Wednesday 02/10/24

In Oil prices rise after Iran missile attack on Israel (The Times, Emma Taggart) we see the immediate reaction of world markets on the latest development in conflict in the Middle East – oil prices rose by 4%. Until this, the oil price had been weakening (remember Saudia Arabia said recently that it was abandoning its $100 a barrel oil price target so that it could produce more) as markets put more store on weaker China demand as a driver of oil prices than the effect of disruption being caused by Middle East instability. OPEC+ members will meet today.

It seems to me that Trump has had a double-boost to his campaign this week as Israel and Iran have just delivered the US election’s ‘October surprise’ (Financial Times, Gideon Rachman) observes that Biden’s administration has basically lost influence in the Middle East (and it’s not likely to improve either given that neither he nor Harris are likely to want to take any drastic actions before the election) because the Israeli’s aren’t listening to them and Striking dockers hold America’s economy to ransom (Daily Telegraph, Matt Oliver) also plays to Trump’s narrative that Biden’s lost control of the economy as members of the International Longshoremen’s Association (ILA) staged a walk-out from ports along the US east coast and the Gulf of Mexico over pay and automation in the ILA’s first strike action since 1977! This is likely to pose major risks to shipping around the world and could disrupt deliveries in the crucial last quarter of the year.

Over in Europe, Eurozone inflation falls below 2 per cent (The Times, Mehreen Khan) cites official figures which show that inflation in the ‘zone fell from 2.2% in August to 1.8% in September, something that makes it increasingly likely that the ECB will make its third interest rate cut in four months at its next meeting. The ECB’s annual inflation target is 2% and its next meeting is due to be held on October 17th.

Meanwhile, French premier Michel Barnier announces tax rises and spending cuts (Financial Times, Leila Abboud) shows that the country’s new PM is starting to take painful steps towards cutting its public deficit by raising taxes on businesses and rich people. He said that “If we do not

act, our country will be on the edge of the precipice” and added, somewhat chillingly, that annual interest rate costs alone could exceed spending on education and defence! Barnier will be proposing a budget next week and the whole tax rise thing goes against Macron’s economic policies thus far that have concentrated on tax cuts. How things have changed since Macron’s landslide victory back in 2017!

Back in the UK, Cooling UK labour market brings down wage growth (Financial Times, Delphine Strauss) cites data from Incomes Data Research which shows that the cooling labour market is putting downward pressure on wage growth. Although the average pay award in the private sector dropped from 4.4% in the three months to July to 4.1% in the three months to August, a boost in public sector pay growth meant that the average pay award across the whole economy remained stable at 4%. IDR’s findings echoed those of Brightmine last week which also showed a 4% average. This will be food for thought for the Bank of England in their interest rate discussions although I think that their main worry at the moment is still services sector inflation.

I thought I’d mention Don’t let the economic gloom-mongers get you down (The Times, Jamie Thomspson) as it takes a look at the global economy and whether doom-mongering is being overdone. It argues that fears of a US recession have been overdone, a soft landing looks like the most likely scenario and even energy disruptions from war in the Middle East are expected to be relatively short-lived. Some are saying that a Trump victory could have a bigger impact on growth than developments in the Middle East, particularly from the massive import tax rises he’s talking about implementing (but then again they are likely to be phased in as this is something he did before when he slapped taxes on the Chinese in his first presidency). There are also reasons for cautious optimism in the UK as the government may be able to spend more as it changes the rules on its spending restrictions which could mean an increase in public investment, which in turn could provide a boost for an economy where the government has spooked everyone by implying that we’re in for a dose of austerity.

