Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Goldman Sachs’ prominent chief U.S. economist Jan Hatzius is becoming more confident that the world’s largest economy will avoid a recession,
“We have cut our subjective probability that the US economy will enter a recession in the next 12 months from 35 per cent to 25 per cent, less than half the 65-per-cent consensus estimate in the latest Wall Street Journal survey. Continued strength in the labor market and early signs of improvement in the business surveys suggest that the risk of a near-term slump has diminished notably. And while Q1 GDP still looks soft — our latest tracking estimate is an increase of 0.4 per cent — we expect growth to pick up in the spring as real disposable income continues to increase, the drag from tighter financial conditions abates, and faster growth in China and Europe supports the US manufacturing sector … The wage slowdown … suggests that the labor market is rebalancing more quickly than suggested by JOLTS job openings. With the Q4 employment cost index as well as January average hourly earnings in hand, we estimate that the sequential trend in nominal wage growth has fallen to about 4¼ per cent. "
RBC Capital Markets analyst Geoffrey Kwan described the weakness in the domestic mortgage industry,
“The Canadian housing and mortgage market continues to weaken, but it’s unclear how severe (or not) things will get. We expect mortgage loan growth to slow from an increase of 8 per cent year-over-year as of November 2022 to the low- to mid-single digits in 2023. Home sales continue to decline and are down 30 per cent from the recent peak, but are still in line with pre-pandemic levels. Home prices continue to decline with detached home prices experiencing greater declines than condos. Despite high mortgage rates, weak housing affordability and elevated consumer leverage, mortgage losses remain low given the unemployment rate is at historical lows and it is still in the early days of assessing the impact of higher mortgage rates for renewing mortgage borrowers and/or those facing variable rate ‘trigger’ re-sets. Coupled with economic trends weakening, thereby increasing the potential for rising job losses, we remain cautious on the short-term outlook for the housing and mortgage market”
I don’t normally focus on individual companies, but I’m curious about Microsoft’s attempts to challenge Google in the search and digital advertising space using ChatGPT-like artificial intelligence in their Bing browser.
Morgan Stanley analyst Keith Weiss described the stakes,
“New Bing features four key innovations (detailed in a company blog post):
1. New Bing runs on a new large language model (LLM) developed with OpenAI, but more powerful than ChatGPT and customized specifically for search. 2. Microsoft Prometheus Model developed as a proprietary method of interacting with the large language model to best support the search modality. This innovation improves relevancy, annotates answers, provides more up-to-date. answers and works to best understand geolocation… 3. Applying AI model to core search algorithm which drives step-function improvement in relevancy, the largest increase in relevancy Microsoft has seen in over a decade. 4. Improved user experience as search, browser and chat are pulled together into a single unified experience; this primes New Bing to answer more complex queries and more seamless enable workflows (e.g. like making travel arrangements). .. With a revenue run rate exceeding $210 billion, Microsoft continually assesses large market opportunities to enable growth going forward, and at a $570 billion TAM [total addressable market], the digital advertising market looks to be an increasingly interesting focal point.”
I am definitely going to test out AI-assisted Bing when it becomes available.
Diversion: “Lost and found: Codebreakers decipher 50+ letters of Mary, Queen of Scots” – Arstechnica
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