What if AI Could Clone your Voice and Ask for Crypto?

Key Points

• U.K. pension funds have not only weathered recent volatility in government bonds but have also benefited from it, increasing their liability-driven investments (LDIs).
• Gilt yields, which spiked to their highest levels in decades, have cooled but remain elevated, influenced by macroeconomic trends and policy reactions.
• The 2022 mini-budget crisis led to emergency market interventions, but current market conditions are more stable due to improved governance and higher funding ratios in pension schemes.
• Higher yields have provided an opportunity for pension schemes to enhance their funding levels and manage volatility effectively.
• Pension funds are now better prepared with higher collateral buffers and less reliance on leverage, reducing the risk of a repeat of the 2022 crisis.

Summary

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.

Key Points

• ASML reported a significant increase in fourth-quarter net bookings, up 169% from the previous quarter.
• Despite concerns over AI spending due to DeepSeek's low-cost model, ASML's CEO remains optimistic about future demand for semiconductors.
• ASML's shares surged by up to 11% but later moderated to a 7.4% increase.
• The company's 2025 sales outlook remains unchanged, expecting between 30 to 35 billion euros in revenue.
• ASML anticipates a rebalancing of demand in China for 2025, expecting a return to more normal demand levels.

Summary

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.

Key Points

• U.S. Treasury yields were lower as investors awaited the Federal Reserve's first interest rate decision of 2025.
• The 10-year Treasury yield slightly declined to 4.543%, while the 2-year yield saw a marginal increase to 4.211%.
• Expectations for an interest rate cut are low, with a near 100% chance of rates remaining steady at 4.25% to 4.5%.
• Investors are closely watching for any hints on future monetary policy during Fed Chair Jerome Powell's press conference.

Summary

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.