🎙️ Leading the Charge

💨 Manhattan or Mars? Jokes aside, wildfire smoke is blanketing the sky in New York and other states, prompting flight delays, air-quality warnings, and outdoor event cancellations.

The air quality in parts of the Northeast is among the worst in the world.

It could last for days as smoke from hundreds of Canadian wildfires hazes over some of the country’s most populous areas.

-Matthew

Here’s the rundown:

Today, we'll discuss the three biggest stories in markets:

• How China continues to take global EV market share

• Corporate bankruptcies and defaults on the uptick

• How Sam Altman stormed Washington to set the AI agenda

All this, and more, in just 5 minutes to read.

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IN THE NEWS

🚗 China’s EV Juggernaut Is Warning for the West (WSJ)

As the world transitions to electric transportation, all eyes are on who will dominate the EV market over the long haul. So far, Tesla is a brand name worldwide, but Chinese-designed and built EVs are rocking the auto world.

• China not only recently dethroned Japan this year as the world's largest auto exporter, but it has also increased its share of the EV market. Automobiles are among the world's most lucrative and prestigious consumer goods markets, long dominated by the U.S., Europe, Japan, and South Korea.
  

• But China's industrial policy has enabled government resources to foster sectors such as EVs. Over the last several years, Chinese policymakers saw climate change as an enduring threat and predicted that in transportation, the transition to clean energy would favor EVs.

As early as 2009, China started giving out substantial subsidies to EV buyers. Rechargers were subsidized, and EVs in China had to have batteries made by Chinese companies.

• A name to know is BYD, the Warren Buffett-backed Chinese EV maker that has bitten into Tesla’s market share almost everywhere but in the U.S. Tesla CEO Elon Musk has said BYT is “highly competitive,” and Ford CEO Jim Farley said Chinese EV companies such as BYD are its greatest rivals.

Why it matters:

China's EV industry has transformed from a niche industrial-policy project to a sprawling ecosystem of mostly private companies. While gasoline car manufacturers tend to be product-oriented, EV makers are more like tech companies, with a user-first orientation and focus on software.

Most Chinese EVs include at least two, often three, display screens, one for watching movies in the back, and various laser-based sensors for driver assistance. You can even have some fun with a microphone for karaoke.

• In this way, EVs have become deeply woven into the country's conscience, just like software, cloud computing, and semiconductors. About one in four new cars sold in China last year were electric.
  

• Even if countries such as the U.S. refuse to welcome Chinese EVs, China's foothold in the world could be substantial. Said one expert: “You can shut off your own market and to a certain extent, that will shield production for your domestic needs. The question really is, what are you going to do for the global south, countries that are still very happily trading with China?”

😐 Corporate Defaults and Bankruptcies on the Uptick (Reuters)

Blink twice if you’ve heard this before: The economic picture remains blurry and uncertain.

• Mixed data over the past year has been a ripe breeding ground for debate, providing ample evidence for bulls and bears alike to make their arguments.

On the bearish side, we have a few points to highlight. To an extent, corporate defaults are a reasonable barometer of economic health — last month, U.S. corporate debt issuers defaulted on a total of $7.2 billion worth of bonds, which Bank of America strategists called “a significant pickup in (default) pace.”

Yet, investors’ appetite for corporate debt remains robust, leaving little evidence of recession concerns when debt default risks increase.

• Companies with “investment-grade” ratings (the corporate equivalent of having, say, a 670 personal credit score or higher) raised $152 billion last month, triple the amount from the same time last year.

For corporations, perhaps finally accepting the pain of more costly financing, issuing debt before rates go even higher makes sense.

• But whether investors are appropriately weighing recession risks, especially since corporate bond spreads (the extra risk premium over government bonds) remain narrow, is a different and more contentious question.

Why it matters:

Axios reports that bankruptcy filings so far this year are at levels not seen since 2010, when the economy was still reeling from the Great Financial Crisis.

• There were 54 bankruptcies in May, which included names like Bed, Bath & Beyond, Party City, and the mattress-maker Serta Simmons.
  

• Whether this is a sign of a broader downturn or just a hiccup from higher interest rates remains to be seen, but recession optimists and pessimists have plenty of ammo to make their arguments either way.

Yet, the $1.4 trillion “junk bond” market, as it’s known, has proved surprisingly resilient. “Junk-rated” firms, those with below-investment-grade credit ratings, raised some $22.1 billion last month, more than any month in 2022 except January (before the Fed began rate hikes).

• Yields for less credit-worthy companies have fallen—meaning prices have risen—since last Fall, while spreads over government debt have narrowed in recent months.
  

• One chief investment officer called the dynamic “an ongoing mystery.” A Goldman Sachs trader added, “At some point, macro will catch up,” meaning corporate bonds, particularly from poorly-rated firms, will feel the pain of “slower earnings growth and rising interest expenses.”

🤖 How Sam Altman Stormed Washington to Set the AI Agenda (NYT)

OpenAI's CEO is on a mission.

Sam Altman, the man behind OpenAI and ChatGPT, has met with at least 100 U.S. lawmakers in recent months, and he's taken his show abroad as the world grapples with concerns around artificial intelligence.

• Altman, who has called for an international watchdog for AI, isn't hiding from lawmakers. He knows AI is inevitable and wants to be on the same page with lawmakers. No hiding from lawmakers, just direct, open lines of communication amid this transformational period.
  

• At breakfast with more than 20 lawmakers in the Capitol, he demonstrated ChatGPT. He called for AI to be regulated by both Republicans and Democrats. He's discussed the technology with Congressional leaders, Vice President Kamala Harris, and cabinet members at the White House.

“It’s so refreshing,” said Senator Richard Blumenthal, Democrat of Connecticut and the chair of a panel that held an A.I. hearing last month featuring Altman. “He was willing, able, and eager.”

For years, tech CEOs have usually avoided the spotlight of Washington, especially regulators and lawmakers. It took threats of subpoenas and public humiliation to persuade Mark Zuckerberg of Meta, Jeff Bezos of Amazon, and Sundar Pichai of Google to testify before Congress in recent years.

• But Altman, just 38, is taking a different approach. He's holding meetings and jumped at the opportunity to testify in last month’s Senate hearing. Rather than protest regulations, he's invited lawmakers to impose sweeping rules to hold the technology to account.

Why it matters:

Altman knows how significant this moment is in AI. He's delivered messages about the technology's potential and consequences on a 17-city tour of South America, Europe, Africa, and Asia. He's met with leaders in France, England, and the EU, and has shaped the debate on governing AI.

• “We think that regulatory intervention by governments will be critical to mitigate the risks of increasingly powerful models,” Altman said in last month's Senate hearing.

As fears around AI grow, Altman has informed political leaders about the technology's complexities. In the past decade, he's also seen the negative consequences of social media companies, a target of lawmakers. There could be lessons there.

In Altman, U.S. regulators see someone they can trust.

• OpenAI said that by learning from the tech industry’s past mistakes, it wanted to bridge the knowledge gap between Silicon Valley and Washington on A.I. to help shape regulation for decades.
  

• “We don’t want this to be like previous technological revolutions,” said OpenAI’s head of public policy. Altman “knows that this is an important period, so he tries to say yes to as many of these kinds of meetings as possible.”

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