Isambard AI Brunel?

Given the transformational nature of “AI”, we should not really be surprised to learn that AI has been named Word of the Year for 2023 by Collins Dictionary.

PM Rishi Sunak recently hosted an AI Safety Summit at Bletchley Park and wants the UK to be a world leader in the technology. The summit was even attended by Elon Musk, who has in the past expressed his fears that artificial intelligence could threaten society and human existence itself.

The government is now looking to create the UK’s most powerful supercomputer, which will be supplied by Hewlett-Packard Enterprise. Isambard-AI will be ten times more powerful than the UK’s fastest supercomputer. It will offer capacity never seen before in the UK for researchers and industry to harness the huge potential of AI fields such as robotics, big data, climate research and drug discovery. Some £300m is being provided to create a new national Artificial Intelligence Research Resource (AIRR), which will host 5,000 state-of-the-art NVIDIA superchips capable of delivering over 200 petaflops or 200 quadrillion calculations per second. The University of Bristol will host the AIRR in collaboration with the Universities of Bath, Cardiff, and Exeter and it is due to go live in the summer of 2024.

AI has certainly got US investors excited, with NASDAQ the home of many of the global leading players. This includes US AI chip maker NVIDIA, whose shares have trebled in value so far this year. The stock market, as ever, has been quick to punish established business models that might appear to be vulnerable to AI. Some UK companies are already actively using AI to improve service levels and increase efficiencies. Others have in-depth strategy reviews underway to protect their IP from AI while using it to aid the future growth of their business.

No one can really say how AI will affect us with any certainty, but, it looks from an investment perspective as if it could ultimately be as transformational as the internet. Although, if growth is unchecked, could AI become so powerful that it becomes a threat to humanity? 

 

What have we been watching?

 

Markets continue to be guided by central bank comments and events in the Middle East. Several members of the US Federal Reserve sought to dampen market hopes for an early interest rate cut after a recent rally in Treasuries. Fed Chair Jerome Powell added that ‘Fed officials are not confident that interest rates are high enough to tackle inflation.’ This saw 10-year US Treasury yields push up from 4.4% to 4.6%. However, inflationary concerns will be helped by the oil price, which dropped to a three-month low. Meanwhile, economic data from Europe and China remained weak.

A ransomware attack on the financial services arm of China’s largest bank, ICBC, also disrupted the US Treasury market. Cyberattacks appear on the increase, with major ports handling 40% of Australia’s freight trade disrupted for three days following such an attack on DP World.

PM Benjamin Netanyahu ruled out a longer ceasefire in Gaza. He also said that Israel will have ‘overall security responsibility’ for Gaza once the fighting ends for an ‘indefinite period.’ The UN appears powerless to halt the bombing of Gaza, where civilian casualties continue to mount. The risk of escalation remains with fire exchanged across the border with Lebanon, while the Pentagon said there have now been 38 attacks on US bases in Iraq and Syria.

Meanwhile, the long war of attrition in Ukraine continues with reports that Russia hit an iron ore carrier near the port of Odessa, although Ukraine says that the trade shipping corridor is still active.  Putin is believed to have decided to run in the March Russian election, meaning that he would remain in power until at least 2030. This is not helpful news for Ukraine or its western supporters. Meanwhile, leaders of the G7 group of countries have insisted that their support for Ukraine ‘will never waver’, recognising that Russia is prepared for a long war.  

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The UK economy appears to be ‘stagnating’ rather than moving into recession, as GDP was flat in the third quarter. Huw Pill, a voting member of the Bank of England monetary policy committee, said that market expectations for an interest rate cut mid-next year do not seem totally unreasonable. UK grocery inflation fell below 10% in October to 9.7%. This week will see the latest UK inflation data, with markets expecting a fall from 6.3% to 4.7%.

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In Europe, following the earlier ‘flash’ estimates, the finalised readings confirmed a further fall in business activity in the eurozone in October, with a reading of 46.5 compared with 47.2 in September. Activity in France, Germany and Italy stagnated with a reading of 50.

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In the US, activity in the services sector continued to weaken, with an ISM reading of 51.8 in October, down from 53.6 in the previous month.

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China’s exports fell at a faster pace than expected in October and were 6.4% below September, making it the sixth successive month of decline. However, imports grew by 3% – the first month of growth on the previous year since late 2022. China also slipped back into deflation in October, while producer prices also contracted for the thirteenth month in a row. Meanwhile, China is tightening controls over rare earth mineral exports along with imports of other natural commodities as the authorities continue to tighten their grip on the way the economy works.

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Despite the events in the Middle East, Brent oil drifted back to a three-month low of $80 on further weak Chinese economic data, a large draw on US crude stocks and a stronger dollar.

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Finally, talking of AI, Artificial Intelligence could perform illegal financial trades and cover them up. In a demonstration by the government’s Frontier AI Taskforce at the recent AI summit, a bot used made-up insider information to make up an ‘illegal’ purchase of shares without telling the firm. AI has been used in financial markets for some years to spot trends and make forecasts, while most trading is done by computers with human oversight. It sounds like financial regulators will have to be even more vigilant in future, although we assume they will be using AI to identify abnormal market behaviour.

Read Last Week’s Alpha Bites – Ironclad

 

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Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.