In Chinese, Moonshot AI translates to ‘Dark Side of the Moon’, and the company is one of China’s six AI ‘tigers’.

Less than 18 months ago in Alpha Bites’ DeepSeek-AI’s Sputnik moment, we highlighted the shock for America’s AI (artificial intelligence) industry dominance, which was being challenged by China’s DeepSeek-R1.

Now, America’s AI industry has received a further ‘Sputnik’ shock as Chinese AI start-up Moonshot AI has released a large language model with capabilities approaching the likes of US AI pioneer Anthropic.

Chinese AI disruptors are gaining ground in the US. Their AI models appear to be cheaper, open and intelligent.

Chinese AI companies such as DeepSeek and Moonshot are pricing their AI models significantly cheaper yet with performance approaches that of higher-end systems, implying a materially lower cost-to-intelligence ratio. Furthermore, the Chinese AI models are being increasingly released as open-weight systems, allowing developers and enterprises to download, modify and run them locally, whereas US AI companies have largely pursued closed, proprietary models. Moonshot’s K2.6 AI model is reported to be about a third of the cost of Anthropic’s Opus 4.8 model.

Meanwhile, Anthropic has accused the Chinese AI companies of ‘industrial distillation attacks’ on its models whereby Chinese AI labs are training smaller AI models on the outputs of its more advanced systems.

The Moonshot news comes as markets have grown increasingly concerned by the vast sums that some US tech businesses are investing in AI datacentres and AI model development – but without proven returns on capital. The risk is that the new Chinese AI models erode the scarcity premium embedded in proprietary models, accelerating a shift towards commoditisation, leading to tighter profit margins but faster global adoption as open-weight systems lower barriers to entry.

The importance of the Moonshot news should not be underestimated and is a fascinating development to watch. It will no doubt be causing a few sleepless nights for US AI tech owners and investors!

What have we been watching?

Brent oil surged above $100 as fighting in the Gulf escalated into the Red Sea and government bond yields rose on inflationary fears. Fortunately, global equities remained resilient, helped by hopes of rekindled US/Iran peace talks, US earnings, a modest recovery in US AI stocks and UK takeovers. President Trump also announced a new series of global trade tariffs!

After 13 consecutive days and nights of US and Iran tit-for-tat attacks, the US and Iran appear to be holding fire. Trump’s UN envoy said the president was ‘giving talks some space’ while Iran said it had halted retaliatory attacks against the US and its allies in the Middle East. Over the weekend Omani-mediated talks focused on navigation through the Strait of Hormuz. However, US ambassador to the UN Mike Waltz said that US forces remain ‘locked and loaded’ and that Trump is simply giving negotiations more space. Meanwhile, Trump has dismissed US media reports that the pause may reflect pressure on US stockpiles of Patriot missile interceptors, other weapons and a debate by the administration about the cost and effectiveness of further strikes. The situation remains fragile with Trump due to meet Israel’s PM this week and Iran warning it could widen the Middle East war if the US resumes attacks.

This morning Brent oil has fallen 6% to under $91 on hopes that the current pause in attacks, while falling short of a formal ceasefire, at least offers a path for further diplomacy. The main risk for markets remains energy security, both gas and oil, and the fact that shipping through the Strait of Hormuz remains severely disrupted.

Fears remain that the conflict could broaden into the Red Sea. The surge in oil and gas prices last week followed Iran-backed Yemen Houthi attacks on Saudi Arabian oil tankers and energy infrastructure in the Red Sea, which prompted retaliatory strikes by the Saudis. Iran will also no doubt be watching Israeli action in Lebanon as well as the increasing disturbances in the West Bank between Palestinians and Israeli settlers.

While energy prices have fallen this morning, last week’s escalation in attacks in the Middle East saw global stagflation fears resurface once again. Government bond yields move higher on fears that the world could be facing a prolonged inflation shock. This led markets to expect central banks to have to hike interest rates more aggressively. Indeed, market expectations for an interest rate increase by the US Federal Reserve (Fed) moved up from 14% to 38% last week. As a result, there were some big milestones for government bond yields. For example, the US 30-year Treasury real yield, which is adjusted for inflation, hit a post-2008 high of just under 3%. (The 10-year US Treasury yield is trading above 5%). The German 10-year bond yield, at one point, hit a post-2011 high of 3.2%.

In the US, Trump announced a new series of global trade tariffs to replace the temporary six-month ones that expired last week. The new tariffs range between 10%-12.5% and are broadly in line with the previous tariffs. The justification for the new tariffs is that 50 countries are guilty of using forced labour! Another crazy excuse to avoid a legal loophole. Interestingly, some of Trump’s original Liberation Day tariffs are reported to have been refunded with interest at 7%. Some $85bn has been repaid so far, with some estimates suggesting that up to $166bn may need to be repaid. The Liberation Day refunds contributed to a $120bn federal deficit in June compared with a $27bn surplus in the same month last year.

Finally, with more heatwaves predicted, demand for air conditioning is on the increase, but this will require more electricity. However, recent events in France show this may not be as easy as hoped. France derives 70% of its energy from nuclear power, but its ageing nuclear plants rely on water cooling. Rising water temperatures in French rivers have forced EDF to take multiple reactors offline. This led to a surge in day-ahead electricity prices and forced some energy-intensive industries to curtail production.

The post Moonshot AI first appeared on Alpha Portfolio Management.

Events in the Gulf have tended to overshadow the ongoing war of attrition in Ukraine. However, the conflict, now in its fourth year is being felt closer to home for many across Russia.

It is harder for the authorities to ignore the increasing number of Ukrainian drone and missile strikes deep into Russian territory, targeting oil refineries, darkening the skies over Moscow and St Petersburg. Russia, one of the world’s biggest oil producers, is struggling to refine enough fuel to meet domestic demand, leading to big queues at petrol stations.

Ukraine claims to have disabled 43% of Russia’s oil refining capacity. A significant number of Russian regions are experiencing fuel restrictions. It is thought to be affecting 50 million people – c. 35% of the population. This is leading to growing public discontent.

Ukraine has already attacked Russia’s ten largest refineries, but now Ukrainian drones have struck Russia’s biggest oil refinery in Omsk, which is 2,500km from the border. It has also attacked Russia’s shadow fleet, forcing Putin to suspend shipping in the Sea of Azov.

