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US strengthens ties with Japan, Philippines.

Photo: Al Drago | Bloomberg

Ironclad commitments | US President Joe Biden said he was committed to “deepening maritime and security ties” with Japan and the Philippines as he sought to assure allies worried about increasingly assertive Chinese actions in disputed waters. “The United States defense commitments to Japan and to the Philippines are ironclad,” Biden said Thursday before a meeting with Japanese Prime Minister Fumio Kishida and Philippines President Ferdinand Marcos Jr. at the White House for the first trilateral summit among the nations. Meanwhile, in an address to the US Congress, Kishida said the world needs America to maintain its key role on the global stage, warning that Ukraine would lose hope and much of Asia would face “harsher realities” without American support.

Higher yields | Bond traders are readying for 10-year US Treasury yields to potentially surpass 5% as the scenario of no interest rate cuts by the Federal Reserve this year looks increasingly possible. Schroders is shorting US bonds across some tenors. Pimco says there is a “non-negligible” chance that the Fed doesn’t cut rates at all this year. Economists at Deutsche Bank and Bank of America joined the growing crowd of forecasters who have dialed back their predictions for rate cuts in the wake of Wednesday’s hot consumer-price inflation report. The US two-year yield briefly exceeded 5% for the first time since November, and 10-year yields touched 4.58% after topping 4.5% in the previous session for the first time this year. Nevertheless, several analysts indicated that the Fed’s preferred inflation gauge — the so-called core personal consumption expenditures price index — might come in softer than the CPI measure.

Up & Coming… | It’s a busy Friday in Asia for central bank policy watchers, with monetary policy decisions scheduled in Singapore and South Korea. The Monetary Authority of Singapore is tipped to keep its settings unchanged. At the same time, gross domestic product data in the city-state is expected to show a slowdown in quarter-on-quarter economic growth. The Bank of Korea is predicted to keep its policy rate on hold at 3.5%, with unemployment in South Korea seen ticking up to 2.8%. In Japan, industrial output numbers will be in focus. Meanwhile, investor attention will be squarely on the start of bank earnings in the US, with Citigroup, JPMorgan, and Wells Fargo all due to report results.

US Securities and Exchange Commission rules come into effect in early October, imposing a mandatory fee on large redemptions. Photo: Bloomberg

Managers to shut or convert $220 billion of US money market funds before rule change

The $674 billion US institutional prime money market funds sector is set to shrink by at least one-third this year, as large investment firms shut down these vehicles rather than pay for upgrades needed to meet new regulations. Cash managers, including Federated Hermes, Capital Group, and Vanguard, say they are planning to close institutional prime money market funds holding more than $220 billion in assets or convert them to another type of fund before Securities and Exchange Commission rules come into effect in early October, imposing a mandatory fee on large redemptions. (Financial Times | Apr 11)

FDIC chief says US ready if big Wall Street bank ever failed

The head of the Federal Deposit Insurance Corp. says the US would be prepared to handle any collapse of a major Wall Street bank. FDIC Chair Martin Gruenberg on Wednesday laid out a blueprint for how regulators would deal with such a failure and seek to minimize costs. He discussed preparations for a hypothetical scenario rather than any immediate threat. US regulators, including the FDIC, have faced pressure to bolster their preparedness since the sudden demise of Silicon Valley Bank in March 2023. Meanwhile, the plight of Credit Suisse Group AG last year highlighted the tough decisions that officials would have to make if a US global systemically important bank ever faltered. (Bloomberg Markets | Apr 10)

Ceci n’est pas un collateral

When something happens that could destabilize financial markets, the response from the industry is often just a reassurance that it’s “not systemic.” That’s a soothing and convenient line, but it isn’t very helpful. Readers now interpret “not systemic” to mean “won’t cause a repeat of the global financial crisis.” And yes, that’s a good thing. Still, many financial market problems can happen without becoming “systemic” in the same way as the GFC — especially because regulators have been working to limit that risk for years. Remember, the Covid-19 pandemic caused a crisis of almost every other kind, but big US banks didn’t collapse. (Financial Times | Apr 9)

