Uncertainty of over 80 elections around the world

INSIGHT WEEKLY: June 30, 2024

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A round-up of the need-to-know topics of our times.

🌐 Major indexes and major stocks

Three records in the week (shaded in blue below) as S&P500, Nasdaq and India’s Nifty50 hit new highs.

Magnificent 7:

Nvidia continues to decline after a significant run.

Tesla has improved in the week after analyst uprating.

Major Semiconductor stocks:

Highest value companies (market capitalisation) in $ trillion:

Amazon became a $2 trillion company during the week.

🇬🇧 UK

Growth in the UK economy was 0.7% between January and March 2024, higher than the previously estimated 0.6%, as the country emerged from recession, according to revised figures from the Office for National Statistics (ONS). The service sector, including hairdressers, banks, and hospitality, played a significant role in this growth. This made the UK the fastest-growing economy among the G7 nations in early 2024. Despite the positive revision, high interest rates and rising costs continue to strain household budgets. However, increased consumer spending and higher household saving rates indicate a stronger economic recovery.

UK was in recession in Q3 and Q4 2023.

Uncertainty caused by over 80 elections all over the world could destabilize the UK’s financial system, the Bank of England (BOE) has warned. The uncertainty over potential new policies in major economies, including the US and also France’s parliamentary elections, is causing concern.

The sheer number of elections amplifies geopolitical risks and could increase government borrowing costs.

The Bank is monitoring the impact of high interest rates on UK households, with many mortgage payments set to rise as fixed rates expire. However, predicted rate drops from August could ease some pressures.

There are also concerns about the financial system's exposure to the $8 trillion private equity industry which thrived when interest rates were low and is still a big player even in times of higher rates. The BOE is concerned about “gaps” in how UK banks are managing exposures to the private sector industry.

Risks to the global economy are material say the Bank of England (BOE). Geopolitical risks and high interest rates are the key areas of concern.

FTSE100 is flat to last week and +5.6% this year.

🇺🇸 US

Inflation is slowing according to Core Personal Consumption Expenditure (PCE), released by the Bureau of Economic Analysis. Core PCE, the Federal Reserve’s preferred measure of inflation, showed that prices excluding food and energy rose 0.1% in April. This makes inflation at 2.8% compared to a year ago.

Yield curve steepens as sentiment improves about a rate cut in September. The short-end Treasury yields decreased, steepening the yield curve.

Stock markets gained in the week with the S&P500 and the Nasdaq making new record highs during the week. Small cap stocks and tech stocks moved up in the week.

S&P500 is -0.1% this week and +14.5% this year.

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🇯🇵 Japan

Yen continues to weaken despite government intervention to support the currency. This week it weakened further to over JPY 160 against the USD, the weakest in 38 years. Previous interventions have been at lower levels. Will there be an intervention next week?

Stock markets gained during the week mainy due to the weakening exchange rate which helps exporters.

Nikkei 225 Index was +2.6 % last week, and +18.3% in the year, and is now above the 1989 high.

See previous spotlight on Japan.

🌐 Artificial Intelligence

This cover has been designed using assets from Freepik.com

Microsoft has unveiled a new AI jailbreak attack called “Skeleton Key,” capable of bypassing safety measures in several generative AI models. This technique can subvert built-in AI safeguards, highlighting the need for enhanced security across AI systems. Skeleton Key uses a multi-turn strategy to trick AI models into ignoring their protective protocols, giving attackers full control over the AI’s outputs. Microsoft's research team tested the attack on major AI models, including Meta’s Llama3, Google’s Gemini Pro, and OpenAI’s GPT-4, among others.

The attack manipulates models to respond to any request while issuing a warning if the output could be offensive or harmful. This “Explicit: forced instruction-following” method enabled the production of forbidden behaviors, such as creating harmful content or overriding decision-making rules.

Microsoft has implemented protective measures, including Copilot AI assistants, and updated its Azure AI models to detect and block such attacks. They recommend input filtering, prompt engineering, output filtering, and abuse monitoring to mitigate these risks. Additionally, Microsoft's PyRIT toolkit now includes tests for Skeleton Key vulnerabilities.

Link to Microsoft Skeleton Key

OpenAI blocks access to its services in China and Hong Kong. This decision has triggered significant changes in the AI landscape. This move, driven by increasing geopolitical tensions and a desire to protect intellectual property, leaves a void that Chinese companies like Baidu, Alibaba, and Tencent are eager to fill. These firms are offering incentives and resources to attract developers previously reliant on OpenAI’s tools. The restriction underscores the deepening tech divide between China and Western nations, impacting startups and smaller companies that lack the resources to develop similar AI models independently.

