Breakfast | The Federal Reserve remains steady, Powell emphasizes that the economy is still strong, and U.S. stocks accelerate their rebound

Market Overview

The Federal Reserve slows down its balance sheet reduction, and Powell states that the risk of recession is low. The S&P 500 sees its largest rebound on a Federal Reserve decision day in eight months, with the S&P and Nasdaq both rising over 1%. Tesla rises nearly 5%, and Nvidia increases by nearly 2%. The China concept index experiences two consecutive declines, with Global Data dropping 14%, but XPeng rebounds over 5%.

After the Federal Reserve's decision, U.S. Treasury yields plummet, with the two-year yield dropping more than 10 basis points at one point, falling below 4% after Powell's speech. The U.S. dollar index rebounds, moving away from a five-month low, but gives back more than half of its gains after Powell's remarks. The offshore yuan falls over 100 points during the day, breaching 7.24, but narrows most of its losses after Powell's speech.

Bitcoin briefly rebounds by about $4,000, approaching the $86,000 mark. Following Powell's speech, gold's gains expand, reaching a new intraday historical high. Oil prices rebound, with Brent crude nearing a two-week high.

During the Asian session, A-shares experience volatile adjustments, with the Northbound Stock Connect 50 index plunging, while Hong Kong stocks slightly rise. BYD's A and H shares surge, and government bond futures mostly decline.

Federal Reserve Remains Steady, Slows Balance Sheet Reduction Starting in April

The number of officials expecting interest rate cuts this year decreases, with lowered economic forecasts and increased inflation expectations; Powell states that the risk of a U.S. economic recession has risen but is still low, with hard data remaining robust. The University of Michigan's inflation expectations are considered an "outlier," and the baseline forecast still suggests that tariffs have a "temporary" impact on inflation.

The Federal Reserve's statement removes the wording about balanced risks to employment and inflation targets, stating that uncertainty regarding the economic outlook has increased. The method for slowing the balance sheet reduction involves lowering the monthly redemption cap for U.S. Treasury bonds from $25 billion to $5 billion. The Fed still expects two rate cuts this year, but the dot plot shows that the number of officials expecting no rate cuts this year increases from one to four, while those expecting two cuts decreases from one to nine. This year's GDP growth forecast is lowered from 2.1% to 1.7%, and the unemployment rate is slightly raised to 4.4%, while core PCE inflation expectations rise from 2.5% to 2.8%.

Powell states that the increase in inflation expectations by the Federal Reserve is "largely" due to tariffs, and it is too early to determine whether to disregard the impact of tariffs. Long-term inflation expectations remain stable. The University of Michigan's inflation expectation data is an "outlier," and the baseline forecast still suggests that tariffs have a "temporary" impact on inflation. External forecasters have raised the likelihood of an economic recession, but it remains at a "relatively mild level." The risk of a U.S. economic recession has risen but is still low, with hard data indicating that the economy is "healthy." Powell remains optimistic about the employment outlook, stating that the unemployment rate is "very close to its natural level."

Financial blog Zerohedge reports that bearish options are emerging for Powell. Despite influential board member Waller's belief that the balance sheet reduction should continue at the current pace, the Federal Reserve has decided to slow the reduction. Additionally, Powell's statement that the risk of recession is low has led to a broad rise in major assets, excluding the dollar. The "New Federal Reserve News Agency" states that the Fed's inflation and unemployment rate expectations are higher this year, reflecting the potential impact of tariffs, and Powell has not taken an aggressive stance on tariff inflation, thus boosting the stock market.

Jensen Huang: The Market's Understanding of DeepSeek R1 is Completely Wrong; Such Models Require More Computational Power

Jensen Huang stated at NVIDIA's annual AI conference GTC that concerns about the DeepSeek inference model R1 are completely misguided, and that such software will require fewer chips and more powerful servers in the future.

Jensen Huang believes that the demand for computing remains extremely high. Artificial intelligence (AI) inference has driven up the demand for computing. New AI models that can produce more complex answers will only increase the demand for computing infrastructure. He said:

"The external understanding of R1 is completely wrong; in fact, this type of model requires much more computing power."

Elon Musk's xAI Acquires Hotshot, Enters AI Video Field

Aakash Sastry, co-founder of the well-known AI video model Hotshot, announced that Hotshot has been fully acquired by Elon Musk's large model platform xAI. This acquisition is significant for xAI, indicating their entry into text-to-video, AI video editing, and other fields, and they will integrate AI video capabilities into new models.

Kingsoft Cloud Q4 Revenue Up 30% Exceeding Industry Average, AI Revenue Up Nearly 500%

According to the financial report, Kingsoft Cloud's Q4 revenue reached 2.23 billion yuan, a year-on-year increase of 29.6%, exceeding the industry average growth rate; among them, public cloud revenue was 1.41 billion yuan, a year-on-year increase of 34.0%, and industry cloud revenue was 820 million yuan, a year-on-year increase of 22.7%, achieving dual-driven and balanced development. In this quarter, the company continued to lead its transformation with artificial intelligence, with AI billing revenue reaching 474 million yuan, a nearly 500% year-on-year increase, accounting for 34% of public cloud revenue.

Cloud Company CoreWeave Plans to Raise Approximately $2.5 Billion Through U.S. IPO

According to insiders, cloud computing provider CoreWeave has set the price guidance range for its U.S. IPO stock at $47-55 per share. Based on the midpoint of the guidance range, the company and some of its investors will raise approximately $2.5 billion.

Tencent's Performance Exceeds Expectations, but Tencent ADR Opens Higher and Then Falls Slightly by 0.14% Overnight

On Wednesday, the 19th, Tencent released its Q4 financial report for last year and its full-year report for 2024, showing that Tencent's Q4 net profit increased by 90% year-on-year, and full-year capital expenditures surged by 221% to a record high.

They plan to repurchase at least HKD 80 billion worth of stock. Ma Huateng: We hope to become partners with all robot manufacturers, rather than replace them in hardware. Tencent President Liu Chiping: Tencent can simultaneously support future-oriented AI investments and current shareholder returns.

Regarding capital expenditures, Tencent executives pointed out at the financial report release that R&D spending will not pressure profit margins, and capital expenditures are mainly used for purchasing GPUs to support advertising and gaming businesses, large language model training, and cloud services. These capital expenditures have actually brought good profit margins and high returns. Additionally, with the breakthrough in DeepSeek technology, the industry as a whole (including us) can utilize existing GPU resources more efficiently, improving large model training efficiency without the need to purchase GPUs on a large scale as originally expected