Unadorned Notes: December 9-12, 2024
November CPI Supports Fed Cut; Small-Business Optimism Hits High; Walmart Signal Highlights Economic Anxiety; House Approves $895B Defense Bill; U.S.-China Chip Export Clash
Economics, Finance, and Business
November CPI Supports Fed Cut: U.S. consumer prices rose 0.3% in November 2024, matching expectations and marking the largest increase in seven months, with annual inflation at 2.7%. Core inflation pressures remain stubborn, driven by shelter and services costs, but easing owner-equivalent rent offers some relief. Economists anticipate the Federal Reserve will cut interest rates by 25 basis points next week, with markets expecting a cautious pace of further cuts in 2025. Analysts emphasize persistent inflation challenges, complicated by potential policy shifts under the incoming Trump administration. Financial markets reacted positively, with equities steady, Treasury yields falling, and the dollar stabilizing.1
Small-Business Optimism Hits High: U.S. small-business confidence surged in November 2024, with the NFIB Small Business Optimism Index rising 8 points to 101.7, its highest level since June 2021. The post-election boost reflects expectations of pro-business policies under a Republican-controlled government, with 36% of owners anticipating economic improvement. Labor shortages persist, but hiring plans increased to 18%, while 32% of businesses reported raising wages to address vacancies. Inflation concerns eased, and the share of owners planning price hikes rose slightly to 28%.2
Jobless Claims Unexpectedly Edge Higher: U.S. initial jobless claims rose by 17,000 to 242,000 for the week ending December 7, 2024, exceeding forecasts of 220,000, as labor demand shows signs of cooling. Continued claims climbed to 1.886 million, indicating longer unemployment durations for some workers. Despite November 2024’s job growth rebound, the unemployment rate ticked up to 4.2%, reflecting a gradually softening labor market. Analysts attribute some volatility in claims to seasonal factors but expect the Federal Reserve to proceed with another interest rate cut next week. Stable layoffs have supported consumer spending, but rising unemployment duration signals challenges ahead.3
Walmart Signal Highlights Economic Anxiety: The Walmart Recession Signal (WRS), a ratio comparing Walmart’s stock performance to a luxury index, has surged to its highest level since the pandemic, reflecting investor caution about consumer spending. Walmart shares, up 80% this year, have outperformed luxury stocks and peers like Dollar Tree and Dollar General, as inflation-weary shoppers seek discounts. While the WRS typically aligns with wider junk bond credit spreads signaling recession risks, this year it has diverged, as bond markets suggest confidence in economic stability. Analysts attribute Walmart’s strength to its growing market share, including among higher-income consumers, and its competitive delivery options. Despite the WRS spike, most experts do not foresee an imminent U.S. recession, citing other stable economic indicators.4
European Stocks End Winning Streak: The STOXX 600 index fell 0.5% on Tuesday, snapping an eight-session rally, as weak Chinese trade data pressured European luxury stocks like LVMH and Kering, which dropped 2.5% and 2.2%, respectively. France’s CAC 40 declined 1.1%, leading losses, while Britain’s FTSE 100 slipped 0.8%, weighed down by Ashtead’s 14% plunge after announcing plans to shift its primary listing to the U.S. In contrast, the auto sector advanced, driven by a 27% surge in D’Ieteren Group shares, while Delivery Hero dropped 12% after listing its Talabat unit in Dubai.5
ECB Cuts Rates to 3%: The European Central Bank lowered its deposit rate to 3.0% from 3.25%, marking its fourth rate cut this year as inflation nears target and economic growth remains sluggish. The ECB signaled potential further easing by removing language about maintaining “sufficiently restrictive” rates, although monetary policy remains tight. Lending rates were also reduced, with the weekly rate cut to 3.15% and the overnight rate to 3.40%. These changes aim to ease borrowing costs for businesses and households, though past rate hikes continue to impact credit markets. The ECB also announced it would end bond purchases under its Pandemic Emergency Purchase Programme this month.6
OpenAI Unveils “Ship-mas” Innovations: OpenAI has launched its 12-day “ship-mas” event, introducing new products, updates, and features, including the official release of its text-to-video AI generator, Sora. Sora offers ChatGPT Plus subscribers up to 50 video generations at 720p, while Pro subscribers receive enhanced capabilities, including 1080p resolution and watermark-free downloads. The company also rolled out its improved GPT-4o reasoning model and a new reinforcement fine-tuning tool for creating domain-specific expert models with minimal training data. OpenAI announced over 300 million weekly active users of ChatGPT, reflecting rapid growth in the platform’s adoption. Additional features, such as the Canvas editing tool and expanded integrations with Apple devices, highlight OpenAI’s focus on enhancing user experience and functionality.7
Alphabet Surges on Quantum Breakthrough: Alphabet shares rose 5.6% on Tuesday, marking their largest one-day gain since April 2024, following the announcement of a major quantum computing milestone with its Willow chip. The chip reportedly solves problems in minutes that would take supercomputers trillions of years, positioning Google as a leader in quantum technology despite commercial applications being years away. Analysts highlighted Willow as a potential long-term driver for AI and data security advancements, reinforcing Google’s competitive edge. The announcement also spurred movements in quantum-related stocks, with Rigetti up 45% and D-Wave Quantum rising 0.7%. Alphabet’s rally contributes to a broader recovery, with its stock up 25% since September 2024 lows.8
