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Fed warnings.

The advances in equities came even in the face of warnings from Federal Reserve policymakers about the risks of cutting interest rates too soon. Vice Chair Philip Jefferson underscored that the Fed needs to be on guard against cutting rates too far in response to falling inflation lest it undermine the achievement of its ultimate goal of price stability. Philadelphia Fed President Patrick Harker emphasized the risks of easing policy too soon while saying it will likely be appropriate to cut this year. And Governor Lisa Cook said she would like to see more progress on inflation before beginning to cut interest rates. Yields on shorter-dated Treasury notes moved higher on the day.

China’s quant quake | China’s quantitative hedge funds are admitting to unprecedented failures by their stock-trading models during one of the wildest two-week stretches in the market’s history. One manager even described it as the industry’s “biggest black swan event.” While historical data on China quant returns is limited, all signs point to record underperformance for such funds, a shock that Man Group has compared with the “quant quake” that wreaked havoc on US managers in 2007. Leading quants each managing more than $1.4 billion lagged the CSI 500 by an average 12 percentage points in the two weeks ended Feb. 8 for the strategy tracking the stock gauge. This brings the year-to-date excess return to a negative 11.3%, according to industry data cited in a Huatai Securities Co. report. 

Up & coming | Investors can look to new China property price data Friday for more clues on the country's beleaguered real-estate sector. In Europe, attention will be focused on Germany’s Ifo business conditions report and the European Central Bank’s surveys on inflation expectations. There will also be an informal meeting of finance ministers and other officials in Ghent, so traders will be keeping an ear out for any potential comments by euro-area policymakers. Earnings announcements from Warner Bros. and Hyatt Hotels will be among the notable events in the US.

PE firms and other so-called nonbanks don’t face the same level of federal oversight as traditional lenders. Photo: Michael Nagle | Bloomberg

PE's private credit push can pose stability risk, OCC's Hsu says

The private equity industry’s move into private credit poses potential financial stability risks, according to a top bank regulator. Michael Hsu, the acting comptroller of the currency, says officials need to keep tabs on risks from PE firms originating more loans and ramping up other activities typically done by banks. He’s also raising concerns about buyout firms’ increased activity in insurance and creative funding structures. (Bloomberg Markets | Feb 21)

Global conflicts turn sleepy G20 forum into high-stakes affair

A cascading series of conflicts and crises have turned a typically sleepy gathering of Group of 20 foreign ministers into a high-stakes affair. The world’s top diplomats met in person in Rio de Janeiro for the first time since Hamas’s Oct. 7 attack on Israel sparked a full-blown conflict. The Rio meeting, as a result, has become a significant test of the G20’s ability to serve as an effective global forum. (Bloomberg Politics | Feb 21)

Can the SEC’s landmark reforms survive a Wall Street fightback?

From the outset of his term in 2021, Gensler has undertaken a sweeping reassessment of rules that have underpinned US markets for decades, just as the industry is adapting to new technologies, asset classes, and market participants. But Gensler’s reforms and his tough stance on enforcement, with targets ranging from top banks to upstart crypto exchanges, have antagonized some on Wall Street. (Financial Times | Feb 19)

Data show the economy is booming. Wall Street thinks otherwise.

Data suggesting the US economy is too hot for comfort are getting a cool reception in some corners of Wall Street. A handful of high-profile economic reports, covering the big topics of inflation, economic growth, and the labor market, have leaned decidedly on the too-warm side. But many economists have minimized these surprises, pointing to other data that are less alarming and measurement challenges that are unique to the start of the year. (The Wall Street Journal | Feb 19)

SEC’s Gensler plays down hedge fund fears over Treasury dealer rule

The top US securities regulator has played down the impact on hedge funds of a new rule tightening oversight of the Treasury bond market, saying that they are not the main target. Gary Gensler, chair of the Securities and Exchange Commission, said in a Feb. 16 interview last Friday that the so-called dealer rule his agency passed this month is more focused on big high-speed trading firms than on hedge funds. (Financial Times | Feb 18)

Department of Justice headquarters in Washington DC.

DOJ hires first chief AI intelligence officer

The US Department of Justice has named its first chief artificial intelligence officer and chief science and technology adviser. Jonathan Mayer, a computer scientist and lawyer, will advise on issues that require technical expertise, particularly those related to artificial intelligence, cybersecurity, and other areas of emerging technology. The creation of an AI chief comes as advances in artificial intelligence have given rise to new legal and safety questions and as more governments look to rein in the disruptive yet rapidly growing technology.

— The Wall Street Journal

As China expands its hacking operations, a vulnerability emerges

New revelations underscore the degree to which China has ignored, or evaded, US efforts to curb its extensive computer infiltration efforts. The Chinese hacking tools made public in recent days illustrate how much Beijing has expanded the reach of its computer infiltration campaigns through the use of a network of contractors, as well as the vulnerabilities of its emerging system.

— The New York Times

UK police found LockBit kept stolen data from victims who paid ransom

The UK National Crime Agency said on Tuesday that two hackers tied to the LockBit ransomware group were arrested in Poland and Ukraine, and two were arrested and charged in the US. The NCA said some of the data it discovered on LockBit’s systems belonged to victims who paid a ransom, even though the hackers promised to delete copies of data if victims paid. 

— The Guardian

Illustration: Rachel Mendelson | The Wall Street Journal

Why Google searches are turning up some wrong answers

Spammers are using artificial intelligence tools to create an ocean of content, and Google’s algorithms are ranking some of those robot-generated pages ahead of the information you actually need. How to spot AI-generated content, bogus featured text ‘snippets’, and misleading ads.

— The Wall Street Journal

Hate meetings? Considerable research reveals the loophole that makes every meeting worthwhile

A meta-analysis of more than a decade of research shows 90 percent of employees feel meetings are "costly" and "unproductive," and that they're right: Employee productivity increased by more than 70 percent when the number of meetings was reduced by 40 percent. Still, sometimes meetings are necessary. Maybe that's why smart leaders — and, as you'll see in a moment, leaders who look out for the best interest of their employees — prefer walking meetings.

— Inc.

NASA images show where US East Coast is sinking

The US East Coast faces a future threatened not only by rising sea levels but also by the sinking of the land itself. NASA images reveal the extent to which the coast is collapsing, with some areas dropping by several millimeters per year. Using satellite data and ground-based GPS sensors, a NASA-funded team of scientists at Virginia Tech's Earth Observation and Innovation (EOI) Lab found that the land that major cities such as New York, Baltimore, and Norfolk, Virginia, are built on sank by 1 to 2 millimeters each year between 2007 and 2020.

— Newsweek