
After realizing it could have a broader use, Harmsen began building a team for Global Predictions, including three former employees of Bridgewater Associates, the world’s largest hedge fund.

The company’s rise has attracted regulatory scrutiny; in March, the Securities and Exchange Commission accused Global Predictions of making misleading claims in 2023 on its website, including that it was the “first regulated AI financial advisor.” Global Predictions paid a $175,000 fine and changed its tagline as a result.
While today’s dominant providers have been rushing to implement AI, many will be left behind by the transition to fully automated advice, Harmsen predicted.
“The real key is you need to find a way to use AI and economic models and portfolio management models to generate advice automatically,” he said.
“I think that is such a huge jump for the traditional industry; it’s not incremental, it’s very black or white,” he said. “I don’t know what’s going to happen over the next 10 years, but I suspect there will be a massive shake up for traditional human financial advisors.” More

If things go according to expectations, the Fed again will keep short-term interest rates on hold roughly from where they’ve been for the past year.
There are expectations that the Federal Open Market Committee will drop signals that as long as there are no major data hiccups, a September move is very much on the table.
The central bank has been holding its benchmark funds rate in a range of 5.25-%-5.5% for the past year.

US Federal Reserve Chair Jerome Powell testifies before the Senate Banking, Housing, and Urban Affairs Hearings to examine the Semiannual Monetary Policy Report to Congress at Capitol Hill in Washington, DC, on July 9, 2024. 
Chris Kleponis | AFP | Getty Images

This week’s Federal Reserve meeting is not much about the present but potentially very much about the future.
If things go according to expectations, policymakers again will keep short-term interest rates on hold roughly from where they’ve been the past year.

However, with a raft of cooperating inflation data under their belts in recent months, central bankers are widely expected to lay the groundwork for interest rate cuts to begin in September. Just how aggressive they are in spreading those breadcrumbs is the main question markets will be looking to answer.
“Our expectation is that they’re going to keep rates unchanged,” said Michael Reynolds, vice president of investment strategy at Glenmede. “But there’s going to be a lot of focus on the [post-meeting] statement, perhaps teeing up September as whatever the opposite of liftoff is.”
Market pricing currently indicates an absolute certainty that the Fed will approve its first reduction in more than four years — when it meets Sept. 17-18. The central bank has kept its benchmark funds rate in a range of 5.25-%-5.5% for the past year. The rate indicates what banks charge each other for overnight lending but sets a guidepost for a slew of other consumer debt products.

As for this week’s meeting, which concludes Wednesday, traders are assigning a very small possibility of a cut. However, there are expectations that the rate-setting Federal Open Market Committee will drop signals that as long as there are no major data hiccups, a September move is very much on the table.
Reynolds thinks the committee, along with Chair Jerome Powell at his news conference, will want to keep its options at least somewhat open.

“They’re going to want to strike a balance. They don’t want investors to start pricing in a rate cut coming in September and there’s literally nothing else that could possibly happen,” he said.
“Opening the door for that rate cut is probably the most appropriate thing for them at this point,” Reynolds added. “But the markets are already pretty excited about that, pricing it in with nearly 100% probability. So the Fed doesn’t have to do too much to change the narrative on that at all. I think if they just directionally tailor the statement, it’ll get the job done.”

Expectations for easing

Glenmede expects that starting in September, the Fed could cut at each of the three remaining meetings. That is largely in line with market expectations, as measured by the CME’s FedWatch gauge of pricing in 30-day fed funds futures contracts.
There are a few ways the Fed can guide markets on its likely intent without making too much of a commitment. Subtle language changes in the statement can help that along, and Powell could be expected to have some scripted answers ready for the press conference to convey the likely path of future policy.
Goldman Sachs economists see the FOMC making a few alterations.

One critical change could be a line in the statement that says the committee won’t reduce rates until it “has gained greater confidence that inflation is moving sustainably toward 2 percent.” Goldman Sachs economist David Mericle expects the Fed to qualify that statement to say it now needs only “somewhat greater confidence” to start easing.
“Recent comments from Fed officials … suggest that they will remain on hold at their meeting [this] week but have moved closer to a first interest rate cut,” Mericle said in a note. “The main reason that the FOMC is closer to cutting is the favorable inflation news from May and June.”
Indeed, the inflation news has gotten better though still isn’t great — most metrics have the pace of price increases still running a half a percentage point or more above the Fed’s target, but they have eased sharply from their mid-2022 peaks. The Fed’s preferred gauge, the personal consumption expenditures price index, showed 12-month inflation at a 2.5% rate in June; the consumer price index had it at 3% and showed an actual decline of 0.1% from the previous month.

