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Wall Street banks, including Morgan Stanley and Bank of America, are actively seeking to mitigate losses from their involvement in Elon Musk's acquisition of Twitter (now known as X) by selling off portions of the debt they provided. Initially, these banks financed Musk's $44 billion purchase with $13 billion, but the value of these loans decreased as X faced profitability issues. The banks are now offering senior portions of this debt at a discount, hoping to recover between 90 to 95 cents on the dollar. Additionally, they are sweetening the deal with a claim on X's interest in Musk's AI startup, xAI Corp., which has a previously undisclosed valuation of about $6 billion. The optimism surrounding these sales is partly fueled by the new Trump administration's expected regulatory leniency and potential for increased dealmaking, as indicated by comments from Morgan Stanley CEO Ted Pick. This strategic move comes at a time when Wall Street is experiencing a revival, with significant profit increases reported by major banks in the fourth quarter of 2024.
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The recent spike in U.K. borrowing costs has brought back memories of the 2022 mini-budget crisis, but this time, pension funds have managed the situation adeptly. Unlike the previous crisis, which saw pension funds on the brink of collapse due to a massive sell-off in U.K. debt, current market conditions have been more stable. Pension providers have not only weathered the volatility in government bonds but have also benefited from it, increasing their liability-driven investments (LDIs). Gilt yields, after reaching their highest levels in decades, have cooled but remain elevated, influenced by global economic trends and reactions to U.K. fiscal policy. The improved governance, higher funding ratios, and lower leverage in pension schemes since 2022 have helped avoid the kind of disruption seen previously. Moreover, higher yields have provided an opportunity for pension schemes to enhance their funding levels, reducing the need for growth assets and increasing stability in the market. Despite these positive developments, the demand for new gilts from pension funds might not increase significantly, as many schemes are already well-hedged.
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ASML, the Dutch semiconductor equipment maker, reported a substantial rise in fourth-quarter net bookings, signaling robust demand for its advanced chipmaking tools. Despite a global tech sell-off triggered by concerns over AI spending due to the introduction of DeepSeek's cost-effective AI model, ASML's shares initially surged by 11% before settling at a 7.4% increase. The company's financial performance exceeded expectations, with net sales and profit both surpassing consensus estimates. ASML's CEO, Christophe Fouquet, expressed optimism about the future, suggesting that lower-cost AI models could lead to increased applications and thus more demand for semiconductors. However, ASML anticipates a normalization of demand in China in 2025, following a period of heightened demand due to U.S. export restrictions. This outlook, combined with ASML's strong order backlog, provides reassurance to investors about the company's valuation and future growth potential.
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U.S. Treasury yields experienced minor fluctuations on Wednesday as the market awaited the Federal Reserve's first interest rate decision of 2025. The 10-year Treasury yield saw a slight decrease to 4.543%, while the 2-year yield edged up to 4.211%. Investors are not anticipating an immediate rate cut, with expectations leaning towards the Fed maintaining the current target range of 4.25% to 4.5%. The decision, to be announced at 2 p.m. ET, will be followed by a press conference from Fed Chair Jerome Powell, where investors will look for indications of future monetary policy directions. Amidst this, President Donald Trump has publicly demanded lower interest rates, highlighting the ongoing tension between him and the Fed. However, former Kansas City Fed President Esther George emphasized the importance of the Fed adhering to its legislative mandate rather than succumbing to political pressures.
