Welcome to this week’s Market Pulse, your 5 minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

TL;DR

In this week’s edition we have:

Google’s Bard stumbled. Or did it?
Chinese balloons and US fireworks.
US debt ceiling. A showdown brewing?

And following on from last week’s launch of Market Pulse Audio, you can once again listen to the headlines on the go.

It’s important to note that the content of this Market Pulse (including the answers to any questions) is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

1) Google Bard stumbled. Or did it?

Google has a leading share in the global internet search market but they might be about to face some stiff competition if Microsoft successfully incorporates ChatGPT into their Bing search engine. Google, determined not to miss a trick, accelerated plans to roll out their own AI chatbot, Bard.

Google released Bard to early testers and one of the questions it was asked was: "What new discoveries from the James Webb Space Telescope (JWST) can I tell my nine-year-old about?" It promptly answered that “JWST took the very first pictures of a planet outside our own solar system.”[1]. Nasa quickly confirmed this was in fact inaccurate[2]. The first pictures of exoplanets outside our solar system were taken by the Very Large Telescope in 2004.

In the aftermath, Google lost more than $100bn in market cap[3]. OpenAI, the company that developed ChatGPT, was recently valued at $29bn[4]. So, in a matter of hours, the market wiped out more than 3 OpenAI’s from Google’s market value. All because Bard had a slip up.

But was it even a slip up? JWST did in fact take the very first pictures of a planet called LHS 475b[5]. It was also the first extrasolar planet to be confirmed by the James Webb Space Telescope. Maybe a follow up question like ‘what planet did it take a picture of?’ would have revealed Bard was talking about a specific planet and not exoplanets in general. Of course we can’t be sure. In any case, a nine year old would undoubtedly have moved on to something else by this point.

2) Chinese balloons and US fireworks.

So far this year, foreign investors have invested more than $21bn into Chinese stocks[6]. This is almost double the previous record set during the same period in 2021. Investors are upbeat about Chinese stocks after the government relaxed their covid-zero policy and recent data showed Chinese manufacturing activity grew for the first time in 3 months[7].

China is expected to release their GDP and spending targets in March and some investors believe this could be the next catalyst for Chinese equities[8]. The Chinese economy has been weak and the real estate sector, a big portion of the Chinese economy, has been struggling with excessive debt. Any additional support from the government will be welcomed by real estate developers and investors alike.

But diplomatic relations between the US and China might have taken a turn for the worse. According to the Pentagon, China has been using high-altitude balloons to spy on countries across the globe for years[9]. Four such balloons have been used to spy on the US. It seems like China crossed a red line with the US. When the most recent balloon moved over open water, the US Air Force took it out with an air-to-air missile. China insists it's simply a civilian weather balloon that got lost and the fact that its wayward path took it over sensitive US nuclear missile silos was just coincidence[10].

Competition between the world's two biggest economic superpowers is to be expected. China is one of the US’s biggest trading partners and relations are already strained over Taiwan. If US-Sino relations deteriorate it could disrupt the global economy.

3) US debt ceiling. A showdown brewing?

The US hit the current debt ceiling (the legal limit to the amount of money the US Treasury may borrow) on January 19, 2023[11]. This potentially sets the stage for a showdown between the Republicans and the Democrats and another US debt ceiling crisis.

In such situations, when the debt ceiling is reached, the US Treasury can resort to temporary extraordinary measures to fund its obligations. These extraordinary measures will only give the US Treasury until late-summer before it potentially defaults on its obligations[12].

The debt ceiling has to be raised or suspended by the US congress for the US Treasury to resume business as usual. It usually involves difficult negotiations between the Republicans and the Democrats. Republicans will likely want some spending concessions before they will play ball and agree to raise the debt ceiling.

If we have a debt ceiling crisis in 2023, it would not be the first. We had a crisis in both 2011 and 2013. Just the threat of a US default in 2011 resulted in the only credit rating downgrade in the country's history[13].

In the most recent State of the Union speech, Democratic President Joe Biden implored Republicans not to use the debt ceiling as a bargaining chip. This is something to keep a close eye on over the next few months. It has the potential to introduce more uncertainty into markets in 2023.