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US inflation broadly cools.

Stock rotation | News that US inflation cooled broadly in June — to the slowest pace since 2021 — sent Treasury yields plunging on Thursday as bets mounted on the prospect for Federal Reserve interest rate cuts this year. In the equity market, that helped drive a rotation out of the tech megacaps that have powered the bull market in stocks. Optimism over lower rates sparked a shift into riskier corners of the market as money exited the safety trade of big tech. Investors are growing increasingly concerned that tech megacaps are spending too much on artificial intelligence, according to Goldman Sachs.

The Federal Reserve building in Washington, DC. Photo: Ting Shen | Bloomberg

Private equity's creative wizardry is obscuring danger signs

For decades, the private equity model seemed unassailable, transforming the industry’s image from Barbarians at the Gate to a crucial pillar of capitalism. Funds raised money, bought businesses, loaded them with debt, exited at a profit, and convinced happy investors to do it all over again — at an ever greater scale. Surging borrowing costs have stalled that engine. (Bloomberg Wealth - Finance | Jul 11)

New era of private credit growth highlights its opaque nature, Moody's says

The rapid growth of private credit lending beyond its traditional market highlights its opaque nature and potential concerns among regulators about its future risks to the US economy, according to a new Moody's Ratings report that cites regulators and industry bodies. In recent years, banks have experienced a rise in competition from private credit lenders: non-bank firms offering non-publicly traded debt mainly to mid-sized corporate borrowers. (Reuters | Jul 11) see also As tide goes out on private credit, smaller firms look exposed (Bloomberg Markets | Jul 11)

US commercial property crash is set to deepen the pain elsewhere

Distressed investors see one of the best opportunities in a generation to buy troubled US real estate assets as the commercial property crash continues to roil the market. Private equity firms are already positioning to take advantage. About 64% of the $400 billion of dry powder that the industry has set aside for property investment is targeted at North America, the highest share in two decades, according to data compiled by Preqin. (Bloomberg via Yahoo! | Jul 10)

Powell says Fed will cut rates when ready, regardless of political calendar

Federal Reserve Chair Jerome Powell said on Wednesday that the US central bank will make interest rate decisions "when and as" they are needed, pushing back on a suggestion that a September rate cut could be seen as a political act ahead of the fall presidential election. "The question is: Are we sufficiently confident that it is moving sustainably down to 2%?" Powell said. "And I'm not prepared to say that yet," Powell said in a hearing before the House Financial Services Committee. (Reuters | Jul 10) see also Yellen echoes Powell saying labor market now less inflationary (Bloomberg Economics | Jul 10)

Private funds urge SEC to toss AI plans after court ruling

Trade groups for the world’s largest hedge funds and private equity firms asked the Securities and Exchange Commission to withdraw three proposed rules, including plans on artificial intelligence, in the wake of a recent appeals court ruling. One targeted proposal would require firms to assess whether their use of predictive data analytics or AI poses conflicts of interest. The others would restrict investment advisers when outsourcing certain services and create new reporting obligations for cybersecurity incidents affecting advisers and their clients. (Bloomberg Law | Jul 9)

Illustration: Baptiste Virot | Bloomberg

Traders are being replaced by algos like Viper in new FX era

As machines now handle more than 75% of the trading in some currency markets, the giants of Wall Street are racing to make sure their systems are ready. This new world isn’t without its downsides. With machines doing much of the work, trading desks are making a lot less for each currency trade than they did in the past. And without a human to intervene, there’s a heightened risk that something could go awry, especially in periods of extreme volatility.

— Bloomberg Markets

Companies sharply criticize draft US cyber reporting rules

Companies urged the US government to rethink its rules for reporting cyberattacks, saying that a draft proposal from a federal agency is confusing, overly broad, and often duplicates existing rules. The proposed rules from the Cybersecurity and Infrastructure Security Agency, published in the Federal Register on April 4, would mandate that critical infrastructure companies report substantial cybersecurity incidents within 72 hours, and ransom payments within 24 hours.

— The Wall Street Journal

NATO summit gives hackers a massive target

This week’s NATO summit is a big deal even by Washington standards, with the heads of states of all 32 members and other key allies descending on the US capital to celebrate the alliance’s 75th anniversary. Foreign adversaries will likely try to spy on the proceedings via phishing emails or targeted attempts to dupe victims into providing sensitive data. They also expect disinformation campaigns seeking to skew the public perception of the summit.

— Bloomberg Cyber Bulletin

Illustration: Shira Inbar | Bloomberg Businessweek

Dragons and sex are a $610 million business sweeping publishing

Dragons, faeries, and happily-ever-after love stories are having a moment. Sales of romantasy novels — a genre that blends fantasy’s epic quests and mystical characters with romance’s swooning gestures and spicy sex scenes — are projected to jump to $610 million this year. The number of books sold reached 11 million in the first five months of 2024, and their empowered female protagonists and cult followings make them likely to find permanent shelf space in stores.

— Bloomberg Businessweek + Equality

How the investment world is trying to navigate geopolitics

An industry that has been hoovering up mathematicians to devise new trading strategies is now leaning on political scientists for guidance. Attended by prominent figures such as tech billionaire Michael Dell, Blackstone chief Stephen Schwarzman, and Yasir Al-Rumayyan, the head of Saudi Arabia’s $925bn Public Investment Fund, the FII Priority conference in Miami in February was one of the most high-profile business events in the US this year.

— Financial Times (free link)

Deutsche Bank settles with trader who alleged he was Libor ‘fall guy.’

Deutsche Bank has settled a lawsuit brought by an exonerated former trader who alleged he was the “fall guy” of the Libor rate-rigging scandal. Matthew Connolly, 58, was convicted of fraud in 2018 in one of the highest-profile US trials over the rate manipulation saga that cumulatively cost banks billions of dollars in penalties and fines. He was later branded “the least culpable person” at Deutsche by the federal judge who oversaw the case and fully acquitted on appeal.

— Financial Times