Monday 15th April 2019
Last week, there were several indications of international discord between the world’s three major trading blocs. The US confirmed it was considering $11 billion in tariffs on Airbus, following the WTO’s finding that state subsidies to the plane manufacturer had adversely impacted the US. The EU-China summit had a similarly chilly tone, as Brussels, Paris and Berlin grow more nervous about China’s lopsided trade relations with Europe.
That said, in many cases the deepest tensions were over technology, not trade. Despite Information Technology stocks often driving the market recovery this year, several of them continue to be in the line of fire. Last week, the US government criticised Microsoft for working with a military university in China on Artificial Intelligence that could be used for surveillance and censorship. China increasingly dominates the field via an invasive and growing infrastructure of facial recognition technology, which it uses to monitor its domestic population to an almost unthinkable extent.
Yet criticism does not just focus on tech giants’ relations with China – it also concerns their behaviour in the US and Europe. Last week, Bloomberg reported that Alexa, Amazon’s virtual assistant, not only records some users’ conversations, but also feeds back recordings to thousands of Amazon staff employed specifically to listen in and study the content. Amazon admitted that this was the case, but added that the recordings were used to improve their voice recognition technology.
The UK, meanwhile, announced plans to enforce the removal of harmful content from the internet by those platforms on which it appears. If enforced to nth degree, this would be a major challenge for the likes of Google and Facebook, but the details of implementation are still to be confirmed. The tech giants’ impact on the high street, on the other hand, is clearly visible. Last week, Debenham’s fell into administration, the victim of the rapid rise of online retailers – and their low-cost business model.
Black holes, Brexit and other mysteries
Last Wednesday, the first-ever image of a black hole was published – a real feather in the cap, not just for science, but for mathematics, too. Ninth-century Iranian scholar Muhammad ibn Musa Al-Khwarizmi introduced the decimal system to the West and coined the term ‘algebra’ – ‘algorithm’ was named directly after him. It was an algorithm that facilitated the ground-breaking image, 1,169 years after his death. At about 6.5 billion times the mass of the sun and 55 million light years from Earth, this image of the black hole might just help crack open one of the biggest mysteries in the Universe.
One mystery that appears ‘uncrackable’ at the moment is Brexit, a scenario that has also proven that politics is far from immune to such black-hole-phenomena by whisking all other major legislation into oblivion. On Thursday, the Prime Minister won agreement to extend that legislative void by a further six months. Within less than a day, sterling and the FTSE 100 had largely shrugged off the news – and expectations of the next interest rate rise had been pushed back to the back half of 2020, dealing a blow to cash savers. Brexit is perhaps losing its capacity to shock, especially now that a no-deal outcome has been largely ruled out.
Reassurance in the US and China
Markets had a mixed few days last week, ending marginally up in the US and Europe, and down in Japan and China. In broad historical terms, though, what was most notable was that we are just now in relatively quiet financial times. VIX, a measure of volatility on the S&P 500, ended the week close to 12, against a long-term average of 20. Enjoy it while it lasts.
Investors in the US were particularly reassured by a positive set of first quarter earnings from JPMorgan Chase and Wells Fargo, two major US banks, and financial stocks rose in anticipation of good earnings across the sector more broadly – although earnings more broadly were more muted, and forecasts for the next quarter look unimpressive.
Growth and jobs numbers in the US continued to reassure, while a third month of credit growth in China suggested Beijing’s stimulus policy may have borne fruit. Car sales – a key measure of Chinese consumer demand – fell 5.2% year-on-year in March, but this was taken as a relative positive on markets, give it was less than half the rate of decline seen in February. Investors also appreciated the assurances of Mario Draghi, Chair of the ECB, that the central bank was ready to offer further support as needed – the euro dropped slightly in response.