Russia frees WSJ reporter in historic deal

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

1.

Prisoner exchange: The Wall Street Journal reporter Evan Gershkovich and former US Marine Paul Whelan were among 24 prisoners exchanged in an historic prisoner swap involving Russia, the US and five other nations. Moscow released 16 prisoners that also included seven Russian citizens who were political prisoners in their own country. In return, 8 Russians held in the West were sent home. Gershkovich had been detained in Russia since March 2023 for spying charges he, his employer and the US government vehemently denied. He was sentenced to 16 years in prison last year. Whelan had been arrested in 2018. “The deal that secured their freedom was a feat of diplomacy,” US President Joe Biden said. “Some of these women and men have been unjustly held for years. All have endured unimaginable suffering and uncertainty. Today, their agony is over.” Among the Russian prisoners released in return are Vadim Krasikov, a convicted assassin who German Chancellor Olaf Scholz agreed to release as part of the deal. It is the most significant diplomatic exchange between Russia and the West in decades and reflects a win for Biden, who has championed the return of imprisoned Americans and support for pro-democracy movements in Russia. Russian President Vladimir Putin also gets a political boost by showcasing support for detained Russian agents. (Capital Brief)(The New York Times)

2.

Spy overhaul: The Albanese government is set to revamp Australia's spy agencies after receiving a classified report from former senior intelligence officials Heather Smith and Richard Maude, Capital Brief reported. Their Independent Intelligence Review is expected to guide reforms and enhance the Office of National Intelligence's (ONI) role as the chief coordinator of the intelligence community. The review is also expected to address concerns over AI and the rise of “open-source” intelligence. The government has been accused of wanting to dismantle the Department of Home Affairs, which now oversees the Australian Federal Police and ASIO. Critics argue that recent changes could complicate intelligence oversight. The declassified version of the review will be released later this year. (Capital Brief)

3.

Stocks plunge: US stocks plunged on Thursday after economic data hinted the Federal Reserve might be waiting too long to cut interest rates. Bonds rallied, pushing the 10-year Treasury yield below 4%, as traders priced three rate cuts this year. The S&P 500 slid 2%, the Nasdaq was 3% lower and the Russell 2000 fell as much as 3.7%. Data showed manufacturing activity dropped to an 8 month low in July and unemployment claims neared a one-year high last week. The VIX, a measure of market volatility, surged. The Fed's stance remains a central focus for investors and analysts alike, as further deterioration in economic indicators could prompt more aggressive monetary policy adjustments. Fed Chairman Jerome Powell this week said the central bank saw a path to cutting rates in September. But some are warning it might act too late, risking a sharper economic slowdown. (Bloomberg)

4.

AI IPO: Cerebras Systems, a Silicon Valley startup specialising in AI-optimised semiconductors that was valued at USD4 billion ($6.13 billion) in 2021, has filed documentation for an initial public offering (IPO) with the US SEC, Bloomberg reported. The company, known for its CS-3 AI enterprise software is targeting a second-half 2024 listing and has appointed Citigroup as lead manager of the planned deal. The draft registration statement filed doesn’t give details of the offering or its size but the company is seeking a valuation above the USD4 billion it achieved when it raised USD250 million in a series F financing round in 2021, Bloomberg said. The plans come as the IPO market in the US recovers, having almost doubled in fundraising this year to USD30 billion, according to Bloomberg data. Existing investors include Alpha Wave Ventures and Abu Dhabi Growth Fund. (Capital Brief)(Bloomberg)

5.

Apple’s reality: Apple has asked a federal judge to dismiss the US government's antitrust lawsuit against it, arguing the accusation that it monopolises the smartphone market “bears no relation to reality.” In a filing with the US District Court in Newark, New Jersey, Apple denied it is a monopolist and argued it sets terms for its platform without restricting third parties from competing. The company said it faces strong competition from Google and Samsung and that the lawsuit fails to prove consumer harm, a critical element in antitrust cases. The US Justice Department sued Apple in March, alleging the company obstructs competitors from accessing key features and services. Apple’s dismissal request is expected to be reviewed by Judge Julien Neals later this year. (Bloomberg)

6.

BoE cuts: The Bank of England cut interest rates by a quarter-point to 5% in the first cut since the start of the Covid pandemic in March 2020. The decision, made in a narrow 5-4 vote, reflected divided opinions about whether inflation pressures had eased sufficiently, despite headline inflation hitting the bank’s 2% target in May. Economists polled by Reuters had anticipated the BoE's move, but markets had priced only a 60% chance of a cut. Governor Andrew Bailey said going forward the bank would be “careful not to cut interest rates too quickly or too much,” to ensure inflation remains controlled. The cut ends an almost year-long period of unchanged rates, the longest at the peak of a cycle since 2001. The BoE's latest forecast predicts a rise in inflation to 2.75% by late 2024 but expects a return to the 2% target by early 2026. (Capital Brief)(Reuters)(BOE statement)

7.

Crashing dreams: Shares in British chip designer Arm Holdings plunged by up to 18% on Thursday, erasing over USD25 billion in market value, after it beat earnings estimates but failed to boost its AI revenue outlook. The plunge after its post-market earnings release the previous afternoon highlights investor impatience for quick returns from the ongoing AI infrastructure investment boom. Despite a 39% rise in Q1 revenue to USD939 million that exceeded expectations and was driven by high growth in licensing deals, investor confidence was shaken by Arm’s cautious full-year forecast after it flagged some areas of weakness. It said weaker end-markets and lower sales in China had capped sales. The company’s full-year revenue forecast of USD3.8 billion was just short of the USD4.1 billion average analyst estimate, according to Bloomberg. "Despite Arm Holdings’ impressive earnings beat, their cautious (lukewarm) full year forecast has dampened spirits," Michael Schulman, the chief investment officer of Running Point Capital said in a note cited by Reuters. (Capital Brief)(Reuters)(Bloomberg)

8.

BNP deal: BNP Paribas is in exclusive talks to acquire AXA Investment Managers for €5.1 billion ($8.47 billion), the eurozone’s biggest bank said in a statement. The move would significantly expand BNP’s asset base, making it a top European player with approximately €2 trillion in assets under management under its asset management and insurance division called Investment & Protection Services (IPS). AXA plans to use €3.8 billion of the proceeds for share buybacks and the remainder for growth initiatives, allowing Europe’s second-largest insurer to concentrate on its core businesses including life and health insurance. The deal includes a 15-year pact for BNP to manage investments for AXA and is expected to close in mid-2025. (BNP Paribas statement)(Reuters)