Putin has responded by attacking civilian targets in Ukraine, as its American supplied air defence capability is running low. America is believed to have used half of its Patriot interceptor missiles in Iran and is reluctant to supply more. However, Trump has offered to give Ukraine the right to produce Patriot interceptor missiles under licence to help defend Kyiv, but how easy this will be to do remains to be seen. At least it marks a shift by Trump away from Putin and towards Zelensky.

Tump continues to vent his frustration at his European NATO allies, many of whom, including the UK, are not ramping up defence spending as fast as he would like. At the recent NATO leaders’ conference, he warned that the US ‘could remove all our soldiers from Europe.’ He also continues to hope for a possible meeting between Putin and Zelensky to end the war in Ukraine. With so little trust between Ukraine and Russia, a lasting peace deal still looks like a long stretch.

Meanwhile, Trump continues to struggle to bring Iran to heel and is facing further US armed personnel fatalities. The escalation in the Gulf once again elevates the risks of global stagflation and nobody wants that!

What have we been watching?

The escalating conflict in the Gulf which has reignited fears about global stagflation together with fresh concerns around the US AI trade given the competitive threat from Chinese AI business models. The Philadelphia Semiconductor Index fell by almost 10% last week, marking the biggest weekly decline since Trump’s Liberation Day tariff announcement last year.

The conflict in the Gulf has intensified markedly over the weekend as the series of tit-for-tat attacks between the US and Iran continued. Three US service personnel were killed in separate Iranian missile attacks in Jordan and Iraq, while US strikes hit targets in multiple locations, including Iran’s main oil export facility on Qeshm Island. At the same time, Iran has broadened its retaliatory attacks beyond military sites, targeting critical infrastructure across the Gulf, including power and desalination facilities in Kuwait. More alarmingly, tensions have also escalated in the Strait of Hormuz, with Iran signalling a more assertive stance over shipping flows and claiming to have intercepted or attacked shipping attempting to transit the waterway. Prospects for any diplomatic breakthrough remain dim with Iran’s foreign minister suggesting that some nuclear issues ‘remain unresolvable.’  Iran has also asked Yemen’s Houthis to stand ready to close the Red Sea to oil shipments if the US hits Iranian power facilities.       

Following 9 days of US attacks on Iran and retaliatory strikes, Brent oil saw its largest weekly increase since April, rising by over 15%. This morning, following the further escalation over the weekend, Brent oil has climbed a further 3% to over $90. European gas prices have also started to rise again as concerns grow about gas production facilities in the Gulf region.   

In the UK, Andy Burnham takes office as Prime Minister today, with ministers to be appointed and policy plans starting to take shape. Markets are expecting the government to move further to the left, so the question is how far? The new PM is expected to take a more pragmatic approach to North Sea oil and gas given events in the Gulf. Meanwhile, the UK economy was a touch firmer than expected in May as GDP ticked up 0.1%, helped by a bounce in activity in the service sector.

In the US, softer than expected inflation data, with the CPI increasing by 3.5% in June, saw markets dial back the prospect of an imminent interest rate hike by the Federal Reserve.

China’s economy grew by 4.3% in the second quarter, which was down from the 5% growth seen in Q1. Domestic demand remains a major area of concern for the authorities, albeit exports remain strong, helped as China continues to flood markets with cheap EVs.

Finally, Elon Musk’s SpaceX recently became the largest ever initial public offering and its shares shot up from $135 to an intraday high of $225 in a very short time. Many US investors saw SpaceX as an AI play, as earlier this year it acquired Musk’s start-up xAI, best known for the chatbot Grok. However, its main business is the manufacture and launch of rockets and communications satellites called Starlink. At the beginning of this month, Starlink announced it was cutting the price of its services in Memphis, Tennessee, amid local concerns over a massive data centre project. This, together with volatility in AI stocks, has seen SpaceX shares fall by 45% from their peak. SpaceX currently operates at a loss on $18bn of revenue, but Musk is targeting $1trillion of revenue by 2030 – a fifty plus fold increase. Now that is shooting for the stars!

The post Russia’s Fuel Crisis first appeared on Alpha Portfolio Management.

Millions of drivers who were mis-sold car finance agreements will have to wait until at least 2027 to receive compensation, the Financial Conduct Authority (FCA) has announced.

Originally, it was thought the matter could be resolved by the summer of 2026, but ongoing disputes from lenders mean that payments might not be made until 2027 at the earliest.

Over 10 million motor finance agreements could be incorrect, with the average compensation payment estimated to be about £829 per customer and a total payout of over £7.5bn. Some of the banks and finance companies involved will also face a further £1.6bn of costs.

The car finance scandal centres on undisclosed commissions paid by car lenders to car dealerships when they offered loans to customers. In 2021, the FCA banned deals where car dealers received commission from lenders, based on the interest rate charged to the customer. Compensation may still be due to many of those who took out a car loan between April 2007 and November 2024, but the outcome remains very unclear.

The FCA has now received legal challenges from three lenders: Volkswagen Financial Services, Mercedes Benz Financial Services and Credit Agricole Auto Finance. The UK’s Upper Tribunal has agreed to hear the legal challenges to the compensation scheme, either in December or February next year.

The current car finance compensation scheme is nowhere near the size of the earlier car Payment Protection Scheme (PPI) mis-selling scandal, which amounted to £38bn. Nonetheless, a £7.5bn boost to consumer spending would be most welcome, so the delay in compensation due to the legal challenge is frustrating. When it comes to the UK economy, every little helps!

What have we been watching?

An increasingly fragile US-Iran interim peace agreement following more tit-for-tat attacks over the weekend. The US insists the Strait of Hormuz is open, despite Iran saying it has closed the waterway. This morning Brent oil has jumped 4% to almost $97. While Trump called Iran ‘scum’ and said the ‘ceasefire is over,’ he has said subsequently that talks will continue and that mediators are trying to revive the peace process.

