The UK needs about £1 trillion (RM5.7 trillion) of investment over the next decade to meet its goals for economic growth, according to London business executives. 

An extra £100 billion of fresh investment every year would put the country on track to achieve 3% annual growth in real wages and real gross domestic product per capita, according to a report from the Capital Markets Industry Taskforce. 

A litany of areas could use the extra spending, the report found. For instance, the country’s target to build 300,000 new homes every year would cost as much as £30 billion, while the water industry has said it needs an additional £8 billion of investment annually. 

“The UK economy and its capital markets have fallen behind the US since the global financial crisis,” Nigel Wilson, former chief executive officer of Legal & General Group plc and chair of “The Capital Markets of Tomorrow” report, said in the study. “However, there are many potential positives for the UK, and far from subscribing to ‘doom loop’ thinking, we are optimists.”

The report comes in the midst of a highly charged debate about London’s future as a financial centre that got its start when the English chipmaker ARM Holdings plc chose to go public in New York rather than London last year. Since then, lawmakers have been focused on what they can do to revive the country’s moribund capital markets, and British regulators recently overhauled their listing rules in an effort to make London more competitive with cities around the world.

The study warned lawmakers against becoming complacent about North American investors’ interest in investing in UK companies, noting that many high-growth British companies now have a large number of overseas investors on their boards.

Take Revolut Ltd, the digital bank that started in London in 2015. A recent secondary share sale that valued the company at US$45 billion (RM195 billion) was led by three American investors — Coatue, D1 Capital Partners and existing backer Tiger Global.

“Whilst there is nothing wrong with this in principle, the UK should not underestimate the influence this has on the trajectories of these companies, including decisions to be acquired by a larger overseas company or choosing to IPO overseas,” the task force said.

The group encouraged lawmakers to consider ways they could create incentives for pensioners to invest in UK companies. The group also called on the government to lower or remove the stamp duty reserve tax, or SDRT. 

“We also have to solve legacy problems,” the task force said. “The UK currently taxes its retail investors with SDRT when buying a UK-listed Aston Martin share but not when buying a German-listed Porsche share or US-listed Tesla share.”

The report included contributions from executives from firms and groups including Latham & Watkins LLP, TheCityUK, Hargreaves Lansdown plc and UK Finance.

Source: The edge markets

United States presidential candidate Donald Trump has reemphasized his support for crypto and the endorsement of tech billionaire Elon Musk for a new government task force. 

Speaking at the Economic Club of New York on Sept. 5, the former US president reiterated his support for the digital asset industry.

Trump stated that, if elected, he would eliminate a minimum of ten old regulations for one new regulation, before adding:

“Instead of attacking industries of the future, we will embrace them including making America the world capital of crypto and Bitcoin.”

Trump went on to thank Tesla CEO Elon Musk for his endorsement adding, “I will create a government efficiency commission tasked with conducting a complete financial and performance audit of the entire federal government, making recommendations for drastic reforms.” 

“We need to do it, and can't go on the way we are now,” he added. 

Musk echoed the sentiment in a post on X on Sept. 6 saying “This is badly needed,” and “This would unlock tremendous prosperity for America.”

Musk has agreed to head that task force if he has the time, Trump continued, stating he would be good for the job. 

“Elon, because he is not very busy, has agreed to head that task force. If he has the time he's a good one to do it and he has agreed to do it.”

“I look forward to serving America if the opportunity arises, No pay, no title, no recognition is needed,” Musk said in an X post on Sept. 5. 

Russian-American computer scientist and podcaster Lex Fridman said: 

“I hope that whoever wins, Harris or Trump, they'll take you up on your offer to help increase government efficiency.”

One of the first jobs of the new commission would be the development of an “action plan to totally eliminate fraud and improper payments within six months,” he said. 

”This will save trillions of dollars. For the same service you have now, trillions of dollars are wasted, and nobody knows where it went.”

According to the US Government Accountability Office, Federal agencies made an estimated $236 billion in improper payments in 2023, and cumulative federal improper payment estimates have totalled about $2.7 trillion since 2003.

Trump has rebranded himself as a pro-crypto candidate during this campaign as he angles for a growing base of crypto voters. 

On Sept. 5, Cointelegraph reported that the Trump family DeFi project, about which very little is known at the moment, wants to spread the use of dollar-pegged stablecoins in decentralized finance. 

Source: COINTELEGRAPH

Competition to build the dominant model intensifies further

The competition to become the leading generative AI company is ramping up. There are currently five cutting-edge LLMs according to LMSYS:

•OpenAI’s GPT-4o

•Anthropic’s Claude 3.5

•Google’s Gemini 1.5

•Meta’s Llama 3.1

•xAI’s Grok-2 

All five models have required billions of dollars in investment to get to this level of sophistication. Grok recently raised $6 billion based on a company valuation of $18 billion and is looking to raise an additional $5 billion, according to the Financial Times. Rival OpenAI is in talks to raise billions of dollars after a $13 billion commitment from Microsoft while Anthropic has attracted about $8 billion, including significant funding from Amazon and Google, according to news reports.

These large investments are not the end of the road for investments in LLMs but rather a shot across the bow. Notably, OpenAI’s Sam Altman has said there is a $7 trillion investment gap to overcome for generative AI to reach its potential. Although $7 trillion seems excessive to us, it is highly likely that LLMs will continue to attract billions in investment over the coming years.

It is no wonder then that Alphabet, Amazon, Meta and Microsoft have committed to invest close to $200 billion this year (up from $130 billion last year). This investment is mostly meant for the construction of data centres and the purchase of ultrafast chips, which are necessary to train and deploy LLMs.