As OpenAI exits, domestic giants with robust financial and technical capabilities are poised to accelerate their AI innovations, potentially leading to a new surge in AI research within China. This shift could also fragment the global AI market, with countries aligning their AI technology sources based on geopolitical ties. The move raises critical questions about digital sovereignty, ethics, and security in AI development and deployment, emphasizing the importance of international collaboration amidst growing technological rivalries.

The ChatGPT timeline :

2018

- June: OpenAI introduces the GPT model, showcasing transformer architecture's potential for NLP.

2019

- February: OpenAI releases GPT-2 but initially withholds the full model due to misuse concerns.

- November: Full GPT-2 model is made public.

2020

- June: OpenAI launches GPT-3 with 175 billion parameters, setting new NLP benchmarks.

2021

- June: OpenAI releases Codex, powering GitHub Copilot for AI-based code completion.

- November: OpenAI's GPT-3 API becomes widely available for developers.

2022

- April: OpenAI continues improving model capabilities and safety measures.

- July: OpenAI announces DALL-E 2, generating realistic images from text.

- December: OpenAI introduces ChatGPT, a conversational AI model based on GPT-3.5.

2023

- March: OpenAI releases GPT-4, enhancing performance and generation capabilities.

- June: GPT-4 integrates into applications, expanding use in various sectors.

- October: OpenAI updates safety and ethical guidelines for responsible AI usage.

2024

- January: OpenAI announces further advancements in GPT-4.

- March: OpenAI introduces ChatGPT-4o, optimized for real-time conversations.

- April: OpenAI models drive adoption in diverse industries.

- June: OpenAI blocks access in China and Hong Kong, prompting increased competition from Chinese AI firms.

Alibaba Cloud is expanding its AI offerings globally by launching an international version of ModelScope, their open-source AI model platform. Initially launched in China in 2022, ModelScope has grown to be the largest AI model community there, with over five million developers. The new global version will give businesses and developers worldwide access to more than 5,000 advanced AI models and 1,500 Chinese-language datasets. The platform supports AI project development with minimal coding by providing tools for model inference, training, and evaluation. This launch was announced at the 2024 CVPR Conference.

Link to Alibaba Cloud

🌐 Crypto Corner

Tracking Bitcoin price :

Over different periods:

Bitcoin trading over weekends has fallen to an all-time low of 16% this year, according to the research firm, Kaiko. This change aligns with the introduction of spot Bitcoin exchange-traded funds (ETFs), which have synchronized Bitcoin trading more with traditional stock market hours, reducing its notorious price volatility. Historically, Bitcoin traded 24/7, resulting in "Wild Weekends" with significant price swings. However, the new Bitcoin ETFs, approved by the US SEC in early 2024, trade only on weekdays, shifting most activity to those days.

Additionally, the collapse of crypto-friendly banks like Silicon Valley Bank has reduced weekend trading volumes due to the loss of 24/7 payment networks. This shift has led to increased trading during weekday "benchmark fixing windows." As a result, Bitcoin's price volatility has significantly decreased, indicating a more mature market. Despite some recent gains being trimmed, Bitcoin is still up about 43% this year, trading around $61,000.

see the previous spotlight on Bitcoin halving 

Ethereum spot ETFs were expected to launch in early July. Several asset managers had submitted revised proposals to the US Securities and Exchange Commission (SEC), but the launch has been delayed to mid July or later.

🏅5️⃣ Billionaire Leaderboard

Mostly driven by stock market performance :

Change in week :

1. Elon Musk (Tesla, SpaceX) $213bn ⬆️ $8bn (Tesla is +8% this week)

2. Jeff Bezos (Amazon) $210bn ⬆️ $4bn (Amazon is now a $2 trillion company)

3. Bernard Arnault and family (LVMH) $194bn ⬆️ $2bn (no change)

4. Mark Zuckerberg  (Facebook/Meta) $173bn ⬆️ $3bn

5. Larry Ellison (Oracle)  $173bn ⬆️ $5bn (no change)

SPOTLIGHTS

Links to earlier spotlights :

Residential property ;

Japan ;

India - an emerging economic power ;

Recession ;

AI chips ;

Bitcoin halving ;

US National Debt ;

Gold ;

Nvidia

Last week: The $84 trillion wealth transfer