IMF warns global slowdown risks dominate outlook

Good morning. Here's what happened overnight and what you need to know today.

1.

Economic growth: The IMF lowered its global growth forecast for next year while warning of “mounting vulnerabilities” that threaten to worsen the economic outlook, such as the conflict in the Middle East and protectionist policies that disrupt trade. Global GDP is expected to grow at 3.2% in 2025, which is one-tenth of a percentage point lower than previously forecast. After peaking at 9.4% in the third quarter of 2022, inflation is now expected to fall to around 3.5% by the end of 2025. The US’s 2024 growth forecast rose to 2.8%, driven by strong consumer spending and investment, while China’s was cut to 4.8% due to weakness in the property sector and low consumer confidence. The bank said trade risks, such as potential tariffs between major economies and geopolitical tensions are now dominating the outlook. (Capital Brief)

2.

Chip alert: TSMC informed the US government of a potential attempt by Huawei to circumvent US export controls, the Financial Times reported, citing the company. The controls, aimed at limiting China’s access to advanced semiconductors, restrict the use of US technology in chip manufacturing for Huawei. Sources told the paper that TSMC alerted the US Commerce Department after receiving an order for a chip similar to Huawei’s Ascend 910B, a processor used for AI model training, whose precursor was previously manufactured by TSMC. But Reuters on Tuesday (Wednesday morning AEST) reported TSMC notified the US after TechInsights found one of its chips inside a Huawei product during a teardown. TSMC said it has not supplied chips to Huawei since mid-September 2020 and proactively communicated with US authorities. The Department told Reuters it was aware of the reports, but it did not comment. (Reuters)(FT)

3.

Bank split: HSBC will split its operations into Eastern and Western markets and merge its commercial and institutional banking divisions, excluding the UK and Hong Kong. The bank also promoted Pam Kaur, its chief risk and compliance officer, as its first female CFO. The overhaul, led by new CEO Georges Elhedery to streamline operations and curb inter-department rivalry while cutting costs, marks the bank’s largest in a decade. The move also reflects an increased focus on Asia, where the bank generates most of its profits, amid geopolitical tensions and declining global interest rates. HSBC’s executive committee will shrink from 18 members to 12, under a new title “group operating committee,” it said. Key exits include Europe head Colin Bell and Middle East head Stephen Moss. HSBC’s shares remained flat, with more details expected during the bank’s Q3 results on 29 October. (Capital Brief)

4.

Spilled secrets: The FBI is investigating the leak of two top-secret intelligence reports detailing Israel's planned retaliation against Iran, Reuters reported citing the bureau. The documents, prepared by the National Geospatial-Intelligence Agency and circulated on Telegram, outline US interpretations of Israeli military plans, based on satellite data. Former US intelligence officials told The Wall Street Journal they suspect an internal leak rather than a hack. White House spokesman John Kirby said President Joe Biden was monitoring the investigation closely, which began after the documents surfaced online last week. “That is not supposed to happen, and it's unacceptable when it does," he said. (WSJ)(Reuters)

5.

The dream: Canva has launched Dream Lab, a generative AI tool powered by Leonardo.Ai’s Phoenix model and part of its “Droptober” update. The tool allows users to create 3D renders and illustrations from text prompts, akin to platforms like Midjourney and OpenAI’s Dall-E. It is the first tool Leonardo.Ai has developed for Canva since its acquisition in July. Canva also announced it has surpassed 200 million users, up from 190 million last week at SXSW. Its enterprise suite is being adopted by companies like Atlassian, HP and Ray White. Valued at USD26 billion, Canva is preparing for an IPO by the end of 2026, though no specific date has been set. (Capital Brief)

6.

Fuel force: General Motors beat Wall Street expectations for Q3 earnings, showing demand for its highest-margin vehicles more than offset losses from its EV business and in China, sending shares surging over 10%. Resilient consumer demand for trucks and SUVs drove GM’s adjusted earnings per share to USD2.96 ($4.43), beating the USD2.43 consensus forecast. It raised its pretax profit forecast for 2024 from a minimum of USD13 billion to at least USD14 billion, citing strong pricing in the US. But it also posted a USD137 million loss in China in the third quarter, continuing a difficult year in the Asian nation. GM is under pressure to accelerate its shift to profitable EV production, amid growing competition from Chinese automakers and Tesla’s dominance in the US. (Capital Brief)

7.

Earnings day: A flurry of earnings results landed Tuesday (Wednesday morning AEST), with GE Aerospace shares falling over 9.5% as supply chain issues hit jet engine deliveries, despite an improved profit forecast. Verizon shares lost over 4% after missing Q3 revenue estimates, while General Motors beat expectations. Aerospace and defence conglomerate RTX lifted its 2024 forecasts, driven by demand for aircraft repairs and defence systems. Lockheed Martin shares slid 5%, even after raising profit and sales forecasts, as delays in its F-35 fighter jet program hurt earnings. 3M raised its full-year profit target, Philip Morris International reported record revenue and earnings, and software giant SAP raised its revenue and earnings forecasts for the year on strong demand AI. Moody’s posted a 31% rise in Q3 earnings and raised its full-year outlook on strong demand for research products. Meanwhile, L'Oreal missed Q3 sales expectations due to weak Chinese demand, contributing to a 20% share drop since June. (Reuters)(Bloomerg)

8.

Market indigestion: Wall Street slipped as surging Treasury yields dominated market sentiment while markets processed mixed corporate earnings results. The 10-year yield hit a near three-month high at 4.22%, driven by recalibrated Federal Reserve expectations, as investors focus on how rising rates will affect growth. Major indexes were trading flat, with the Dow Jones Industrial Average up 0.05%, the S&P 500 slipping 0.08% and the Nasdaq Composite 0.12% higher in the afternoon, as tech and industrials faced pressure, despite strong earnings reports from General Motors and mixed results from Verizon and GE Aerospace. Investors are bracing for further volatility in the coming weeks ahead of more earnings reports, fresh economic data and the looming US election, even with the Fed expected to cut rates by 25 basis points in November. (Bloomberg)(Reuters)