✂️ All Eyes on Central Banks

MARKET UPDATE

Good Morning Investor! On Monday, shares of Builders FirstSource ($BLDR) rose 2.53% in pre-market trading after the company authorized a $1 billion share repurchase plan, boosting investor confidence.

Meanwhile, the Fed is expected to announce its first rate cut in over four years this week, and JP Morgan believes it’ll be a 0.50% cut.

TODAY’S BIG HEADLINES

All Eyes on Central Banks & Interest Rates This Week

Japan’s Moon-As-A-Service Startup

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MACROECONOMICS

All Eyes on Central Banks & Interest Rates This Week✂️

Central Banks Play Economic Jenga: This week is shaping up to be the financial equivalent of a WWE Royal Rumble, with the Federal Reserve (Fed), the Bank of England (BoE), and the Bank of Japan (BoJ) all set to announce interest rate decisions, one after another, starting on Wednesday.

When Jobs Become as Rare as a Unicorn: The Fed has been keeping borrowing costs at a two-decade high for eight meetings in a row, like that one friend who refuses to let go of their outdated hairstyle. But now, they're expected to deliver their first rate cut in over four years on Wednesday. Why? Because inflation in the US is edging closer to its 2% target, and the country's labor market is showing more cracks than a poorly maintained highway. Recent data showed that the pace of hiring over the past three months slowed to its lowest level since the early days of the pandemic. It's like the job market decided to take a vacation and forgot to come back.

When the Fed's Says "Hold My Beer": The million-dollar question (or should we say trillion-dollar?) facing Fed policymakers is whether a modest 0.25 percentage point cut will be enough to prevent the labor market from completely ghosting us. Some traders, bless their optimistic little hearts, are betting on a cut twice as deep. And it’s not hard to understand their thinking. And can you blame them? The Fed was widely criticized for moving slower than a sloth on sedatives when it came to hiking rates during the worst inflation crisis in 40 years. If they don't respond swiftly to the faltering labor market now, we might end up with an unemployment rate higher than Snoop Dogg on 4/20 and a recession to boot.

• Traders are currently pricing in a 50/50 split between a 25 and 50 basis point cut. It's like betting on a coin toss, if that coin could determine whether you'll be able to afford a house in a month’s time.

Global Economy's Version of "Six Degrees of Kevin Bacon": When it comes to the BoE and BoJ, traders expect both to stay put this week, like that one friend who refuses to dance at parties. Britain's central bank lowered its key rate in August in a vote so close it could've been decided by a game of rock-paper-scissors. But they were quick to clarify that this cut wasn't the start of a series. In contrast, the BoJ has been the only major central bank hiking interest rates, having done so twice this year. Their latest surprise move sent shockwaves through financial markets, triggering the unwinding of the infamous "Yen Carry Trade". So the Bank is likely in no rush to rock that boat again.

SPACE & COMMUNICATIONS

Japan’s Moon-As-A-Service Startup🚀

When "To the Moon" Isn't Just a Crypto Bro's Dream: A Tokyo-based firm that came within 5 kilometers of being the first private company to land a probe on the moon - only to crash harder than a toddler on a sugar high - is gearing up for round two. Japanese lunar transportation startup ispace, after its Mission 1 lunar probe ran out of fuel and crashed (talk about a cosmic facepalm), lost its chance to be the first private firm to touch down on Earth's only natural satellite. A US firm, Intuitive Machines, beat them to it in February 2024, probably while humming "The Star-Spangled Banner".

• But the Tokyo-based company isn't giving up. They're giving it another (moon)shot, because apparently, the first $100 million wasn't enough of a lesson. For Mission 2, scheduled to launch as early as December, the company told Nikkei it found and fixed software problems. They must’ve forgotten to carry the one in their rocket science calculations!

Moon Dust and Space Rocks: ispace's Mission 2 probe vehicle, nicknamed Tenacious (because "Glutton for Punishment" was too long), will take pictures and collect samples of lunar regolith. That's fancy space talk for "moon dirt". This isn't your average sandbox material, though. Along with rock chips and volcanic glass, it contains a special component called "agglutinates" - basically mineral fragments held together with glass, found only on the moon. It's like the lunar equivalent of those weird food combinations you make at 2 AM. ispace signed a contract to sell the regolith to NASA. If the transaction goes through, it will be the first-ever commercial transaction of lunar resources, fulfilling all the sci-fi conspiracies that "space mining" would become the next big industry. Move over, Bitcoin miners - the real money is in moon rocks!

