Two heavyweight messages are coming from the periphery!
On March 7th, Bloomberg reported that according to congressional aides, the US government is preparing to invest $3.5 billion in Intel to produce advanced semiconductors for military and intelligence projects. This fund was included in an expenditure bill passed by the House of Representatives on March 6th.
This funding will be used for the "Safe Enclave" program, which will last for three years. The funding comes from the Chip and Science Act funding project, which aims to persuade chip manufacturers to produce semiconductor products in the United States. More than 600 companies have expressed interest in this funding.
At the same time, there is also heavyweight news coming from Japan. Bank of Japan Governor Kazuo Ueda stated that once the positive cycle of wages and inflation is confirmed, he will consider withdrawing the large-scale stimulus plan. So, what impact will this have on the market?
Chip Big Event
According to congressional aides, the US government is preparing to invest $3.5 billion in Intel to enable the chip manufacturer to produce advanced semiconductors for military and intelligence projects. This money will be included in the fast spending bill passed by the House of Representatives on Wednesday, making Intel the dominant player in the lucrative defense market.
On the 6th local time, Intel's stock price surged nearly 6% at one point.
It is reported that this fund will last for three years and be used for the "Safe Enclave" program. It comes from a broader $39 billion funding pool under the Chip and Science Act, aimed at convincing chip manufacturers to produce semiconductors in the United States, with over 600 companies expressing interest in obtaining this funding.
According to Bloomberg, Intel will receive over $10 billion in the Chip Act incentive plan, which includes grants and loans. But Intel declined to comment on the pending $3.5 billion investment.
"We are still reviewing the impact of the funding text on the plan," the Ministry of Commerce said in a statement. The Department of Commerce looks forward to continuing to cooperate with Congress to implement the Chip and Science Act in a way that promotes our economy and national security. The Senate is expected to pass the bill before the deadline on Saturday.
The disbursement of this funding comes as the US Department of Commerce is preparing to announce billions of dollars in incentives to advanced chip manufacturers such as Intel, TSMC, and Samsung Electronics, all aimed at rebuilding America's manufacturing capabilities.
The agency has announced three grants, including a smaller national security focused grant to BAE Systems Plc's US subsidiary and a $1.5 billion grant to GlobalFoundries, which produces older generation semiconductors.
Senator Maria Cantwell, Chairman of the United States Commerce Commission, and top Republican and Democratic leaders of the Military Commission, Roger Wick and Jack Reed, expressed concerns last year about the decision to offer a reward to a company to build a safe enclave at a higher level of security.
This plan is different from the existing US Department of Defense plan. The plan identifies security facilities for supplying military chips, including facilities from companies such as GlobalFoundries and IBM. The Pentagon has also allocated $238 million to eight regional technology centers focused on defense applied semiconductors.
Sudden outbreak in Japan
The United States is currently "dead biting" on chips, and Japan is also not at ease. Today, Bank of Japan Governor Kazuo Ueda stated that if we can achieve the price target, we will consider adjusting the easing policy. The market can consider it as part of expectation management. Because more than just the Bank of Japan Governor's statement has emerged as a signal.
According to insiders, Bank of Japan officials are becoming increasingly confident in the magnitude of wage growth, which supports the views of traders and economists that the Bank of Japan will lift negative interest rates in March or April. As for whether the Bank of Japan should take action at the end of its policy meeting in March or wait until April, officials have not yet reached a consensus. The above-mentioned insiders said that given the strengthening of wage levels, some officials can support the Bank of Japan's interest rate hike in March, while others believe that given the uncertainty of how wage levels will maintain inflation, the Bank of Japan will not be able to confirm that price targets are close at that time. According to insiders, through hearings with companies and other upcoming data, the Bank of Japan expects this year's salary increase to exceed last year. Insiders say that the Bank of Japan may consider adjusting its assessment of consumer spending and production to reflect some weakness while maintaining the overall view of the economy gradually recovering.
These signals or expected releases may be paving the way for Japan to raise interest rates. However, some analysts believe that historically, the Bank of Japan has never raised interest rates during economic downturns. Whether it is the economic recession period defined by the Japanese Cabinet Office or the recession signal implied by the OECD's economic leadership indicators, Japan has avoided these periods in all its interest rate hikes since 1970. The only interest rate hike since the asset price collapse in 1990, from June 2007 to September 2008, was a sustained positive growth in real GDP before the rate hike. The economy slightly declined month on month during the rate hike, but quickly turned positive and rebounded in the next quarter. Industrial research suggests that the economic recession in Japan may pose a substantial constraint on the Bank of Japan's interest rate hikes. Although the current market still maintains an expectation of around 80% for the Bank of Japan to raise interest rates in April, it reminds us of the risk of "unexpected" non rate hikes in April.
However, what consequences will Japan bring to the market if it raises interest rates or adjusts its monetary easing policy? Analysts believe that the adjustment of Japan's monetary policy may mean that the last "faucet" of global "cheap money" is at risk of being tightened, and developed economies may face upward pressure on interest rates. Japan has a large scale of overseas assets, and its sustained high demand for overseas safe assets helps to maintain low levels of bond yields in developed markets. The relaxation of the Bank of Japan's control over the yield curve this time has pushed up Japanese bond yields, which may to some extent attract funds to flow back from foreign assets such as US bonds to Japan, pushing up bond yields of other developed countries, thereby increasing the overall global interest rate level and borrowing costs. This may also have a certain negative impact on other market assets.