Breakfast Bites - QT may stop; Microsoft announces breakthrough

Special Research on Microsoft's Quantum Chip

Feb 20, 2025

Rise and shine everyone.

Yesterday, Fed Meeting Minutes seemed to have been encouraging for the market with members discussing the possible end of QT, until the debt situation is resolved. Even though the minutes pointed to keeping rates restrictive as long as the economy remains strong, the 10Y UST Yield moved lower, giving the market a boost.

There was significant news affecting corporates as well. Firstly, news of 8% budget cuts for the Department of Defense weighed on the major defense players but took Palantir down over 12%.

Secondly, Microsoft made a breakthrough in quantum computing. [Some research on this is below]

JGB’s were quiet this morning after days of moving higher. The JPY moved higher against the USD after the UST Yields moved lower, overnight.

Trump also floated a 25% tariff on lumber imports. In 2023, the largest lumber exporters to the US were Canada ($11.5B), China ($2.4B), Brazil ($1.6B), Chile ($1.1B), Vietnam ($1.0B), and Germany ($600-700M).

China left Loan Prime Rates unchanged.

European equities opened higher Thursday, rebounding from Wednesday’s declines, though the FTSE 100 extended losses after a 0.6% drop—the index’s worst in two months.

Taiwanese export orders plunged 3% YoY in January, led by declines in plastics, textiles, and tech, while transport equipment surged 128%. German PPI rose just 0.5% YoY, below forecasts of 1.3%, signaling cooling inflation.

US Equity Futures are lower this morning despite the pullback in US Treasury Yields and the US Dollar. Crude is higher alongside the metals and agriculture.

Microsoft claims to have achieved a major breakthrough in quantum computing by successfully harnessing Majorana fermions after two decades of research. Majorana fermions are said to be an elusive form of matter that was first discussed in 1937. The company has built the first processor using this technology, called Majorana 1, based on eight topological qubits, which are expected to be more stable and resistant to errors than other quantum computing approaches.

This is significant because error correction is a major hurdle in quantum computing. Most quantum systems require many extra qubits to correct errors, but Microsoft’s topological qubits could drastically reduce that need, potentially giving them a competitive edge in building a scalable, practical quantum computer. Microsoft believes this will allow it to develop a working quantum machine by the end of the decade, ahead of competitors.

Next, Microsoft will focus on scaling up its technology, with the goal of reaching 1 million qubits per chip. It has also secured a partnership with DARPA.

If successful, this could help Microsoft leapfrog competitors like Google (GOOGL), IBM (IBM), and Nvidia (NVDA) in the quantum computing race. This could make Microsoft more competitive against Amazon (AWS) and Google Cloud.

Nvidia’s CEO recently downplayed quantum computing’s near-term potential, favoring AI and traditional computing, but if Microsoft proves him wrong, investor sentiment could shift. Meanwhile, quantum computing startups like Rigetti Computing (RGTI), IonQ (IONQ), and D-Wave (QBTS) might experience short-term volatility, as Microsoft’s breakthrough could either validate their work or overshadow their approaches, depending on how the technology develops.

[Got some good background info using ChatGPT!]

Chart of the Day

Research from BofA yesterday based on the AAII Investor Sentiment. BofA notes that the wall of worry is alive and well, with individual investors the most bearish since the late 2023 fall correction low. [Remember that the AAII survey is based on a small sample and can be a poor predictor of future moves]