SpaceX intends to build the technologies to make life multiplanetary, understand the true nature of the universe and extend the light of consciousness to the stars.
On a distinctly more parochial note, equity markets were up last week with global equities gaining 1.3% in local currency terms and 0.6% in sterling terms. The UK particularly had a good week with the FTSE All Share rising 2.7% and gilts also up a strong 2.0%.
Equities were buoyed by the move by the US and Iran towards a peace agreement – or more accurately a memorandum of understanding with a 60-day extension to the ceasefire for further discussions. The Brent crude oil price ended the week down 6% at just below $100 per barrel.
European equities also managed a strong 2.1% gain. Just like the UK, they have been one of the regions hardest hit by the conflict. US and emerging markets were both up a more modest 0.5%.
There was minimal market reaction this morning to the news of US strikes on Iranian missile sites and the rather more cautious comments from Iran than the US on the progress towards a peace deal. It still seems we are heading towards some kind of reopening of the Strait of Hormuz over coming weeks, even if the crucial matter of Iran’s ‘nuclear dust’ remains to be resolved and still seemingly a major source of disagreement.
Nvidia’s results would in normal times have been centre-stage and a source of wonderment. Once again, they were stellar with sales up a stonking 85% on a year earlier and beat expectations. Yet the stock ended the week down 4% even though there was no hidden nasty in the results.
It’s just that exceptional results from Nvidia are now viewed as no more than to be expected. It is also down to the Magnificent Seven no longer being the latest hot AI story. Semiconductor companies more generally have been the AI darlings this year- rising as much as 50%, swamping Nvidia’s 15% gain.
But a big new story has just hit town. Elon Musk’s SpaceX released last week the prospectus for its forthcoming initial listing on the US markets. Its involvement in both AI and space exploration apparently means the sky is no longer the limit.
SpaceX is not the only source of excitement. AI companies OpenAI and Anthropic also both plan listings later this year. With the valuation implied by the initial public offering (IPO) of each company quite possibly likely to exceed $1 trillion – despite all currently being loss-making – the market’s enthusiasm for AI and now space is clearly in full swing.
These IPOs bring back memories of the spate of new offerings at the height of the tech bubble in 2000. But the difference this time – even if one believes as we do that there is irrational exuberance in some areas – is that valuations in most cases are much less stretched this time and the big tech players are generating massive profits.
We continue to believe the best stance to take on tech is to retain a significant exposure to these high growth areas but keep it below the outsized allocation arising from a passive holding in global equities.
Moving back to the real world from Elon Musk’s dreams, last week’s business confidence numbers brought one back to earth with a bit of a bump. Sentiment fell into recession territory in May in both Europe and the UK as the closure of the Strait of Hormuz took its toll.
In the US by contrast, business confidence held up. But this is only half the story as consumer pessimism hit a record high. With the mid-term Congressional elections looming in November, Trump will be more concerned by the latter than reassured by the former – hence maybe the latest push for a deal with Iran.
The slump in business sentiment in the UK and Europe certainly suggests that growth will be sluggish going forward but is unlikely to herald a recession – not least if the main source of worry gradually fades away as seems increasingly likely.
In the UK of course, we can also look forward with relish to the British summer savings scheme recently announced by the Chancellor. Rather more importantly, the danger of the Bank of England raising rates significantly has receded.
The silver lining behind the weak confidence numbers is that they should make the Bank rather less worried about the need to raise rates to prevent the forthcoming rise in inflation becoming entrenched. Indeed, the latest inflation data provided some good news on this front.
Headline inflation fell back more than expected in April to 2.8% from 3.3%, while the core rate declined to 2.5% from 3.1%. These numbers don’t mean inflation is not going to head back up again to 3.5% or so over coming months but do reduce the risk of the Bank overreacting.
UK gilts certainly liked the latest crop of UK numbers and Andy Burnham’s sudden newfound determination to stick to the government’s fiscal rules. 10-year gilt yields, which had touched as high as 5.2% only ten days ago at the peak of market hysteria over the potential Labour leadership contest, are back down to 4.9%.
This coming week, all eyes will clearly be focused on whether or not the US and Iran manage to come to their senses. Macro releases are few and far between with the only data really of note being the US inflation and growth numbers out on Wednesday.
Rupert Thompson – Economist