In SAP chief warns EU against over-regulating artificial intelligence (Financial Times, Stephen Morris) we see that the chief exec of Europe’s biggest software firm is warning EU policymakers against getting too zealous about regulating AI because he thinks it will put Europe at a disadvantage to the US, which currently has a more laissez-faire approach. Tech companies are getting particularly tetchy about the EU’s new Artificial Intelligence Act which is looking to regulate the most powerful LLMs while the Digital Markets Act and GDPR restrict access to the data that trains LLMs. However, AI may regret aping Wall Street’s regulatory resistance (Financial Times, Lex) is an interesting article which suggests that regulating AI now would be better than waiting because it makes the point that there are two ways of regulating an industry – putting rules in place to avert disaster or implementing them after one! * SO WHAT? * It draws a comparison between the AI industry and the banking industry – both of whom furiously resist regulation, trotting out the arguments that it stifles innovation and restricts start-ups. You could argue that the rules put in place on the banking industry after the financial crisis of 2008 were overly-austere but then again such rules have actually made big banks bigger and US ones continue to dominate precisely because customers feel safer while financial innovation continues. If AI rules are put in place now, they could not only prevent disaster – they could also actually prompt innovation!

In other AI-related news, OpenAI bets on AI agents becoming mainstream by 2025 (Financial Times, Cristina Criddle and George Hammond) shows that OpenAI reckons that AI-powered assistants will become the norm by next year as tech groups, including Google and Apple, continue to develop them for their respective users. They believe that AI agents will enable better interaction between the LLMs and users and that this is what will drive future profits. Microsoft, Salesforce and Workday all announced last month that they’ll be concentrating on AI agents as part of their respective AI strategies. However, Don’t expect AI to just fix everything, professor warns (The Times, James Hurley) highlights an interesting point of view from one of the UK’s leading AI researchers, Professor Neil Lawrence, who said that it is not right to assume that AI is the solution to all problems. The professor of machine learning at Cambridge Uni, who also used to be director of machine learning at Amazon and spent time as a field engineer on oil rigs in the North Sea, also poured cold water on the idea that AI could one day replace human intelligence. He said that big LLMs could be “utterly transformational” because they enabled normal people to interact more comprehensively with machines, an area that has been alien to many thus far.

Meanwhile, New law may be needed to end AI copyright disputes (The Times, Tom Saunders) cites the new minister for AI and digital government as saying that she expects a resolution to the copyright disputes between British AI companies and creative industries “by the end of the year” either via an amendment to existing laws or the introduction of new legislation. * SO WHAT? * Resolving this dispute is seen to be key to keeping the UK in the AI game. At the moment, laws do

not allow unauthorised copying of copyright protected materials for training LLMs unless it’s done for purely non-commercial purposes. There was no further detail given as to how this impasse would be crossed.

Then in DeepMind and BioNTech build AI lab assistants for scientific research (Financial Times, Madhumita Murgia and Ian Johnston) we see another example of a “good” use of AI as the two companies are now building their own AI lab assistants that can help planning experiments and more accurately predict their outcomes. * SO WHAT? * It is envisaged that these assistants will enable scientists to collaborate across disciplines and make connections more easily, speeding up drug development. BioNTech and its London-based AI subsidiary, InstaDeep, announced yesterday that they had jointly designed an assistant called Laila, built on Meta’s Llama 3.1 model that could automate routine scientific tasks in experimental biology. It’s good to know that AI is being used here – and you’d hope that this would mean that the drug development will accelerate as a result. The tools that are available now aren’t perfect, but they are impressive enough to be “a fantastic tool”.

In media news, Reuters, CNN Become Latest Outlets to Make You Pay for Digital News (Wall Street Journal, Alexandra Bruell) shows that Thompson Reuters is joining the trend of media companies charging users for access to content. Its subscription, of $1 a week, will launch this month in Canada to be followed by the US and parts of Europe later. CNN announced yesterday that it would start charging for unlimited access to CNN.com and tech outlet the Verge is also considering a paid subscription. * SO WHAT? * At the end of the day, putting news together takes a lot of hard work and resource! I think that, particularly with the advent of AI, this type of content creation needs to be protected and therefore users that have become accustomed to getting good quality content for free are going to have to pay.

Social media needs regulation to keep users safe, says Ofcom chief (The Times, Tom Saunders) cites the head of Ofcom, the communications regulator, as saying that – up till now – social media platforms haven’t really taken user safety seriously enough and that although they have brought many benefits, there have been a lot of downsides as well. Melanie Dawes called for more accountability and responsibility as Ofcom is about to take on new powers to regulate content on social media and other online services under the Online Safety Act, which is expected to come into force in the UK next year. Meanwhile, the Competition and Markets Authority has been given new powers under the Digital Markets, Competition and Consumers Act to enforce competition.