As investments increase, so does overbuild risk

While these investments show that generative AI has serious potential, more investment also yields more financial exposure. Particularly because, as Mark Zuckerberg stated recently, it may be years before these investments generate returns. Should these investments result in overcapacity (i.e. an oversupply of computing power), then this bears significant risks for these companies.

On the flipside, big investments in computing power are good news for AI startups. Whereas big tech produces compute (the processing power and storage capacity needed to run applications, process data, and perform complex calculations) startups merely consume compute, as they do not have the resources to develop their own computing infrastructure. More capacity generally means a price decrease, and therefore an advantage for AI startups in countries where computing capacity is substantial.

Availability of computing power increases greatly

Another consequence of increased investment in AI is the increase in IT power. In 2023, the Americas had a live supply of 17.4 GigaWatt (GW), which is considerably more than that of APAC and EMEA. As investments in the US are higher than elsewhere in the world, this gap is likely to widen in the coming years.

However, this spectacular increase in computing power raises questions about the sustainability of AI in the long term. As mentioned, investments will remain high in the coming years and additional computing power will be constructed. Smaller models might offer a solution here, as will the greening of energy mixes. But it is necessary for the technology sector to show a credible pathway towards greening AI, otherwise additional regulation is likely.

Global live supply has increased dramatically

IT power that is operational in GW per geographic region

The US is likely to dominate the AI market, while Europe is falling behind

The US currently has the five best LLMs. In addition, the country’s investment volumes are larger than anywhere else, and the same goes for the availability of computing power. This means that the US will likely dominate the AI market for the foreseeable future.

As AI will result in productivity gains, the US is better positioned than Europe to reap those benefits. This likely means that the divergence in labour productivity between the US and Europe is likely to increase over the coming years as AI productivity gains will be realised. This gap has already been widening. US labour productivity grew faster than Europe’s, particularly between 2000 and 2010, and again from 2020 onwards. AI might thus exacerbate this development.

For European competitiveness and strategic autonomy, this is undesirable. To this end, Daniel Ek and Mark Zuckerberg have argued that unharmonised legislation is the reason why Europe has not been able to produce a lot of leading tech companies. If Europe can harmonise legislation then it is better placed to quickly gain from AI, as it has more open-source developers than the US, for example.

However, we believe that overlapping regulation is not the only important difference between the US and Europe.

First, the American labour market is less rigid. This means it is easier for American companies to reduce their workforce and less costly to invest in labour-saving technology.

Second, there is more private capital invested in nascent technologies in the US, which incentivises the development of those new technologies. In contrast, it is more difficult to invest across borders in the EU.

Third, the US government spends a lot more on AI through the CHIPS act ($280 billion over 10 years), whereas national European subsidy schemes are considerably smaller. These American policies also have drawbacks and risks, of course, but they do explain why the US is better positioned to profit from AI than Europe.

Difference in labour productivity between US and Europe has widened since 2000

Real GDP per hour worked, 2000 = 100

Source: OECD; ING calculations

Gaps between companies and countries likely to widen

In sum, the AI arms race affects companies and countries alike. In the coming months, it is likely that the gap in AI advancements is likely to widen between both countries and companies. For companies, it is not yet clear who will become the dominant LLM. For countries, however, the US has a commanding lead. Yet only time will tell who will win out.

States and local governments are poised to sell debt at the fastest clip in four years as borrowers aim to get ahead potential volatility from the US presidential election in November.

Municipal bond issuers like cities and school districts have already teed up $21 billion of debt sales over the next 30 days, the highest visible supply since October 2020, according to data compiled by Bloomberg. That index represents a fraction of what actually comes to market, given that deals are often announced with less than one-month’s notice.

“This is all in response to the election this year,” said Kyle Javes, head of municipal fixed income at Piper Sandler Cos. He said that borrowers remember the market disruption that followed prior presidential elections and are eager to avoid any major swings. “We have been advising all of our clients to make sure that they get their transactions in ahead of the election if they have needs to borrow,” he said.

The local governments join a surge in global debt sales with money managers eager to buy bonds before the Federal Reserve starts cutting rates, a process that can begin as early as this month. At least 81 high-grade bonds launched or completed within 48 hours this week while more speculative-grade firms launched over $17 billion of deals via the high-yield bond and leveraged loan markets on Tuesday. Issuers see a window where yields are relatively low now and before any election-related market volatility upends current levels.

“We’ve seen a lot of interest rate increases over the last couple of years and it’s been difficult,” said John J. McCarthy, Jr., treasurer of Wakefield, Massachusetts, a town north of Boston that is selling about $104 million of debt next week. “It appears the interest-rate environment is improving and we’re hoping to take advantage of that by going to the market.”

Munis sales broadly have surged to $327 billion so far this year, a 38% increase from the same period last year, data compiled by Bloomberg shows. In August, governments brought roughly $50 billion to market, the biggest month of issuance since October 2020, before voters took to the polls in the last presidential election.

“It’s convenient for us that we’re going to market now as opposed to closer to the election,” said Joe Mathews, chief financial officer of Hennepin County, Minnesota, which is selling $200 million of top-rated bonds on Sept. 10. He said that while timing of the sale is consistent with its budget cycle, getting ahead of the election provides more “predictability.”

For investors, the supply surge is creating a more attractive entry point. Tax-exempt, 10-year benchmark muni yields are trading at about 71% of comparable Treasuries, the most since November. That figure, known as the muni-Treasury ratio, is a key measure of relative value — meaning as it increases, munis look more attractive by comparison.

Sweta Singh, a portfolio manager at City Different Holdings LP, said that investors are “clamoring for new deals” before the pace of sales slows down in November. “You want to lock in that higher yield,” she said.

Source: Theedgemarkets

ECB to cut rates for second time

Will US CPI back case for 50-bps cut?

Pound eyes UK releases as BoE decision looms

Spotlight on Asia at start of week

Source: XM