Golbal semiconductor stocks steadied last week following the strong reception for chipmaker SK Hynix’s ADRs in the US, which valued it at over $25bn and news that Micron is planning to increase investment in its US plants by an extra $50bn to $250bn by 2035, (see Alpha Bites -The AI ’Gold Rush’ – picks and shovels). However, investors remain concerned that the AI semiconductor chip cycle may be nearing its peak, prompting continued exceptional volatility in chip manufacturers. For example, this morning SK Hynix shares have fallen over 15% – its biggest decline on record – as South Korean investors have been selling. This, together with a sharp fall in chipmaker Samsung, it has seen the South Korean KOSPI index tumble. Today’s sell-off would appear to dash hopes that SK Hynix’s US ADR listing would help revive the South Korean market, which now stands about 27% below its record intraday high of mid-June.     

Over the weekend, the US carried out strikes against multiple targets in Iran. In turn, Iran launched attacks against US targets in Jordan, while the UAE, Qatar, Kuwait and Oman responded to missile and drone attacks.  The latest hostilities were sparked after the IRGC said it had fired a naval cruise missile at a vessel that was attempting to sail along an unapproved route through the Strait of Hormuz. US media reported that Iran told American officials the attack had been a mistake and carried out by a rogue internal group. Markets continue to hope that a peace deal is possible, but with so little trust between the two sides, this currently looks like a big ask and the risk remains of the conflict escalating.

Control of the Strait of Hormuz remains one of the biggest sticking points and the US insists Iran does not control this vital maritime corridor. Trump claims to be ‘beating them up’ but will be mindful that the US midterm elections are looming on the horizon and US voter approval for the war in the Gulf remains low.

At the NATO leaders’ summit, Trump said that the US ‘could remove all our soldiers from Europe’ and reiterated his desire for Greenland to be under US control.

In the UK, PM in waiting Andy Burnham is reported to be considering an expanded budget this autumn, possibly in October, combining the fiscal statement with a departmental spending review. This is expected to set his political strategy until the next election. Chancellor Rachel Reeves is expected to be replaced, with Energy Secretary Ed Miliband seen as the front runner to succeed her.

UK media is awash with rumours of a potential £38bn Burnham tax raid. Possible measures include increasing the additional rate of income tax from 45% to 50%, replacing council tax with a land value tax, a new ‘care levy’ of up to 10% on the value of estates after death, reforming capital gains tax rates, and imposing national insurance on landlord rental income.  Andy Burnham has also promised the ‘biggest council house building programme since the postwar period.’  However, as with Rachel Reeves’ two previous budgets, the uncertainty in the lead up to the latest one is likely to overshadow UK economic activity. Given the renewed uncertainty in the Gulf and taxing questions at home, the 10-year Gilt yield rose back above 4.9%.         

The Japanese yen strengthened and bond yields moved lower after Japan’s finance minister spoke of plans to encourage pension funds to increase investment in domestic fiscal assets.

Finally, ‘America First’ and never mind the rest of us. Trump’s tariff threats have seen British companies ramp up capital investment by 23% in the US in the last year. Companies spending on new production facilities in the US include Diageo and JCB, but the biggest are the UK pharma giants AstraZeneca and Glaxo. These businesses are no doubt attracted to the US by the size and growth of the US economy, but the tariff threat makes the investment decision easier. While the UK has a low tariff of 10%, Trump has threatened to increase it on multiple occasions.

The post Car finance mis-selling – stuck in a jam first appeared on Alpha Portfolio Management.

In one of his last acts as PM, Sir Keir Starmer’s long-awaited DIP – Defence Investment Plan – has been released in time for the NATO summit in Turkey this week.

Delayed by nearly a year, it has created uncertainty for UK defence contractors and ultimately led to the resignation of John Healey as Defence Secretary.

The DIP will see an additional £15bn of defence expenditure by 2029-30. John Healy had stated the UK’s armed forces require at least £28bn. Under the new plan, defence spending will only rise to 2.7% of GDP by 2030. Many other NATO members have committed to increasing defence spending to 3.5% by 2035. Much of the pressure to ramp up defence spending has been driven by the threat from Putin but also Trump’s ire and wanting European NATO members to ‘step up to the plate.’  Trump will be attending the latest NATO summit, so expect plenty of headlines!

Within the DIP, plans to replace the Royal Navy’s ageing Type 45 destroyers have been cancelled in favour of building six new modern ‘hybrid vessels’ equipped to deploy uncrewed drones in the air, on the surface and under the sea. These are expected to be built and delivered sometime in the 2030s. These will be deployed to counter Russian activity in the North Atlantic and High North to protect critical infrastructure and enhance NATO deterrence.

There is no doubt the face of warfare is changing rapidly, particularly with the use of air and undersea drones in the war in Ukraine as well as damage to underwater infrastructure. The war in the Gulf has also highlighted the need for drone and missile defences, which has seen Trump looking to build America’s ‘Golden Dome’ missile defence system.

If, as expected, Andy Burnham becomes the UK’s new PM next month, he will inherit a reported £4.7bn shortfall to fund the DIP. Cuts to some road-building projects and savings in energy security and net zero are expected to help, together with efficiencies in buying new defence equipment.

Will this be enough?

Whoever is PM will face the same challenge as their predecessors – being constrained by high levels of government borrowing. The new PM faces the poison chalice of welfare spending, even more tax hikes or attempting to borrow more. Financial markets will be watching Andy Burnham like a hawk.

What have we been watching?

Positive headlines on US-Iran talks, some ‘dovish’ central bankers at the Sintra Forum, a positive week for US equities but another poor one for US semiconductor stocks where AI uncertainties remain.

Brent oil dropped to a 4-month low below $72. This has followed positive headlines on the US-Iran talks. President Trump said that ‘They’ve had very good meetings,’ while Vice President JD Vance said, ‘Negotiators are sitting down with the Iranians, the Qataris, and with others in Doha, talking about some other details here.’ However, what might happen is still unclear. For example, take the thorny issue of passage of the Strait of Hormuz, where media reports suggest several European nations have accepted that shipping passing through would have to pay fees to Iran and Oman. Clearly, we will not be returning to the status quo that prevailed before the conflict began.

New Federal Reserve (Fed) chair Kevin Warsh, speaking at the Sintra Forum, said that inflation risks had come down. This, together with weaker than expected US jobs data, led the market to lower the chance of a rate hike by the Fed in July from 30% to 22%. More significantly, it also saw the size of potential future interest rate hikes from the Fed by December lowered to 0.3%. Against this ‘dovish’ news were media reports that Trump is actively exploring ways to reshape the Fed by removing or replacing key officials.     

