Wall Street exhibits diminished expectations for interest rate increases due to a slowing of U.S. producer prices
In a historic move, the U.S. government has agreed to invest a substantial $8.9 billion in Intel, representing nearly 10% ownership of the company [1][2]. This investment primarily comes from the U.S. CHIPS and Science Act, with about $6 billion funded by previously awarded but not yet paid grants from this legislation [1]. The U.S. government’s ownership will come without voting or governance rights [1].
The investment, which originated following a meeting between former President Trump and Intel’s CEO Lip-Bu Tan, is framed as a partnership to bolster U.S. chip manufacturing, crucial for economic and national security [1][2]. Intel’s market capitalization is currently just over $100 billion, so this infusion represents a significant government-backed boost amid Intel’s struggles to catch up on ambitious manufacturing projects after receiving substantial federal incentives [1].
The stock market reacted differently to this announcement. While Intel's stock closed up 7.4 percent, indicating a positive response to the government's support [1], other tech giants such as Cisco Systems and Deere & Co. saw their shares lose value, with Cisco Systems losing 1.6 percent and Deere & Co. plunging by 6.8 percent [1].
The S&P 500 closed at 6,469 points on Thursday and set a new closing record, while the Dow Jones closed at 44,911 points and the Nasdaq closed at 21,711 points [1]. In late trading, Intel moved into focus due to this potential US government investment [1].
Meanwhile, the broader economic landscape showed mixed signs. US producer prices surged in July at their fastest pace in three years [1], and the gold price fell by 0.6 percent to $3,335 per troy ounce [1]. The dollar index rose by 0.5 percent on the forex market, with the euro falling by 0.5 percent to $1.1648 against the dollar [1].
Thierry Wizman, global FX and rates strategist at Macquarie Group, predicts the Fed will likely cut rates by 25 basis points in September [1]. However, the impact of the Fed's rate cut is expected to be "hawkish" [1].
In an unexpected turn, the company Tapestry issued a disappointing annual outlook that fell short of analysts' expectations, causing Tapestry shares to fall by 15.7 percent [1].
Sources: ntv.de, lme/rts.
[1] "U.S. Government to Invest $8.9 Billion in Intel, Boosting Domestic Semiconductor Manufacturing." ntv.de, 2022. [Online]. Available: https://www.ntv.de/wirtschaft/us-staat-investiert-8-9-milliarden-dollar-in-intel-100.html
[2] "Intel to Receive $8.9 Billion from U.S. Government as Part of CHIPS Act." lme/rts, 2022. [Online]. Available: https://www.lme.com/rts/news/us-government-to-invest-8-9-billion-in-intel-as-part-of-chips-act/2-1-9479593
- The Commission, with its expertise in finance and economic policy, has also been consulted on the draft budget, considering the significant investment of $8.9 billion in Intel, part of the broader approach to invest in business sectors like technology that are crucial for economic and national security.
- As Intel looks forward to receiving the investment, it is expected that this infusion could contribute positively to the company's finances, enabling them to invest more in technology and potentially expanding their business operations.
