New tariffs on China

The Biden administration announced several tariff increases on Chinese goods this week. Chinese EVs, solar cells, steel and aluminum products, batteries, and semiconductor chips were all hit with large tariffs ranging from 25% to 100%. This follows Treasury Secretary Yellen warning her Chinese counterparts not to flood the world with cheap goods during her recent visit. This comes at a time when US and China relations have been tense, and Russia has been attempting to grow its relations with China.

• Trump levied tariffs on Chinese goods during his administration, and Biden seems to be continuing with similar policies
• While this is protectionist for US industry as our manufacturers have been re-shoring or near-shoring production capacity out of China, this is inflationary to the consumer
• This further exacerbates the relationship between the Western and Eastern worlds, which has been changing over the last decade
• While the US is pushing China away as a partner, Russia is happy to embrace them
• Later this week, Xi Jinping met with Vladimir Putin and issued a strongly worded joint statement about re-building the world order
• This also comes as a headwind to our ongoing battle against climate change

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Mixed Inflation and retail sales data

This week we received an update on inflation and the state of the consumer. The Producer Price Index (PPI) came in hotter than expected at 0.5% month over month. However, the read-through showed the prior month was revised lower as one of the reasons for the beat. CPI came in slightly lower than expected at 0.3% month over month, slightly lower than expected. Year over year, PPI was at 2.2%, the highest read since April 2023, while CPI was at 3.4%, slightly lower than last month. Retail sales came in flat month over month, much lower than expectations of an increase of 0.4% and last month's reading of 0.6%. Relatedly, Walmart came out with solid earnings, with same-store sales up 3.8%.

• The market rallied on both the stronger-than-expected PPI as well as the lower-than-expected CPI
• 10 yr interest rates came down from ~4.5% at the beginning of the week to 4.42% to end the week, and expectations for a rate cut before September went up
• Retail sales were maybe a bit more concerning, particularly as the control group, which excludes autos, gas, and building materials, was actually down for the month
• The latter reading is a better read of overall consumption
• Walmart’s management commented that their sales growth was not just due to inflation, but that unit sales grew while overall sales per unit were flat to down
• Walmart also suggested that upper-end consumers were shopping down-market
• The health of the consumer is of paramount importance, given they represent almost 70% of the economy
• Thus far, it seems like the consumer is hanging in, albeit maybe showing signs of strain

Latest generative AI models

Both Open AI and Google released the latest versions of their generative AI models this week, showing a step change in progress. Open AI’s latest ChatGPT 4o, is a multi-modal model, meaning it can process and produce text, voice, images and video. They also significantly increased the speed of the model. Lastly, they introduced the model's ability to read and express emotions. Google’s main upgrade in Gemini 1.5 was a significant increase to 1 million tokens, which means you can process larger amounts of data. They also announced that they would integrate Gemini into their email, search, and other products. Additionally, they announced Astra, their first agent, which acts as a personal assistant.

• What is most impressive about developments in AI is how quickly they are increasing in functionality
• ChatGPT being able to address latency brings it closer to something you can converse with
• Gemini’s increased context token window, as well as a smaller and faster variant for high-frequency tasks, are both significant improvements
• Google’s announcement of an agent introduces a functionality that is geared toward consumer adoption
• All of these developments significantly improve the range of use cases that these tools can be used for

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