The head of the European Central Bank (ECB), Christine Lagarde, was also speaking at the Sintra Forum and said that the upside inflation and downside growth risks ‘are probably more balanced than before.’ However, European ‘flash’ June inflation data was softer than expected at 2.8%, as was core CPI at 2.4%. This led markets to expect the ECB to be more ‘dovish’ in the months ahead, with just a 0.2% rate hike possible by December. This pushed European equities to a new record high.

In the UK, it doesn’t look like Andy Burnham will see a challenge, so he should become the new PM before the end of July. That removes the period of uncertainty before the market hears more on policies. He has been, so far, keen to repeat that he will abide by the existing fiscal rules. The likely new chancellor is an important unknown for financial markets.

Finally, while Trump has been trumpeting his success in reopening the Strait of Hormuz, a reminder that bringing Gulf gas and oil production facilities back online will be challenging. A recent explosion at Qatar’s Ras Laffan – the largest LNG (Liquefied Natural Gas) plant, accounting for one-fifth of global production – injured numerous workers as they tried to restart production. The plant had previously sustained heavy damage from Iranian drone and missile attacks.

The post DIP – Dithering in Parliament first appeared on Alpha Portfolio Management.

Trump’s Gulf war sent petrol and diesel prices soaring. This has prompted many vehicle owners to consider the merits of owning a battery-powered hybrid or electric vehicle (EV).

The latest UK car sales data confirms the increase in EV sales. In May, sales of EVs outsold new petrol cars for the first time. There are now more than ten Chinese manufacturers selling cars in the UK, with price being a key driver. A very competitive domestic market has forced Chinese EV manufacturers to seek new markets such as the UK. Chinese brands are rapidly increasing market share and now account for approximately 30% of all UK electric vehicle sales. Five years ago, the figure was just over 1%.

This comes as the government continues to court the Chinese EV manufacturers. The government’s message is that ‘Britain should not fear the rise of Chinese EV imports.’ One suspects that this is because it is hoping the Chinese will copy what Japan’s car industry did in the 1990s and invest in UK car production. Spain has been able to attract major Chinese factory investment – but has the UK been hampered by Brexit?

Meanwhile, the government has recently signed off on £380m of grant support for the new Agratas electric vehicle battery facility in Somerset that will go towards powering Jaguar Land Rover’s (JLR) EV fleet. Hopefully, this should keep the UK at the forefront of battery technology, and it means JLR will be able to keep exporting to the US with a made-in-the-UK battery. However, the government has announced a review of its previous 2030 ban on petrol cars as consumer demand for EVs is behind where it should be to meet the mandate. A consultation process is now underway.

For now, Chinese EV manufacturers seem to be content to invest more in car dealership networks and marketing across the UK to increase sales penetration. Unlike the US and EU, which have imposed tariffs on Chinese EVs, the UK has opted not to, citing consumer choice. There is no doubt the Chinese EV industry has received significant government support and has benefited from China’s stranglehold on rare earth minerals and economies of scale in battery technology.

One other factor that gives China’s manufacturers a major competitive advantage is its lower energy costs. While the UK government might welcome Chinese EV imports to hit its environmental targets, perhaps it is worth remembering that while China has invested heavily in solar and wind power, it still has over 1,100 coal-fired power stations operating, which account for over 50% of global coal electricity generation. Perhaps those Chinese EVs are not as environmentally friendly as first impression?

What have we been watching?

The US-Iran peace framework, hanging by a thread and global tech sell off!

Tensions in the Gulf continued to escalate last week with a series of tit-for-tat strikes around the Strait of Hormuz despite a fragile peace framework. This began with attacks on commercial shipping by Iran, prompting US strikes on Iranian-linked targets, while Iran responded with missile and drone strikes on US-linked sites in the Gulf, including bases in Bahrain and Kuwait. Meanwhile, Israel carried out air strikes against Hezbollah in Lebanon while Hezbollah rejected a US-brokered agreement with the Lebanese government.

However, while the threat level in the Strait of Hormuz has been raised to ‘substantial’ by the Joint Maritime Information Centre, overnight developments suggest a tentative de-escalation, with the US and Iran reportedly agreeing to halt further attacks ahead of renewed talks in Doha this week. This morning Brent oil has edged up slightly above $72 as traders continue to hope that the peace framework holds. However, difficult discussions remain ahead, particularly around control and potential costs for shipping transiting through the Strait of Hormuz while the situation in Lebanon between Israel and Hezbollah remains a concern.

Last week saw a global tech sell-off with ‘tech heavy’ indices such as South Korea suffering along with the US, where the ‘Mag 7’ entered correction territory following a fall in value of over 10% from its May peak. Japan also suffered as Softbank fell on news that Open AI might delay its listing until 2027. Apple fell after announcing its intention to raise the price of its Macs and iPads in response to a surge in demand for memory and storage (see our earlier Alpha Bites – Ram Raid). This has raised concerns that AI datacentre demand is generating inflationary pressures.

Global trade tensions also continue to rumble on. Trump threatened to impose 100% tariffs immediately on any European country that introduces a digital services tax on US technology such as Apple, Google, Meta and Amazon. Britain already has a 2% digital services tax in place, while France, Italy and Spain have a 3% digital services tax. Meanwhile, China added some 20 Japanese companies to an export control list that prohibits Chinese firms from selling dual-use products to those companies that might have military applications. This includes rare earth materials, batteries and semiconductor chip-making equipment.

In the UK, all eyes are upon new MP Andy Burnham. He is planning his ‘big speech’ today and is expected to re-commit to the fiscal rules with devolution as the main strategy for economic growth. Further details of the fiscal plans of the presumptive PM are expected over the coming days as nominations for the Labour leadership contest close on 9^th July. Markets will be watching very closely to see who will be appointed as new Chancellor. Whether regional devolution can drive UK economic growth remains to be seen. Certainly, Andy Burnham has worked wonders for the Manchester area, but against this there is little evidence that a devolved Wales or Scotland has experienced higher growth than England.

In the US, PCE inflation data, the Federal Reserve’s (Fed) preferred inflation measure, was softer than expected in May and as a result, markets dialled back interest rate hike expectations. The scale of anticipated interest rate increases from the Fed by December has edged back from 0.4% to just over 0.3%.