Meanwhile, in the rough and tumble of the retail world, Mulberry rejects takeover offer from Mike Ashley’s Frasers Group (The Times, Martin Strydom and Isabella Fish) shows that the luxury handbag maker is trying its best to escape the looming shadow of Mike Ashley as it rejected Frasers Group’s £83m takeover offer despite obviously being in distress. The #1 shareholder, Challice (which is controlled by Singaporean billionaire Ong Seng Beng and his wife Christina Ong), expressed zero interest in supporting the bid. Mike Ashley will struggle to bag Mulberry (The Times, Alistaire Osborne) points out that Frasers Group is still only a minority investor, despite his now 36.8% stake in the business while Challice has 56.1%. If he wants to bag Mulberry, he’s going to have to up the ante – whether or not the company’s in strife at the moment.

Elsewhere, Garden centre chain Dobbies to shut 17 stores as part of restructuring plan (The Guardian, Sarah Butler) heralds tricky times for the garden centre chain which announced plans to shut 17 of its 77 stores in order to get back to profitability while Greggs rules out price rises after sales slow (The Times, Isabella Fish) highlights a rare bit of disappointment from the baker

as it reported a sales slowdown in Q3 (although it will have pleased customers by saying that it had “no plans to put up prices for this year”). Still, you would have thought that baked goods are where it’s at going into autumn and winter so I wouldn’t get too downbeat! The fact that they’ve left the full year outlook unchanged would suggest that there’s still hope of an uplift!

Then in ‘Waitrose of the north’ slashes losses as sales surpass £300m (The Times, Isabella Fish) we see that Booths managed to narrow annual losses after sales breached the £300m mark for the first time in its history! The family-owned retailer, often nicknamed the “Waitrose of the North”, managed to benefit from higher footfall, per basket spend, “record” Christmas sales and a longer Easter period. Interestingly, it became the first grocer in the UK to get rid of almost all of its self-checkout tills last November – which went down a treat with customers!

In a quick scoot around some of today’s other interesting stories, Auto Sales Are Idling as Prices Remain High (Wall Street Journal, Christopher Otts) cites the latest research from Wards Intelligence which says that US vehicle sales fell by 1.9% in Q3 versus the same period a year ago (something backed up by weaker sales figures from GM and Toyota) and still fall short of pre-pandemic levels while European carmakers brace for a deeper and longer downturn (Financial Times, Kana Inagaki) reflects on profit warnings by the likes of VW and Stellantis which would suggest that the whole industry is going to be stuck in a deeper rut for longer. As if that wasn’t bad enough, Vauxhall owner Stellantis recalls plug-in hybrids over fire risk (The Times, Robert Lea) shows that the troubled European maker has had to recall almost 200,000 plug-in hybrids following reports of fires in vehicles that were parked with the ignition turned off 😱 (something we saw recently in South Korea)! None of this is going to do anything for EV mojo while Connected cars pose real risks (Financial Times, June Yoon) highlights the potential price of convenience – that having a connected car opens drivers up to cyber attacks or data breaches. At the moment, the clamour for smarter self-driving cars seems to be taking priority over privacy, cyber security risks and regulation. * SO WHAT? * The automotive industry is in serious turmoil at the moment. A combination of the cost-of-living, higher vehicle prices, the lack of demand for EVs, the dominance of Chinese makers and suppliers of EVs and the tightening of emissions regulations is making for the perfect storm. In short, I think that import sanctions may be part of the solution – but I think that governments now need to take a pragmatic approach and push back the petrol/diesel deadline and/or change the fining structure otherwise they won’t have an industry to save. And as far as batteries are concerned, ‘Huge losses’: Sweden fears for future of batterymaker Northvolt (The Guardian, Miranda Bryant) suggests that the writing may be on the wall for Europe’s last big hope unless it can secure financial backing.

