News of the week summary - 11/26/2023
OpenAI's Leadership Turmoil and Sam Altman's Return
OpenAI, the artificial intelligence start-up
behind ChatGPT, recently experienced a tumultuous leadership change involving
the dismissal and subsequent reinstatement of co-founder and CEO Sam Altman.
The situation unfolded over the course of a week, leading to significant
speculation and investor concern.
On Friday, the board ousted CEO Sam
Altman, citing concerns about consistency in communication and AI safety. The
move triggered a weekend of turmoil, with investors and staff demanding
Altman's reinstatement. Microsoft CEO Satya Nadella offered Altman a position
to lead a new AI research team, further escalating tensions.
The initial board decision faced resistance
from employees and investors, leading to a shift in support. Ilya Sutskever,
initially part of the board that sacked Altman, changed stance in support of
Altman's reinstatement.
As a result, on Tuesday, Altman was reappointed
as CEO under a new board, which includes Larry Summers, former secretary of the
US Treasury.
Investors, including Sequoia Capital, expressed
confidence in OpenAI's valuation despite the leadership turmoil. An upcoming
share sale, planned before the turmoil, will test investor appetite and
potentially value the company at $86 billion. However, analysts suggest the
week's events could impact OpenAI's valuation, especially with strong
competition from companies like Google and Amazon in the AI space.
Argentina's Milei Faces Setback as
Dollarization Plan Falters
Argentina's president-elect, Javier Milei is
facing challenges in implementing his flagship policy of dollarizing the
country's struggling economy. The central figure in this plan, Emilio Ocampo,
appointed to lead the central bank, has declined the position due to policy
differences. Ocampo, a former investment banker and economics professor, was a
strong advocate for replacing the Argentine peso with the US dollar.
Despite earlier assertions about the
non-negotiability of dollarization, Milei now suggests a reevaluation of the
plan based on market conditions and Ocampo's readiness to implement a modified
strategy. Milei's office reiterates the non-negotiability of closing the
central bank, but the mention of dollarization is notably absent.
Local financial markets show signs of stress as
Milei finalizes key economic portfolios, with the central bank struggling to
find buyers for short-term peso-denominated debt. The black market exchange
rate for the dollar is almost triple the official rate, indicating market
uncertainty.
Momentum in US currency switches as investors
expect the FED to cut rates
Investors are selling the US dollar at the
fastest rate in a year, signaling a belief that the FED is done with its series
of interest rate hikes and is poised for multiple cuts next year. Asset
managers are on track to sell 1.6% of their open dollar positions this month,
marking the largest monthly outflow since November of the previous year,
according to State Street. The recent trend has placed the dollar on track for
its weakest monthly performance in 12 months. Analysts caution that this could
be the beginning of a longer-term trend as investors look to reduce their
exposure to US assets.
Despite recent sales, asset managers remain
overweight in dollars compared to other currencies, suggesting there may be
more room for dollar weakness. The dollar experienced a significant surge last
year, driven by the Fed's rate hikes, but recent economic indicators and
falling inflation have altered the narrative. Futures markets are now pricing
in more than 0.5 percentage points of Fed rate cuts by September next year.
The dollar's decline has positive implications
for emerging markets, making it easier for them to repay dollar-denominated
debt and potentially attracting investors back after a year of heavy sales of
hard-currency debt. Investors are now reconsidering their bullish case for US
equities in the face of a weaker dollar environment. Emerging market stocks,
particularly in Mexico and Brazil, are gaining interest, though geopolitical
concerns related to the Russia-Ukraine war are adding a layer of complexity to
the usual rotation between developed and emerging markets. Overall, experts
expect the trend of dollar weakness to persist into 2024, influenced by reduced
turbulence between the US and China.
Note: State Street’s forecasts come from comments collected by the Financial Times in an interview with Michael Metcalf