Finally, an example of why the transition to renewables is not straightforward. Tata Steel has warned that its new £1.25bn electric steel-making furnace in Port Talbot could be delayed by eight months. This follows an announcement from National Grid that its connectivity project has been delayed. This involves the construction of two new substations, the installation of transformers, as well as laying 2 km of underground electrical cables. Quite a shock for this government-backed project to modernise steel production in South Wales.

The post To EV or not EV… first appeared on Alpha Portfolio Management.

The term ‘picks and shovels’ originates from the California Gold Rush of the 1840’s.

Where the real fortunes were not made by the prospecting gold miners, but by those selling the tools and supplies necessary for mining.

Today’s gold rush is the boom in AI – artificial intelligence driven by the massive investment by the American AI hyper-scalers in data centres. For example, Alphabet, Microsoft, Amazon, Meta and Oracle are forecast to undertake £700bn of capital investment in 2026 alone. According to US government data, monthly spending on data centre construction in the US hit $50 billion in April!

While the share prices of many AI companies have soared in the past 12-18 months, so too have the share prices of many traditional industrial engineering, utility and mining companies that supply the modern-day equivalent of ‘picks and shovels’ for data centres.

AI data centres are more complex than traditional cloud storage data centres which has led the ‘Big Tech’ companies to seek specialist suppliers. For example, AI servers must be more tightly linked together, increasing the need for advanced cabling and optics. AI data centres also require much greater amounts of electricity to power them, fuelling demand for specialised power management, high-voltage electronics and cooling technologies as well as electricity! Air conditioning and liquid cooling technologies to prevent AI chips from overheating are also in demand. Meanwhile, there has been a surge in orders for gas turbines due to the demand for back-up or off-grid power supplies.

Many traditional engineering businesses have repivoted activities towards providing AI datacentre equipment to benefit from the AI datacentre gold rush. Part of the appeal is also the faster speed with which AI data centre investment projects are moving compared with traditional industrial clients.

The billion-dollar question is, can the wave of AI datacentre investment continue?          

The answer is nobody really knows, but AI fever continues to grip global stock markets. However, the escalating ramp-up in capital expenditure is a growing concern. Nonetheless, the management teams of many traditional engineers, utilities and miners believe that AI demand is a long-term structural growth trend rather than a short-term cycle. In the meantime, many are making hay while the sun shines and profiting from selling plenty of ‘picks and shovels’ to the AI gold rush miners!

What have we been watching?

Fragile peace in our time!

Encouraging progress in the US-Iran peace talks in Switzerland, mediated by Qatar and Pakistan, has seen both sides agree to a roadmap towards a potential deal within 60 days. Technical working groups have been formed and a mechanism has been established to de-escalate the conflict in Lebanon, while a direct communication line has been set up aimed at avoiding incidents and keeping the Strait of Hormuz open. This morning Brent oil has moved lower, falling to below $80. 

This has come as welcome relief to markets this morning after Saturday’s confusion, when Iran suggested the Strait of Hormuz was now closed again after Israeli attacks in Lebanon and it briefly stepped back from talks following renewed threats from President Trump, who reiterated that the US would strike again if Iranian-backed proxies in Lebanon continued attacks on Israel. While difficult discussions remain ahead for the US and Iran, the situation in Lebanon looks to be the most challenging. The head of Hezbollah has demanded that Israel leave Lebanon, while PM Benjamin Netanyahu has said that Israel will not give up any of the territory that it has occupied!

In the UK, this morning has seen the resignation of PM Sir Keir Starmer following leadership rival Andy Burnham’s by-election win last week. If, as expected, Andy Burnham becomes the new PM by September, then this will be the UK’s seventh PM in ten years, or since Brexit! The key for markets now is who Andy Burnham will appoint as Chancellor, with a high-spending candidate like Ed Miliband causing concern, although there are rumours that Yvette Cooper or Wes Streeting could be more market-friendly options. Only time will tell, but previous new PMs and Chancellors have arrived in post with great hopes, but then the lack of economic growth and the financial realities hit. As was clear from the public sector borrowing data last week, the fiscal constraints facing the UK remain unchanged, whoever is PM or Chancellor!  The 10-year Gilt yield spiked 0.98% to almost 4.85% on PM Sir Keir Starmer’s resignation announcement.        

In the US, while inflation expectations have fallen following the tentative US-Iran peace deal, the Federal Reserve’s (Fed) latest meeting last week led to a more ‘hawkish’ shift by markets on interest rate policy. Half of the eighteen Fed officials signalled that there should be an interest rate increase this year, although new Fed Chair Kevin Warsh did not submit a view this time. However, the new Fed Chair did reiterate the Fed’s inflation target, pledging to return inflation to target after five years. This led the market to price expectations for a Fed rate hike by December with the likely increase shifting up from almost 0.2% to approaching 0.4%.              

The Bank of Japan delivered a 0.25% interest rate increase as expected, taking its policy rate to a post-1995 high of 1%.

Finally, is the UK PLC up for sale? Sadly, a trend which has gathered pace since Brexit. Overseas buyers are snapping up ‘cheap’ British companies at a record pace. According to the London Stock Exchange, a renewed burst of deals has pushed the value of acquisitions by foreign buyers to £128bn so far this year, more than triple the level in the same period last year. Compared with the US, which recently saw the record SpaceX IPO, the UK has seen little new issue activity to refill the hopper as UK companies continue to disappear from the market.

The post The AI ‘Gold Rush’ – picks and shovels first appeared on Alpha Portfolio Management.

A new phase of the natural weather phenomenon El Niño – the strongest in decades, could begin very soon, the UN has warned. This will drive more extreme weather around much of the globe and boost temperatures on a planet already under strain from climate change.

An El Niño forms when a switch in wind patterns allows warmer waters to spread across the tropical Pacific Ocean. While an El Niño weather event has been expected, scientists believe it could be unusually powerful, even a record event or a ‘super’ El Niño. It’s predicted to have an adverse effect on UK weather in early 2027.

El Niño will have a global impact but typically fuels hot, dry weather in parts of South America, Southeast Asia and Australia, raising the chances of droughts and wildfires. It can weaken the Indian monsoon and bring drier conditions to parts of Africa. Meanwhile, heavier rainfall can increase the risk of flooding in the southern US.

