Five Things You Need to Know to Start Your Day: Americas

Good morning. Traders dissect Federal Reserve Chair Jerome Powell’s testimony, Big Tech relinquishes OpenAI roles and divided Democrats keep [View in browser]( [Bloomberg]( Good morning. Traders dissect Federal Reserve Chair Jerome Powell’s testimony, Big Tech relinquishes OpenAI roles and divided Democrats keep the election outlook murky. Here’s what’s moving markets. — [Kristine Aquino]( Powell trade [Markets were calm on Wednesday after Powell said the Fed is wary of potential risks to the labor market](, even though it is seeking more evidence of slowing inflation. Treasury yields were little changed, with [traders building bullish wagers on a bond rally]( every single day so far in July. Powell will speak to the House Financial Services Committee later on Wednesday. Meanwhile, US equity futures and European stocks extended gains after the S&P 500 hit its [36th record high this year](. Bye, OpenAI [Microsoft and Apple have relinquished the chance to be observers on OpenAI’s board]( in a surprise decision. Microsoft, which has invested $13 billion in the creator of ChatGPT, sent a letter to the startup to announce its withdrawal from the board, according to a person familiar with the matter. Apple had been [expected]( to take up a similar role, but an OpenAI spokesperson said the company will have no observers after Microsoft’s departure. The decision comes amid growing scrutiny from antitrust regulators on Big Tech’s influence over artificial intelligence. Chip boom [Demand for AI has boomed so much that it spurred $3.5 billion of exports of chips and related equipment from Taiwan]( last month, a 422% surge from a year ago. The US was the biggest customer for chips, with total shipments in June up more than 74%. Taiwan is home to TSMC, the world’s most-advanced chipmaker that is the main supplier to the likes of Nvidia and Apple. “Taiwan continues to ride the coattails of the artificial intelligence boom and cyclical tech cycle rebound, which will likely support exports in the coming months,” said Gary Ng, a senior economist from Natixis. Divided Democrats The picture remains unclear for investors trying to trade the US election. While congressional Democrats continue to weigh whether to stand behind Joe Biden’s candidacy, [the White House is trying to shift the focus from the president’s mental acuity to Donald Trump’s policy goals](. Many Democrats parried questions about Biden by invoking “Project 2025” – a suite of policy proposals drafted by the conservative Heritage Foundation for Trump to pursue if he is elected in November. The proposals range from gutting the federal civil service to blocking efforts to fight climate change, which Democratic party members say are likely to alarm undecided voters and push them into Biden’s camp. China boost [China’s top leaders will convene at a high-profile gathering next week](, which some analysts say holds the potential to boost a languishing stock market. The MSCI China Index has entered a technical correction, while a gauge of Chinese equities listed in Hong Kong is flirting with the same milestone. Yet the Third Plenum, along with earnings progress, should help catalyze an expansion in valuations, according to UBS’s Yifan Hu. That said, history shows the performance of the Shanghai Composite Index one week and one month after previous meetings have often been lackluster. What we’ve been reading Here’s what caught our eye over the past 24 hours: - [Short sellers defied the rally to gain $10 billion]( in the second quarter - A maze of pension transfers is [putting expat retirement savings at risk]( - [Elon Musk beats a $500 million severance suit]( over mass layoffs at X - At a Miami rally, [Trump teases Marco Rubio as a potential VP pick]( - [US paper makers warn of risk of diaper shortages]( under a new EU law - Houston struggles with[blackouts and searing heat in Beryl’s wake]( - [Russia’s Putin is meeting a lot of world leaders]( for a global `outcast’ And finally, here’s what Joe is interested in today Fed Chair Jerome Powell testified yesterday, though it didn't seem to move markets all that much, [probably because he didn't make a ton of news](. However, there was one key headline that ran near the end of the testimony that really clarified what may be a key moment in the cycle: *POWELL: LABOR IS NOT A SOURCE OF INFLATIONARY PRESSURES NOW In a sense, this line is the whole ballgame. Throughout the last three or four years, there have been two general stories about what caused inflation. One was focused on supply-side capacity (supply chain disruptions, Russia's invasion of Ukraine, deglobalization, and so forth). The other has highlighted the tightness of the labor market. Most economists probably see both dimensions as factors, though there are wide disagreements about how to weigh the two. But regardless, there's not much that the Fed can really do to improve supply-side capacity. So in terms of the Fed's job, it's mostly about easing that labor component. To this point, one of the most popular measures has been the ratio of unemployed workers to total job openings. Anyway, in the last couple of months this ratio has returned to the levels of 2019, prior to the Covid downturn. So the whole thing can in a way be summarized in four sentences: - The Fed has attempted to cool inflation by bringing about normalization in the labor market - One of the most popular measures of labor market tightness has now erased its Covid-era extremes - The labor market is therefore no longer a source of inflationary pressure - From the Fed's perspective, the inflation driver that it can influence (or at least believes it can influence) through rate policy is gone. Of course, one or more of these points could be wrong. Maybe we're measuring labor market tightness wrong. Maybe the labor market will re-tighten (after all, in the most recent JOLTS report, the number of job openings did tick up a little bit). Maybe the link between labor market tightness and inflation is not particularly robust. Maybe there are other factors in the economy still lurking that will cause inflation to re-accelerate. It's all possible. But regardless, just looking at it from the Fed's perspective, there is a sense that when Powell is saying that the labor market is no longer a source of inflationary pressure, that he's declaring some form of mission accomplished. Joe Weisenthal is the co-host of Bloomberg’s Odd Lots podcast. Follow him on X [@TheStalwart](. [Bloomberg Markets Wrap: The latest on what's moving global markets. Tap to read.]( Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. Want to sponsor this newsletter? [Get in touch here](. 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