Hindsight could give the Fed a stern lesson on its rate cut

The U.S. personal consumption expenditures price index for August comes out Friday. The Federal Reserve will hope the report shows headline inflation is either in line or below economists’ forecast of 2.8% for the year. Any higher, and investors might start worrying that the Fed’s quarter-point cut last week was premature and could allow inflation to sink its claws into the economy again.

Indeed, the yields on the 10-year and 30-year Treasurys rose following the rate cut — rather counterintuitively, since they tend to follow the direction in which interest rates move. Of course, there are other factors that influence yields, such as the level of government debt and fiscal policy. Hence, movement by Treasurys could suggest that the bond market was not convinced the current economic situation in the U.S. warrants a cut.

The stock market, however, seemed to have brushed off those concerns. On Friday, the S&P 500 and Dow Jones Industrial Average closed at another record. Moreover, all three major U.S. indexes had a strong showing for the week, with the Nasdaq Composite climbing 2.2%.

Hindsight clarifies decisions. It grants one the power to gloat, “I told you so,” or inflicts an embarrassment that will keep one awake at 2 a.m. Fingers crossed that, for the Fed, hindsight is 2.8%/2.8%.

Trump and Xi talk TikTok deal Friday. The U.S. and China said progress was made even though no agreement was reached. The White House on Saturday added that the U.S. will mostly “control” the app; on Sunday, Trump said the Murdochs will likely be involved in the deal. 

South Korea could face a crisis because of U.S. investment. That’s according to President Lee Jae Myung, who told Reuters on Friday that without a currency swap, a $350 billion investment in the U.S. — part of the countries’ trade deal — could rock South Korea’s economy.

Luxshare pops on OpenAI deal. The Chinese firm, which assembles devices and counts Apple as a client, is reportedly producing a consumer AI device for OpenAI. Shenzhen-listed shares of Luxshare popped around 10% as of 1:30 p.m. Singapore time (1:30 a.m. ET).

U.S. stocks notched a winning week. On Friday, the S&P 500 and Dow Jones Industrial Average recorded new all-time highs. Asia-Pacific markets traded mixed Monday. India’s Nifty IT index, which tracks the country’s tech stocks, plunged nearly 3% after Trump announced hefty fees for the H-1B visa.

[PRO] Watch the Fed’s preferred inflation gauge. The personal consumption expenditures price index comes out Friday. If it shows that prices are rising faster than expected, the rate-cut mood in markets might take a turn quickly. 

Buffett’s Berkshire totally exits its profitable stake in Chinese EV maker bought because of Munge

Berkshire Hathaway made its initial purchase of BYD 17 years ago at the urging of Charlie Munger. At the 2009 annual meeting, he told shareholders that even though it looked like “Warren and I have gone crazy,” he saw the company and its CEO, Wang Chuanfu, as a “damn miracle.”

It was an incredible call. BYD shares increased by roughly 3890% during the years Berkshire owned them. A Buffett Watch reader, however, pointed out that the Q1 financial filing by Berkshire Hathaway Energy, the subsidiary that held the shares, listed the value of the investment as zero as of March 31.

— Alex Crippen