Why should we be concerned?

This El Niño weather event is expected to exacerbate the global food supply situation and drive the price of some key commodities, such as soy, higher. The UK is reliant on imports for two-fifths of its food supply, while English farmers have faced three of the worst harvests in the past five years. With soy harvests expected to be lower, prices for animal feed will go up, with costs pushed on to consumers.

Global food production is already at risk due to Trump’s Gulf War. Besides the spike in energy prices, the Middle East is a major producer of fertilisers, with 35% of the global exports of urea, a widely used nitrogen fertiliser, passing through the Strait of Hormuz. The UK imports about 60% of its fertilisers. The impending peace deal between the US and Iran should alleviate the fertiliser issue, although, it will take 30 days to clear mines from the Strait of Hormuz and potentially years to rebuild damaged infrastructure in the region.

While a peace deal and reopening of the Strait of Hormuz is a very welcome headline news, a possible Super El Niño weather event will not be for the government facing an ongoing cost-of-living crisis or the Bank of England monitoring the inflation outlook.

What have we been watching?

Peace in our time! (with apologies to British PM Neville Chamberlain)

After 107 days of conflict and a seemingly endless number of false dawns, it looks as if we finally have a peace deal between the US and Iran which will lead to the reopening of the Strait of Hormuz. As we write this morning, risk assets have moved higher, Brent oil has fallen 4% to $83, while the two-year UK gilt yield has dropped to a two-month low of 4.77%.

The peace deal is to be signed on Friday in Switzerland. According to Iranian state media, the agreement includes a phased lifting of US sanctions on Iranian oil exports, the unfreezing of $12bn in overseas assets, and a commitment to reopen the Strait of Hormuz within 30 days, after mine clearing. The US will also end its naval blockade of Iranian ports. The deal also sets out a 60-day negotiating window during which Iran’s nuclear programme will be discussed. Tehran is expected to commit to maintain its current status and not pursue nuclear weapons.

While the peace deal is good news for markets and there is relief all around this morning, is the Middle East really any safer following the US and Israeli strike on Iran? Trump will be relieved given the US midterm elections are looming on the horizon. However, there are tough conversations ahead over the next 60 days and will the peace deal be sustainable? For example, the US Senate will need to approve any extensive sanction relief for Iran. More significantly, what about Israel and Hezbollah in Lebanon? If either were to undertake further strikes against one another, would Iran attempt to close the Strait of Hormuz again?

In the US, SpaceX’s market debut was a monumental event, marking the largest IPO (Initial Public Offering) ever completed and the company’s market value has since surpassed $2 trillion. (please see last week’s Alpha Bites for the ramifications of the sheer scale of this IPO). However, there was uncertainty for US tech companies and assumptions about the breakneck speed of AI adoption. On Friday, the US government issued a temporary export control directive forcing Anthropic to restrict access to its most advanced AI models due to undefined security concerns. These AI models had been released to great acclaim last week to US nationals. As it is operationally difficult to separate users by nationality, Anthropic opted to suspend access to these AI models on a global basis. All eyes now on the US government and Anthropic to see what they agree on as the next step!

The week ahead will see a number of key central banks making interest rate decisions. The US-Iran peace deal should help ease fears about a stagflationary shock to the global economy. For example, at the start of last week, markets were fully pricing in the prospect of the US Federal Reserve (Fed) increasing interest rates by December, but this has now lowered considerably. Elsewhere, the Bank of England is expected to keep interest rates on hold, while the Bank of Japan is expected to announce a further rate increase as part of its gradual normalisation process.

The peace deal will also be welcomed by the UK government after the UK economy shrank by 0.1% in April. However, is PM Sir Keir Starmer living on borrowed time? Following last week’s resignation of two defence ministers, we have the Makerfield by-election on Thursday, with the latest polling showing Labour’s Andy Burnham currently slightly ahead of Reform UK.   

Brent oil has dropped 4% this morning to $83 on the peace deal. However, clearing the backlog of oil tankers and removing mines could take weeks while restoring damaged oil facilities will take considerably longer.

Finally, more winners and losers from Trump’s Gulf War. Tour operators are not only having to contend with jet fuel availability and consumer hesitancy but also changing holiday habits. Due to the Iranian drone and missile strikes, Dubai International Airport saw passenger numbers fall by 66% in March. However, Spain saw a 5.2% increase in visitor numbers in April to a record 9.1 million. Holidaymakers want sunshine, not short-range ballistic missiles!

The post A Super El Niño – are you prepared? first appeared on Alpha Portfolio Management.

We have previously commented on the growth of the ‘Mag 7’ and AI chipmakers, highlighting how global share indices have become ever more concentrated upon the performance of a handful of massive technology businesses. For example, AI chip designer Nvidia recently hit a market valuation of over $5.5 trillion while Micro Technologies recently broke through the $1 trillion value ceiling.

It appears as if the market concentration is set to further increase in 2026 with the expected Initial Public Offerings (IPOs) of three companies – SpaceX, OpenAI, and Anthropic. SpaceX is targeting a $1.75 trillion IPO valuation. To put this in context, the value of the entire UK stock market is currently about £2.45 trillion. The three new US IPOs are likely to enter the US top 10 rankings by market value in the S&P 500 index. This means that the ten largest US companies by market capitalisation will account for about 50% of the index, up from 40%.

This does mean that the performance of the S&P 500 index will become even more dependent upon the trading performance of these massive companies. Vanguard’s S&P 500 tracker recently became the first exchange-traded fund to hit $1 trillion in assets, reflecting the weight of passive money ready to buy into huge listings like SpaceX. The fund has quadrupled in size since 2022.

What does the emergence of these massive US companies and passive funds mean?

It suggests global markets may become more volatile, particularly if there is sudden bad news or a bout of profit-taking. For example, the US NASDAQ technology focused index fell by over 4% on Friday!

Through the listing of OpenAI and Anthropic, the US top 10 will also become more concentrated on the AI investment story. US equities have recently hit record highs driven primarily by the results of the AI chipmakers and hyperscalers who continue to ramp up AI capital investment to breathtaking levels. The AI ‘arms race’ is well and truly underway and reaching fever pitch. While much of the AI investment is underpinned by massive revenue backlogs, the return on capital investment remains a question mark. Only time will tell how this, together with the AI stock concentration, plays out in share index performance.