Clearer signals sought

Still, don’t expect too much enthusiasm from Fed officials.
“The inflation numbers have bounced around a lot this year,” said Bill English, the Fed’s former director of monetary affairs and now a Yale professor. “We had quite high numbers last winter. We’ve had a couple of months of good data now. But, I think they they are genuinely uncertain exactly where inflation is and where it’s headed.”
English expects the Fed to hint at a September move but stop short of providing a detailed road map of what’s to follow.
Central bankers mostly feel they can be patient on policy with inflation easing and broader measures of economic growth continuing to show strength despite the highest benchmark interest rates in 23 years. For instance, gross domestic product accelerated at a better-than-expected 2.8% annualized pace in the second quarter, and the labor market has been strong as well even with an unemployment rate that has drifted higher.
“Given where inflation is, given where the economy is, it’s appropriate to ease but not to be seen as committing to a whole chain of easing,” English said. “It’s difficult to communicate clearly about where monetary policy is going.”
The central bank will not provide an update on its quarterly summary of economic projections at this meeting. That includes the “dot plot” of individual members’ expectations for rates as well as informal forecasts on GDP, inflation and unemployment.
The FOMC does not meet in August except for its annual retreat in Jackson Hole, Wyoming, which traditionally includes a keynote policy speech from the chair.

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Berkshire Hathaway’s selling streak in its big Bank of America stake has extended to nine straight days.
After the selling spree, Berkshire still owns 961.6 million shares of BofA with a market value of $39.5 billion.
Berkshire is still BofA’s largest shareholder with a 12.3% stake.

Warren Buffett walks the floor ahead of the Berkshire Hathaway Annual Shareholders Meeting in Omaha, Nebraska, on May 3, 2024.
David A. Grogen | CNBC

Berkshire Hathaway’s selling streak in its big Bank of America stake has extended to nine straight days, suggesting that Warren Buffett is not just trimming the longtime holding.
The Omaha-based conglomerate sold a total of 18.4 million shares of the bank from Thursday to Monday for $767 million at an average price of $41.65, a new regulatory filing late Monday revealed. Over the past nine trading sessions, Berkshire has cut its stake by 71.2 million shares with just more than $3 billion of sales.

After the selling spree, Berkshire still owns 961.6 million shares of BofA with a market value of $39.5 billion. BofA remains Berkshire’s second-largest equity holding after Apple, but if the conglomerate continues to offload those shares, the bank could fall below third-place American Express, currently valued at $37.6 billion.

Stock chart icon

Bank of America

Berkshire is still BofA’s largest shareholder with a 12.3% stake. As an owner of more than 10%, Berkshire has two business days to report any transactions, so we won’t know until Thursday if the selling streak continues Tuesday.
Buffett famously bought $5 billion worth of BofA’s preferred stock and warrants in 2011 in the aftermath of the financial crisis, shoring up confidence in the embattled lender struggling with losses tied to subprime mortgages. He converted those warrants in 2017, making Berkshire the largest shareholder in BofA, vowing that it would be a “long, long time” before he would sell.
Berkshire’s cost basis on the BofA position was about $14.15 per share or $14.6 billion as disclosed at the end of 2021. At the end of March, the holding was worth $39.2 billion. BofA closed Monday at $41.09.
The conglomerate could be taking some profits after BofA’s strong run, culminating in a big year this year. The bank stock has rallied 22% in 2024, outperforming the S&P 500′s 14.5% return.
Berkshire is set to release second-quarter earnings Saturday morning, which will also reveal further info on the conglomerate’s biggest holdings.

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China’s economic miracle emerged from dozens of industrial entrepots. Dongguan, famous for producing furniture and toys, as well as its many brothels, witnessed GDP growth of 21% in 2004. Hohhot, a town on the edge of the Mongolian steppe, posted nominal growth of 18% in 2006 as it scarred its mineral-rich terrain with mines. Shanghai, the country’s commercial hub, achieved 15% growth the next year as it churned out everything from machinery and textiles to cargo ships and steel, minting millionaires in the process.These towns have since slowed along with the rest of the country. Shanghai, which now has an economy seven and a half times larger than 20 years ago, saw its GDP grow by just 5% last year. Yet there remain some places where growth, if not quite miraculous, is still mightily impressive, running at 8-10% a year. Most are small “county level” cities, home to something between a couple of hundred thousand and a couple of million people, and administered by bigger nearby conurbations. China’s last boomtowns are of great importance to Xi Jinping, the country’s supreme leader, as he searches for ways to rejuvenate the economy, which in the second quarter of the year grew at an annual rate of just 4.7%, down from 13% in 2007. More