U.S. Politics, Policies, and Geoeconomics
Trump Honored, Rings NYSE Bell: President-elect Donald Trump rang the opening bell at the New York Stock Exchange, marking the occasion as Time magazine named him Person of the Year for the second time. Trump called the recognition a “tremendous honor” and used the event to promote his incoming administration and policies, including plans to expedite major infrastructure projects. The ceremony included his family and Vice President-elect JD Vance, with chants of “USA” and the projection of Time’s cover featuring Trump. In a Time interview, he reflected on his election victory, plans to pardon Jan. 6 rioters, and the future of his “Make America Great Again” movement. Trump also suggested family members like Lara Trump could play prominent roles in politics, hinting at the potential for a political dynasty.9
FBI Director Wray to Resign: FBI Director Christopher Wray announced his resignation, effective at the end of the current administration, to avoid further politicizing the bureau. President-elect Donald Trump, who has been critical of Wray’s tenure, praised the decision and has nominated Kash Patel, a vocal critic of the FBI, as his replacement. Wray, appointed by Trump in 2017, faced Republican backlash over FBI investigations into Trump, including a federal probe into classified documents. Patel’s nomination requires Senate approval, with deputy director Paul Abbate set to lead the bureau temporarily. Wray received bipartisan praise for his leadership, with Attorney General Merrick Garland and FBI agents commending his integrity and service.10
Judges Block Kroger-Albertsons Merger: A federal judge in Oregon and a Washington State judge issued rulings blocking Kroger’s $24.6 billion acquisition of Albertsons, citing concerns over reduced competition. The Federal Trade Commission argued that the merger would harm consumers, workers, and small businesses by eliminating head-to-head competition between the two grocery chains. Kroger and Albertsons defended the deal, claiming it would lower prices and improve competitiveness against rivals like Walmart and Amazon, but critics argued these promises were unenforceable. The preliminary injunction places the merger’s future in doubt as the FTC proceeds with internal hearings, while legal challenges continue. Kroger and Albertsons are reviewing their next steps, but experts suggest the rulings could effectively end the deal.11
House Approves $895B Defense Bill: The U.S. House passed an $895 billion National Defense Authorization Act (NDAA) by a 281-140 vote, sending it to the Senate for consideration. The bill includes a 14.5% pay raise for junior troops, funds for housing and childcare, and policies to counter China and Russia. Controversially, it bans TRICARE from covering gender-affirming care for transgender children if it risks sterilization, highlighting ongoing political divides over transgender issues. The legislation, a compromise between Democrats and Republicans, excludes measures to restrict abortion travel funding or adult transgender care coverage. The NDAA sets defense policy but requires separate funding approval, which is unlikely before March 2025.12
House Approves Judiciary Expansion Bill: The U.S. House passed a bipartisan bill to add 66 federal judges over the next decade, marking the first major judiciary expansion since 1990. The legislation, previously passed unanimously by the Senate, addresses a 30% increase in federal caseloads but faced delays due to political concerns over judicial appointments. Outgoing President Joe Biden has threatened to veto the bill, accusing Republicans of delaying the vote to allow President-elect Donald Trump to appoint the first wave of judges. Republicans argue the bill prioritizes judicial efficiency, while Democrats criticize it as a move to enable more conservative appointments. If enacted, the JUDGES Act would increase trial court judgeships in 13 states, including California, Texas, and Florida.13
U.S.-China Chip Export Clash: The Biden administration has tightened export controls on semiconductor manufacturing equipment to China, targeting companies linked to Huawei over national security concerns. Despite lobbying from U.S. firms like Applied Materials, KLA, and Lam Research—arguing these restrictions harm their competitiveness—new rules ban equipment sales to three Chinese firms and add 140 Chinese entities to a trade blacklist. The U.S. seeks allied cooperation with Japan and the Netherlands to close loopholes and prevent global competitors from supplying restricted technology to China. Critics warn that enforcement delays and loopholes have allowed Huawei and related firms to bypass restrictions, fueling China’s advanced chipmaking capabilities. While U.S. officials stress the need to protect national security, the semiconductor industry’s reliance on Chinese revenues underscores the tension between economic and geopolitical priorities.14
China Escalates U.S. Trade Retaliation: In response to U.S. export controls on advanced chips and President-elect Donald Trump’s tariff threats, China has imposed sanctions on 13 American defense firms, restricted critical mineral exports, and launched an antitrust investigation into Nvidia. Beijing is increasingly leveraging its dominance in high-tech supply chains to counter U.S. economic policies while signaling a readiness for further retaliation. Analysts warn these actions, combined with a weakening Chinese economy, could escalate trade tensions and disrupt global markets. Foreign businesses in China face rising regulatory scrutiny and challenges, with U.S. companies reporting record-low profits and declining market optimism.15