What have we been watching?

After the recent strong run, markets finally lost their footing at the end of last week given the lack of a US-Iran peace deal, negative headlines on AI and mounting speculation about a US interest rate hike. The Philadelphia Semiconductor Index fell by over 10% on Friday, not helped by Broadcom’s softer earnings earlier in the week.

All this comes as tensions in the Middle East are building again with renewed missile strikes between Israel and Iran, despite the so-called ceasefire. Trump does not want this war to escalate further and is trying to find ways to avoid it. However, Iran’s Revolutionary Guard has warned of a ‘full week of continuous strikes’ following Israel’s ongoing offensive in Lebanon. The latest developments further complicate the chances of an imminent peace deal. The key sticking points remain to be resolved – Iran’s frozen assets, its stock of highly enriched uranium, Israel’s fight against Hezbollah in Lebanon and control of the Strait of Hormuz.

Brent oil has risen over 4% this morning to $97 following the exchange of attacks between Israel and Iran.

Trump’s tariffs were also a feature last week. The 150-day window for the current 10% Section 122 tariffs expires by the end of July. The Office of the US Trade Representative has therefore proposed new tariffs, ranging from 10% to 12.5%, targeting goods from major trading partners. This initiative stems from an investigation into the alleged use of forced labour in production. A 10% tariff is suggested for imports from the UK, EU, Canada and Mexico. A higher rate of 12.5% would be applied to China, India, Japan, South Korea and Brazil. The latest tariffs are subject to public hearings in early July and could well come into effect as the Section 122 tariffs expire.

The week ahead in the US will be a key one with the May inflation data closely scrutinised for the effects of Trump’s tariffs and Middle East developments. The timing is critical ahead of the Federal Reserve’s next meeting under new Chair Kevin Warsh. The case for an interest rate hike rather than a cut has been reinforced by last week’s US nonfarm payroll data, which exceeded forecasts. Bond markets are pricing in an interest rate hike later in the year, with the US 10-year Treasury yield having climbed to above 4.5% at the end of last week.

The European Central Bank (ECB) is expected to increase interest rates by 0.25% to 2.25% when it meets this Thursday.

Finally, in Alpha Bites AI RAM raid, we recently highlighted the increased cost of Random Access Memory (RAM) due to the explosive growth of AI. This is now starting to hit consumers, particularly gamers. For example, the price of Nintendo’s Switch 2 is to increase by 11% from September. Trump’s tariffs and his Gulf War have also adversely impacted supply chains, adding to costs. So genuine reasons for the price increase rather than Nintendo playing silly games!

The post The rise and rise of the mega-cap US technology stocks first appeared on Alpha Portfolio Management.

The much-anticipated US peace deal with Iran still seems very elusive. ‘Very close’ to a deal but ‘not there yet’, according to US Vice-President JD Vance.

Over the weekend, the US said it struck Iranian military sites while Tehran responded by targeting an American base. Meanwhile, Israel has expanded its ground offensive in Lebanon against the Iranian-backed Hezbollah. Some limited shipping does appear to be getting through the Strait of Hormuz with US assistance, and the Brent oil price remains below recent highs at around $93. Markets are currently not pricing in a prolonged conflict with hopes of a further 60-day ceasefire extension.

However, we are mindful of the risk that still exists of a serious energy crunch if the Strait of Hormuz does not fully reopen soon – which could drive oil prices materially higher. This could create either stagflation or, in the worst-case scenario of prolonged higher prices, another global recession.

Since the beginning of the conflict, the world has been living beyond its means. When the US/Israeli attack on Iran began, the International Energy Agency (IEA) announced the release of a record 400 million barrels of oil from the global strategic oil reserve. It was assumed, at the time, that the Strait of Hormuz would re-open within weeks.

The IEA estimates that between March and June that global oil consumption could be running at 6 million barrels a day in excess of production. More than 2 million barrels a day are being released from the strategic oil reserve, but this is due to end in July. Some analysts are warning that oil inventories among OECD countries could approach operational stress levels by the end of June. The tightest markets are not just in crude oil but in jet fuel, diesel and fertilisers. Furthermore, demand for air conditioning and holiday travel at the start of the northern hemisphere’s summer will exacerbate the situation.

Unless Trump can reach a peace deal with Iran and reopen the Strait of Hormuz quickly, then the risk of a prolonged energy crunch remains.

UK businesses and households are already feeling the pain from higher petrol and diesel prices. Markets are hopeful of a peace deal that allows the Strait of Hormuz to fully reopen so that a prolonged energy shock is avoided. The trouble is that neither side trusts the other and the two main stumbling blocks remain the control of the Strait of Hormuz and Iran’s nuclear programme.

We are not facing a prolonged energy shock – yet – but as Trump keeps telling Iran, ‘Time is ticking.’ He is still deciding on whether the current negotiations between the two nations satisfy his demands.

What have we been watching?

Another good week for global equities buoyed by hopes of a US-Iran peace deal which would pave the way for the reopening of the Strait of Hormuz. Brent oil fell by over 11% over the week to $92, while the six-month Brent future contract price also moved lower to $84. With stagflation fears easing, US equities recorded their ninth consecutive weekly gain with the S&P 500 index hitting a record high. The US market was also propelled higher by heavyweight AI chip stocks within the NASDAQ. Micron Technology became the latest semiconductor manufacturer to cross the $1 trillion market capitalisation barrier. The equity rally extended globally, with Japanese equities enjoying a strong week, although gains in European markets were more modest.

The decline in oil prices meant that fears about inflation eased. This, in turn, led markets to dial back their expectations for interest rate increases by central banks. The chances of a 0.25% interest rate hike by the US Federal Reserve (Fed) by December fell from 95% the previous week to 57%. Likewise, the chances of interest rate hikes by the European Central Bank (ECB) were also lowered although a 0.25% increase is still expected in June. Meanwhile, Bank of England (BoE) governor Andrew Bailey said that the UK can tolerate inflation that is temporarily above target and that a gradual softening in the labour market meant that inflation expectations were not coming through in wages. However, he did warn that the longer the Strait of Hormuz remains closed, the higher the likelihood that the BoE raises UK interest rates. Nonetheless, globally, lower interest rate hike expectations translated into a good week for fixed-interest investors also as Treasury yields edged lower.

