On a par

INSIGHT WEEKLY : May 12, 2024

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An easy to read weekly summary to be well informed of topical issues in just 5 minutes.

🌐 Major indexes and major stocks

Markets recovered this week with UK’s FTSE 100 and France’s CAC40 setting new records during the week. UK optimism on interest rate hopes and on confirmation that it is out of recession. France and other European markets improved on expectations that interest rates will be cut soon.

Year to date, France’s CAC40, UK’s FTSE 100, Nasdaq and the S&P500 are on a par at around 9%. Earlier in the year, this was not expected with the S&P500 and Nasdaq performing better than most markets. Why the convergence ? UK has recovered strongly, France has been consistent and the US has had a levelling off after a boost for AI and Tech earlier in the year.

Major stocks of interest :

Tesla gave up some of the gains made last week as demand for EV’s fall.

TSMC gained on good sales as revenues in April increased over March by nearly 21%

🇬🇧 UK

Interest rate cuts could be coming soon for the UK ! At the last Bank of England’s Monetary Policy Committee, two out of the nine members voted for a cut of 0.25%. Later, Governor Bailey said that “things are moving in the right direction with the expectation that inflation will fall close to the target levels. Rates were held at 5.25%, with inflation at 3.2%. A June cut has become more likely.

The BOE’s forecast is

• Inflation is forecast to fall to the Bank's 2% target in the coming months and to 1.9% in 2026.

• Economic growth of 0.4% for the first three months of 2024 and 0.2% from April to June

Out of recession as confirmed by the latest numbers. A robust 0.6% growth from January to March—its fastest expansion in two years. The rejuvenation was primarily driven by the services sector, fueled by an early Easter and buoyant consumer spending on clothing and home furnishings, as per the latest ONS figures. While car manufacturers grew, the construction sector remained weak. Despite the upbeat headline growth, inflation and population adjustments paint a sobering picture, with real per capita growth still trailing by 0.7% year-over-year. However the expectation is continued growth, falling inflation and rising wages to gradually mend household finances and boost consumer spending.

FTSE100 was up +2.7% this week, and over +9% this year to hit a new record due to the good news on growth and inflation expectations. Year to date, the FTSE 100 has performed as well as the S&P500, which was not expected earlier in the year as the UK market was not performing well. As recently as March, the FTSE 100 was in a negative territory. Why the change in sentiment ? Interest rates could be cut sooner and that perhaps UK is not really worse off than the other major economies.

🇺🇸 US

Jobless claims climbed to the highest level since last August, reaching 231,000 for the week. Continuing claims also reversed a four-week decline, rising to 1.79 million. Additionally, a preliminary May report from the University of Michigan revealed a significant drop in consumer sentiment to 67.4, its lowest in six months. Consumers expressed increasing concerns about potential rises in inflation, unemployment, and interest rates, indicating a cautious outlook for the economy.

Bond markets had a steady performance despite absorbing a significant new supply. The 10-year U.S. Treasury yield remained stable, even after dipping to a near one-month low earlier in the week.The high yield bond market also improved as equities edged higher, reflecting a positive shift in market sentiment. 

S&P500 is up +1.8% in the week and over +9% so far this year. This is the third consecutive week of gains and less than 1% off the record.

🇯🇵 Japan

Yen slid further v USD touching highs of 157 down from around 153, despite suspected interventions by Japanese authorities aiming to bolster the currency. This depreciation occurred even as market insiders believed the BoJ had stepped into the forex markets on two separate occasions recently. The first intervention is estimated to have cost the Japanese government around $23bn. The total cost of intervention is not known. If 160 is the new line in the sand, the intervention appears to be happening earlier in a preventative move.

