| Good morning. US stocks seek direction. Bespoke cars help Rolls-Royce offset China slump. Micron surges. China plans cash handouts. Here's what's moving markets. —Isabelle Lee US stocks were back and forth as investors pondered the Federal Reserve's path of rate cuts and digested housing-market data. The S&P 500 snapped a two-day climb while the Nasdaq 100 closed modestly higher. The 10-year US Treasury yield rose to around 3.78%. Data showed sales of new homes in the US fell last month. A separate set of numbers indicated that mortgage rates have dropped for the eighth consecutive week. Traders are still seeking fresh catalysts after last week's half-point rate cut by the Fed. China's latest stimulus failed to ripple beyond Asian markets as investors look forward to a speech by Fed Chair Jerome Powell and price data later this week. Rolls-Royce Motor Cars said rising demand for personalized luxury vehicles is helping the British company counter weakening sales in China. CEO Chris Brownridge said that the BMW-owned manufacturer can manage because of its flexibility and sales in other regions. Rolls-Royce is seeing increasing demand for "bespoke and personal motor cars," he added. Manufacturers have been grappling with a pullback from once-flush shoppers in China, the biggest auto market and a key driver of global luxury spending. The country's consumers have turned more price-sensitive in the face of an economic slowdown and property market crash. Rising tensions between the US and China are starting to upend global trade flows, posing both an opportunity and a risk for the developing world, according to Nobel Laureate Joseph Stiglitz. As the US reduces its exposure to China, new trade relationships are popping up from Asia to Latin America, he said. "We're in the first stage where there's a massive circumvention where goods go from China to Vietnam, China to Mexico. That's just changing the pattern of flow." Stiglitz added that the perception that China poses a threat is prompting the US to "de-risk." Micron, the largest US maker of computer memory chips, surged 10% in late trading after giving surprisingly strong sales and profit forecasts. Fiscal first-quarter revenue will be about $8.7 billion, compared with an average analyst estimate of $8.32 billion. Profit will be about $1.74 a share, minus certain items, versus a projection of $1.52. Orders for a type of product called high-bandwidth memory have added a lucrative new revenue stream for Micron. Demand has been outpacing supply. It has already sold out of the product for 2024 and 2025. China said it will give one-off cash handouts to people in extreme poverty, in a rare announcement of direct aid just a day after unveiling a sweeping program to stimulate the world's second-largest economy. The Ministry of Finance and Ministry of Civil Affairs will issue subsidies to disadvantaged groups including the very poor and orphans before the National Day holiday next week, the state broadcaster CCTV reported. While the amount is unknown, the deployment within such a short period of time appears to be a departure for a government that has long eschewed what President Xi Jinping calls welfarism. Here's what caught our eye over the past 24 hours: I'm still mulling the Fed's big cut last week. And I think we're witnessing a paradigm shift that's bullish for stocks. It might seem like a normal precautionary move on the Fed's part. In reality, though, this has never happened before. The Fed started targeting the fed funds rate in the early 1980s, and not once since then has it preemptively done a jumbo rate cut to stick a soft landing — until now. To me, this is proof that the Fed has re-imagined its role. Originally, while ostensibly answerable to Congress, the Fed only has had informal guidelines and pretty broad latitude. But the stagflation of the 1970s was so bad that Congress introduced legislation mandating that the Fed take action, something that was codified in 1978 as the Full Employment and Balanced Growth Act. Here's the thing: Until recently, it was the inflation part of that dual mandate that was seared in the Fed's brain. Every time inflation popped up, the Fed would whack it down by tightening policy, at first by trying to control the money supply and then using the fed funds rate, the interest rate at which banks trade reserves overnight. In fact, the unofficial policy was preemptive under the premise that unemployment could actually get "too low". This notion was premised on a fictitious gibberish economic term called "the non-inflation accelerating rate of unemployment" or NAIRU. If the unemployment rate was below NAIRU, it was "too low" because tight labor markets would bid up wages, thus stoking excess demand and leading to inflation. So, the Fed would simply jack up rates at the risk of a recession, hoping it would cool demand and inflation. That whole intellectual edifice is out the window now. What Fed Chair Jerome Powell is telling us with the half-point move is that the Fed is ready to act on the employment side of the mandate as much as on the inflation side. They would rather balance their approach to the presumed trade-off between employment and inflation and prevent a recession. This is a completely new approach. Hence, the first jumbo cut without a recession or other crisis breathing down our neck. That's bullish for equities, of course, and I explain more precisely how here. Ed Harrison writes the Everything Risk newsletter. Follow him on X at @edwardnh. | 
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