In the US, the latest PCE inflation print was softer than expected, further easing concerns around the need for interest rate hikes. Headline PCE was up only 0.4% in April, whilst ‘core’ PCE was up only 0.2%. Fed officials did not sound in any rush to increase US interest rates either. Further support came from slightly softer economic data. The weekly initial jobless claims were higher than expected, while the latest GDP economic growth estimate for the first quarter proved softer than the previous estimate, running at an annualised 1.6% compared with 2% previously.

China’s official manufacturing and non-manufacturing PMI activity indicator for June came in at 50.0, in line with expectations

Brent oil is 3% higher this morning at almost $94 given the tit-for-tat US and Iranian attacks over the weekend.

Finally, hammered? London taxpayers may have to pay an extra £2.5m following West Ham’s relegation from the Premier League due to the club’s lease agreement for London Stadium. No wonder the Mayor of London, Sadiq Khan, was urging Londoners who don’t support Spurs to cheer on West Ham at the end of the season. Desperate times call for desperate measures!

The post US & Iran – Not there yet first appeared on Alpha Portfolio Management.

The recent local election results confirmed that Nigel Farage’s Reform UK party is currently the most popular in the UK and would likely win a general election were it held today.

If Reform UK retains its current lead until 2029, it would end Britain’s post-WWII traditional two-party system of government. The UK’s first past-the-post electoral system gives only the first-placed party in each constituency a seat. Historically, it has made it difficult for new parties to gain influence in parliament and led to Labour-Conservative dominance. Now that Reform UK has overtaken the traditional main parties, it stands to benefit. In 2024, the Labour Party secured 62% of the seats with just 34% of the popular vote. Reform’s current 27% share of the vote could also secure a majority of seats, although possible tactical voting against the party might limit it to a minority government.

Meanwhile, PM Sir Keir Starmer, or ‘Special K’, as he claims to have been called all of his life, is facing a leadership challenge following the disastrous local election results. The challenge will come from Wes Streeting and Andy Burnham, the latter subject to the result of the Makerfield by-election on the 18^th of June. Already old Labour wounds are being reopened with Wes Streeting and Andy Burnham involved in a debate about reversing Brexit!

Globally, bond yields are rising due to fears about ‘stagflation’ due to Trump’s Gulf War. This together with market fears about a UK government shift to the left has driven the 10-year UK Treasury yield to its highest level since 2008 while sterling has weakened.

Liz Truss’s infamous mini-budget in 2022 showed that underfunded tax cuts risk capital flight. This is a risk for both Reform UK and Labour. Markets are nervous about the prospect of left-wing Andy Burnham as PM due to his comment last September when he said, ‘We’ve got to get beyond this thing of being in hock to the bond market.’ At the time, this caused gilt yields to spike. Reform UK performed very strongly in Makerfield in the local elections, and much might rest on whether the Green Party contest strongly, splitting the left-wing vote.

Higher government borrowing costs and inflationary pressures from weaker sterling, in addition to the damage from Trump’s Gulf War as well as the uncertainty from the leadership race, are all unhelpful for the UK economy.        

It is going to be a challenge whoever is leading our country. Looking out to 2029, will Britain’s voting system and new multi-party mayhem create a hung parliament? This would be far from ideal for voters or investors given the challenges, both economic and geopolitical, that the UK faces. Before this, however, UK businesses and investors must navigate yet another leadership contest with all the uncertainty that this entails.

What have we been watching?    

A strong week for US equities again, helped by the AI investment boom but one which ended with a global bond sell-off over fears about a stagflationary shock from Trump’s Gulf War. The trigger appeared to be the ‘summit lite’ meeting between Presidents Trump and Xi Jinping. Despite market hopes, China offered no assistance in reopening the Strait of Hormuz. Meanwhile, the US position on Taiwan, semiconductor controls, rare earth minerals and AI co-operation remained unchanged. All that could be said of the meeting was that there was no further escalation in the trade war between the US and China!

The Gulf War is now 80 days old, with no obvious end in sight. The current ceasefire has lasted 41 days, suggesting that the US would prefer to avoid a further attack on Iran given the political and economic consequences. However, the fragile nature of the ceasefire was highlighted over the weekend when a drone attack caused a fire at an electrical generator at a UAE nuclear facility.

Over the weekend, Trump posted on Truth Social: ‘For Iran, the clock is ticking, and they better get moving, FAST, or there won’t be anything left of them. TIME IS OF THE ESSENCE!’  Trump and Israel’s Benjamin Netanyahu also spoke to determine the next stage of the conflict.

The ‘stagflationary’ shock from a prolonged conflict pushed global bond yields higher. The US 10-year Treasury yield has climbed to over 4.6%, its highest level in the last year. In Japan, the 10-year JGB yield has risen to 2.75%, a level last seen in 1997. In the UK, the 10 year Treasury yield has climbed to 5.19%, the highest level since 2008, albeit exacerbated by the Labour government leadership challenge.

In the UK, encouraging first-quarter economic growth data was overshadowed by yet more political turmoil which, together with Trump’s Gulf War, is likely to adversely impact the second quarter.

In the US, inflation fears were exacerbated by strong CPI and PPI data, which have led to mounting anticipation about an interest rate hike by the Federal Reserve (Fed). The probability of a 0.25% Fed rate hike in December has now risen to 62%.

In Japan, government bond yields climbed in line with global bonds but also reflected comments from PM Takaichi. She is reported to have asked Japan’s finance minister ‘to consider ways of funding, including compiling a supplementary budget.’

Brent oil edged above $110 this morning given the latest developments in the Gulf and Trump’s latest comments.  Oil futures are also pricing in a more protracted conflict, with 6-month Brent futures now at the highest level since the Gulf War began.

Finally, it wasn’t already challenging for tour holiday operators due to the Gulf War. Now, some hotels are cracking down on people reserving sun loungers with towels after a judge in a district court in Hanover awarded a German family an £850 refund after claiming they spent 20 minutes every morning trying to find a sun lounger. Given jet fuel availability, consumer caution, an increase in UK staycations and now ‘sunbed wars,’ it’s enough to make tour operators throw in the towel!

The post Is Special K toast? first appeared on Alpha Portfolio Management.