Travel and tourism is increasing. Japan is on track to exceed its pre-pandemic tourism goal, aiming to surpass 32 million annual foreign visitors by 2025, after a record 8.56 million visitors in the first quarter of 2024 alone. Prime Minister Fumio Kishida expects both visitor numbers and spending to reach record highs this year. Tourists spent ¥1.8 trillion ($12bn) during this period, averaging ¥210,000 ($1,355) per person, encouraged by the weaker yen. March saw a peak with 3.08 million visitors, attributed to Easter travels and the cherry blossom season. Most of the tourists stayed in the three metropolitan cities of Tokyo, Osaka or Kyoto, or areas surrounding the capital such as Chiba and Kanagawa prefectures, though there is an effort to increase rural tourism.

Interest rates expectations are leaning towards a steeper and possibly quicker rise in interest rates than the markets currently anticipate. In terms of monetary policy, the atmosphere at the BoJ's April meeting was decisively hawkish. Participants showed a strong tilt towards accelerating monetary normalization. The consensus among investors is a likelihood of two rate hikes within the next year.

Nikkei 225 is flat this week, and more than +14% this year. There is significantly volatility day to day. Currently. the market is trending below the 1989 high, having breached that record earlier this year after a span of 34 years.

See previous spotlight on Japan.

🌐 Artificial Intelligence

This cover has been designed using assets from Freepik.com

ChatGPT as a search engine ? OpenAI is set to challenge Google's dominance in search engines with a new AI-driven search tool launching soon, strategically timed just before Google's I/O conference. This move, supported by Microsoft, intensifies the competition in AI-enhanced search functionalities, where OpenAI aims to innovate with a product that integrates ChatGPT's conversational capabilities with web-sourced information. Google has been integrating AI into its search processes, and other companies like Perplexity are also enhancing their offerings, indicating a broader shift towards AI-driven search solutions across the industry.

OpenAI is joining the C2PA steering committee to enhance transparency in AI-generated content by incorporating metadata that certifies the origins of digital content. This initiative aims to tackle misinformation by making it harder to fake or alter content origins, especially in AI-generated images, videos, and other media. OpenAI is integrating these standards into its products, including the DALL-E 3 model, and developing tools like watermarking and AI detection classifiers to further authenticate content and facilitate independent research on its effectiveness. This move aligns with broader efforts to ensure digital content authenticity amid concerns over disinformation in upcoming elections.

New regulations are being considered by the Biden administration to restrict the export of advanced AI models and advanced AI chips to safeguard U.S. technology from adversaries like China and Russia.

These regulations would include controls based on the computing power required to train advanced AI models. When that level is reached, reporting needs to be made to the Commerce Department including test results and development plans. In such a fast moving arena, the oversight can be challenging to develop.

These efforts reflect ongoing concerns about the misuse of AI technology in cyberattacks and other threats.

🌐 Crypto Corner

Bitcoin price continues its decline since the halving. Some commentators are talking about a “consolidation” that may last months. While there are other economic factors such as inflation and deferred interest rate cuts, the large inflow of funds into the new Bitcoin ETFs may have soaked up demand and there is no further interest at the present time. Jack Dorsey (founder of Twitter) has said that Bitcoin could go up to $1m by 2030. Cathie Wood of Ark has said that it could go up to $1.5m. Currently, Bitcoin is around $61,000. That would be over 16X from now ?

Previous newsletter spotlight on Bitcoin halving.

🏅5️⃣ Billionaire Leaderboard

Mostly driven by stock market performance :

Change in week :

1. Bernard Arnault and family (LVMH) $214bn ⬆️ $2bn

2. Jeff Bezos (Amazon) $205bn ⬆️ $2bn

3. Elon Musk (Tesla, SpaceX) $191bn ⬇️ $7bn (Tesla -8% in the week)

4. Mark Zuckerberg  (Facebook/Meta) $167bn ⬆️ $9bn (Meta up 5%)

5. Larry Ellison (Oracle)  $145bn no change

SPOTLIGHTS

Links to earlier spotlights :

Residential property ;

Japan ;

India - an emerging economic power ;

Recession ;

AI chips ;

Bitcoin halving ;

US National Debt

Coming soon : Future growth sectors, Gold and more !