In the world of finance, Apollo plans to double assets by 2029 as it lays down challenge to banks (Financial Times, Antoine Gara and Eric Platt) shows that the private equity firm has big ideas for its private capital business while Barclays details plans to revamp investment banking returns (Financial Times, Ortenca Aliaj) highlights the company’s intention to improve returns by focusing on advisory and equity capital markets work and de-emphasising debt underwriting. * SO WHAT? * As I’ve said before, I think that this whole private capital market needs to be addressed by regulators ASAP because I think it’s a disaster waiting to happen. How can you have these companies taking on massive debts and not be regulated – particularly as they themselves borrow from banks?? As for Barclays, I’d take this as a sign that the IPO market is going to be going up from here! As I said earlier this week, it may not be that active for the rest of this year (because everyone’s going to be waiting to see who wins the US election) but perhaps next year – and by then we may also see a few more interest rate cuts from the Fed, the ECB and the Bank of England, which would help jolly things along a bit (because it will reduce the cost of debt, which means that it will be easier for companies to invest).

In investment-related news, Like it or not, miners are still a China proxy (Financial Times, Lex) makes the point that the 10% share price boost enjoyed by the “big four” diversified miners – BHP, Rio Tinto, Anglo American and Glencore – has coincided with China’s recent efforts to stimulate the economy. The conclusion from this is that miners are still a proxy for the China

market in that China demand remains their most important driver. * SO WHAT? * Predictions from the industry that we are on the verge of an energy transition “supercycle” have not materialised and it remains the case that China is still their most important driver. If the stimulus loses momentum, then, so will the miners’ recent uptick. The miners will be crossing their fingers that copper and battery metal demand will increase from here – but even then, China is the world’s biggest buyer of copper – so China will continue to be the main driver whichever way you look at it!

Following on from this, Chinese outbound investment surges to record on clean energy ‘tsunami’ (Financial Times, Edward White and William Sandlund) is an interesting observation of China’s outbound investment which continues to climb from already-heady levels. According to the latest stats from the Ministry of Commerce and the State Administration of Foreign Exchange, investment from China increased in renminbi terms by 12.5% in the first eight months of 2024 versus the same period a year ago while analysts at Climate Energy Finance suggest that investment activity has been particularly marked in renewable energy and transport electrification projects. * SO WHAT? * This all sounds very credible but I wonder how such investment will change as sanctions tighten and governments get increasingly protective. Given how China has basically beaten the world in solar panels and EV batteries (and related materials) I wonder whether it will meet stronger resistance as time goes on. Where does the money go then? Russia? The Middle East?

In other news, Aircraft owners prepare for ‘mega trial’ in dispute with insurers over planes stuck in Russia (Financial Times, Alistair Gray and Sylvia Pfeifer) brings our attention to the commencement of a massive legal battle, kicking off today in the High Court, over who is going to pay the bill for hundreds of stranded aircraft in Russia. Over 500 aircraft worth around $10bn were “commandeered” by the Russians since their invasion of Ukraine and insurers including AIG, Chubb and Lloyd’s of London are pitting themselves against plane owners – including the world’s biggest commercial aircraft leasing company AerCap – to get down to who’s going to have to cough up. The owners want about $3bn from insurers, who clearly won’t want to shell out that much. This is going to be a very complex case!

I thought I’d include How Ozempic is transforming your gym (Financial Times, Brooke Masters) because it seems that the surge in popularity of Ozempic and other weight-loss drugs is having an interesting consequences on what equipment gym-goers want! For quite some time now, rows of cardio equipment have become the norm but it seems that more people are now using barbells, dumbells, medicine balls and other bits, which is prompting layout changes at gyms! Interestingly, one of the side-effects for GLP-1 users is significant muscle loss along with fat, which can lead to things like “Ozempic butt”, hence the rise in popularity of strength training. In addition to that, though, strength training among older people is also rising due to its ability to prevent osteoporosis and while there is also a wider trend for people to engage in such training to relieve symptoms of depression. This sounds like great news for gyms (= more members) – but particularly makers of gym equipment (kitting out those gyms!), no?

This starts out quite normally and then things get interesting at the end! What do you think of this shot?!?