El-Erian sees 'huge impact' from widening Fed, ECB divergence

Add Mohamed El-Erian to the growing ranks of those who expect the Federal Reserve to ease monetary policy less than its peers in the coming months. Slowing growth and sharper disinflation in Europe could prompt the European Central Bank to cut interest rates “as often if not more than the Fed, which was unimaginable a few months ago,” El-Erian, the president of Queens’ College in Cambridge and a Bloomberg Opinion columnist, said Tuesday. The potential discrepancy between the pace of Fed and ECB easing “is having a huge impact on relative pricing between Europe and the US,” El-Erian said. “You do see that in the bond market, you see it in the currency market,” he said, adding that parity between the euro and the dollar “is a possibility.” (Bloomberg Markets | Apr 9)

Global dominance of biggest stocks rises to highest in decades

Global stock market concentration has risen to its highest level in decades, increasing risk for passive investors. The 10 largest stocks in the MSCI All Country World Index now account for 19.5 percent of the widely followed benchmark of 23 developed and 24 emerging countries. In the MSCI World Index, which covers developed markets only, the 10 heavyweights — all American companies — are now 21.7 percent of total market capitalization, helping drive the US share of the index to almost 71 percent. (Financial Times - free link | Apr 8)

Companies with more cyber expertise on their boards tend to be better able to prevent successful cyberattacks, the IMF report said. Photo: Yuri Gripas | Reuters

IMF warns of cyber risks to financial sector

The International Monetary Fund assessed cybersecurity for the first time in its semiannual financial risks report, due to the potential damage from cyberattacks on the financial sector. Financial fallout from cyberattacks on banks and other companies has increased in recent years and hacks don’t have to be large-scale to cause serious consequences, said Felix Suntheim, deputy division chief in the IMF’s monetary and capital markets department.

— The Wall Street Journal

US issues emergency directive amid fears agencies were breached

US federal agencies were ordered to analyze emails, reset compromised credentials, and work to secure Microsoft Corp. cloud accounts amid concerns that a Russian nation-state hacking group may have accessed some correspondence. The directive from the US Cybersecurity and Infrastructure Security Agency, known as CISA, came in response to a breach of Microsoft that the tech giant disclosed in January. A Russian state-sponsored group called Midnight Blizzard was accused of exfiltrating data from Microsoft and using it to try to compromise some of the company’s customers, according to the CISA alert. That includes correspondence between federal agencies and Microsoft, according to CISA.

— Bloomberg Technology - Cybersecurity

Google charges companies extra for a more secure browser

Chrome Enterprise Premium carries a $6 per-user monthly fee for extra cybersecurity protections, Google said. Among added security measures is the ability to warn users about sharing what might be sensitive information with generative AI tools.

— Bleeping Computer

Is it even possible to become more productive?

Folk wisdom in a place I’ve come to think of as Productivity World holds that Benjamin Franklin was a big user of to-do lists. (Of course he was. Can you think of anything more Benjamin Franklin-y than a to-do list?) The Atlantic’s Amanda Mull recommended this same “productivity hack” in 2023. Tim Ferriss’s four-hour workweek is only an eleven-hour improvement over John Maynard Keynes’s fifteen-hour one. In other words, productivity is a long-standing obsession.

— Esquire

Why great leaders are always kind — but not always nice

In the adult workplace, kindness is embarrassing and decidedly uncool. A curriculum centered around kindness isn’t exactly dominating the world’s relations schools, either. But why not? Kindness hasn’t been shown not to work in business. Maybe it’s because kindness, almost by definition, resists being reduced to a single number, which makes it difficult to run correlation and causality analyses. Or maybe it's because kindness is being improperly defined.

— Fast Company

AI politics is here, and it's terrifying

It is hard to believe that the political use of AI will simply be prohibited. But what would its large-scale deployment mean? Recent studies show that LLMs — even open-source ones less advanced than GPT-3 — can produce content that survey respondents rate as being just as credible as material on the same subject from the New York Times. One experimental study has shown that AI systems can overwhelm legislators or government agencies with fake constituent feedback.

— Bloomberg | opinion