CNP - Catalyst Watch: Heat Waves And The Economy

2023-07-01 07:00:00 ET

Summary

• Nonfarm payroll numbers for June will be released on Friday, July 7.
• Investors still like the AI story for chips across the board.
• A Dartmouth study found that the global economy lost about $16 trillion between 1992-2013 due to extreme heat waves.

Listen on the go! Subscribe to Wall Street Breakfast on Apple Podcasts and Spotify Catalyst watch for the week of July 2. Seeking Alpha Managing News Editor Kim Khan says investors should look out for nonfarm payroll numbers at the end of the week (00:32). Hot topics: What impact could a new AI chip curb have on companies like Nvidia (NVDA), Advanced Micro Devices ( AMD ) and Taiwan Semi (TSM)? (01:20) Also, what impact does a heat wave have on the economy? (03:54)

Julie Morgan: Kim, for Macro next week, let me guess, non farm payrolls, am I right?

Kim Khan: That's right. As beginning of any month. It's the exciting indicator. Of course, it's also a holiday shortened week. We've got early closing of the stock and bond markets on July 3 month day, then a complete holiday on Independence Day. So not much time for traders to adjust going into the Friday payrolls number, which is always just going to be a big influence on the markets.

And Fed thinking there's not too many big guesses out there. I was looking at the estimates and they're kind of across the board, those that are already in.

So it's hard to gauge what really the market is expecting. The consensus right now is around 200,000 gain in non form payrolls, but that's kind of like the backstop number that people like pencil in and then adjust later on the jobless rates looking to stay around 3.7%.

JM: Kim, one of the topics we reported on this week, both you and I for Wall Street Breakfast as well as our new program Wall Street Lunch. The White House is reportedly weighing implementing restrictions on AI chip exports to China. What's an update on this and what do you think this means for companies like Nvidia, AMD and Taiwan Semi going forward?

KK: Well, nobody's really moved the story forward much from what was initially reported by the Wall Street Journal that this is a possibility, this is something the White House could do after its talks in Beijing. And it's certainly something within the realm of possibility that ship companies have to take seriously.

But we don't know any further into the thinking it could be a shot across the bow, for example. So we just look at how the companies reacted and we had one B of A analyst say for Nvidia this could be as much as 10% off its data center sales and 7% off its total revenue if such curbs came into effect, that's a huge impact. And we saw the stock dented and trading on Wednesday when the report first came out, but it didn't tumble, it didn't plunge. And trading today on Thursday, it's holding up pretty steady .

So it looks like at least investors are saying , well, okay, we're going to keep this in mind, but we still like the AI story for chips, that's like going across the board for AMD, Taiwan Semi , also Micron had good results. So that's helping chip stocks.

JM: Basically. This is a wait and see situation.

KK: You can argue that the whole AI boom is a wait and see situation. The stock Nvidia has gone up sort up on expectation of orders on adoption of AI and companies actually putting it into practice once they decide what they're going to do with it.

There is an interesting story out today about groups of publishers possibly forming an AI kind of think tank on how they're going to deal with it in the future. And that was from Dow Jones. That included big publishers like News Corp . And the New York Times and others. It's kind of a broad coalition and there was no specifics on how they'd kind of get on the same page.

But one thing they do know is AI is going to change their business. So how do they react to it and how do they in some ways stop AI and these big large language models from like ChatGPT from taking their content without any kind of compensation?

Because these AI articles are being written by what's on the internet already. So it's combing all this vast resources that's already been published and publishers are saying, hey, maybe we should get some cash for that now.

JM: Kim, something else our listeners have possibly been dealing with is this heat wave. Tell me, what effect does a heat wave have on the economy?

KK: There was a study out of Dartmouth last year looking at extreme heat and what impact it has from an economic point of view. And the conclusion was that the global economy lost about $16 trillion since the 1990s due to extreme heat waves. And that was looking at developed and western economies like the US. And Europe.

You're talking about a 1.5% drop per capita in GDP. When these heat waves come about, it does have a macro effect. You've got people indoors, they're not outspending. In fact, they're spending more at home just putting on the air conditioner.

And the fact that it's gripping the south is very interesting given the GDP numbers that we saw recently in that the south has been really contributing strongly to overall GDP much more than it has been in the past and I think overtaking the Northeast in these population centers.

So if the oppressive heat kind of cuts productivity, it cuts consumer spending, it will kind of rein in some economic growth.

JM: And this also has an effect on crypto mining, right?

KK: Yeah, I mean, crypto mining is really grid intensive and if you've got everybody's AC on and high demands, Texas just saw its highest ever electrical demand in history just a couple of days ago. And so that demand for electricity, let's say, is not just because of heat waves. Also the population of Texas is increasing. But still there's going to be a choice at some point. And a lot of crypto miners may find themselves without the adequate power that they need to keep running their machines and servers all the time.

JM: And finally, as a quick reminder, yes, next week is a holiday shortened week . We'll still have a Wall Street breakfast podcast and a newsletter on Monday, but Tuesday is a holiday. Then we'll be back again on Wednesday. Enjoy the rest of your weekend.

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