When "Pie in the Sky" Becomes "Cash on the Moon": In 2021, PwC analysts, clearly high on space dust, estimated the "lunar market" could be worth nearly $170 billion by 2040. They noted three potential business lines: transporting people and resources to and from the moon's surface (Uber Lunar, anyone?), mining and infrastructure projects (because we haven't ruined enough planets yet), and the sale or use of data gathered on the moon. Two of those business lines, transportation and data, are already in ispace's business plan. But they have a third that might draw curious eyeballs: putting sponsor logos on its lunar vehicles. That's right, folks - prepare for the moon to look like a NASCAR racer.

SUPER INVESTORS & HEDGE FUNDS

The Hedge Fund for the People🎁

Putting a Ceiling on AUM: Billionaire Mets owner and Wall Street's favorite shark, Steve Cohen, is about to make it rain... backwards. His Point72 Asset Management is preparing to return some capital to investors for the first time, joining other major hedge funds like Citadel and Millennium in the "We're Too Rich" club. With assets swelling to a record $35.2 billion (that's billion with a 'holy moly'), Point72 is considering returning profits to clients after the year-end.

• In the $4 trillion hedge fund industry, bigger doesn't necessarily mean better. It's not the size of the fund, it's how you use it, right? Point72's decision reflects a growing trend among top hedge funds, where maintaining agility and optimizing performance is prioritized over sheer size. It's financial yoga, folks – flexibility is key!

• Hedge funds like Point72 are returning profits to cap their growth and avoid the potential pitfalls of managing too much capital, especially in volatile markets. Terry Smith from Fundsmith has been singing this tune for a while, claiming it's becoming challenging to invest in smaller businesses with a sizable amount of the fund's capital. Poor guys, their piles of money are just too darn big!

The Capital Exodus: Since 2020, Point72 has raised nearly $12.8 billion and posted a 10% gain through August this year, adding over $3 billion in assets under management. That's not just making it rain, that's a full-on monsoon! This move aligns with what other hedge fund giants are doing. Citadel has returned $25 billion to clients since 2017, while Millennium has given back about $38 billion since 2020, as both firms look to manage their size and stay nimble.

• Meanwhile, smaller hedge funds are struggling harder than a one-legged man in a butt-kicking contest. Investors have pulled a net $216 billion from the industry between 2022 and 2023, with another $39 billion withdrawn this year through May.

• This capital exodus has led to over 1,000 hedge fund closures since 2022, making it tougher for new and smaller firms to stay afloat. It's survival of the fattest out there.

A Tale of Two Funds: The hedge fund industry has always been competitive, but in 2024, it's a clear divide between giants and minnows. It's less "Wolf of Wall Street" and more "Shark Tank meets Hunger Games." The multi-strategy funds are swimming in cash and resources, while smaller funds are struggling just to keep their heads above water. As for Point72, they've figured out it's better to be rich and nimble than just rich. Plus, let's not forget, Cohen might be saving up to buy the Mets a shot at the playoffs.

MORE NEWS

Additional market-moving events🌎

Oracle-AWS Deal: Oracle ($ORCL) has partnered with Amazon ($AMZN) Web Services to integrate its database software into AWS. It's previously partnered with Microsoft ($MSFT) and Google ($GOOG). (WSJ)

AirPods Get FDA Approval: The FDA has authorized the first over-the-counter hearing aid software for Apple’s ($AAPL) AirPods Pro. This software, available via a fall update, enables AirPods Pro 2 to function as hearing aids for users with mild-to-moderate hearing impairment. (Reuters)

Home Depot Settlement: Home Depot ($HD) will pay almost $2 million to settle claims of false advertising in California, where customers were charged more than the listed price at checkout. (CNN)

Neumann Makes Investors Whole: WeWork founder Adam Neumann is giving investors their money back after his crypto comeback tumbled. (Quartz)

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