Archive

AI: Attack Of The Clones

• AI investors were shocked by China’s DeepSeek successfully matching the performance of OpenAI’s GP4-o1 at a fraction of the build cost and despite export restrictions.
• Innovating a more productive use of capital does not negate the potential gains from increasing processing power. Either way benefits the economy with faster AI progress.
• Foundation model IP needs better protection against the attack of cloning distillation techniques to reap a return on investment while pushing the performance frontier.

By Philip Rush

Russia, Ukraine and Trump’s Legacy

• Contrary to the prevailing view among the commentariat, Russia’s economy alone will not bring Vladimir Putin to the negotiating table over Ukraine, even if Donald Trump follows through on his threats. But we may still see a deal this year. This would be good news for European equities.

By Alastair Newton

Japan: 25bp Rate Hike To 0.5% (Consensus 0.5%) in Jan-25

• The BoJ raised its policy rate by 25 basis points to 0.5%, consistent with market expectations and reflecting a gradual recalibration of monetary policy as inflationary pressures stabilise near 2.5–3.0% in the medium term.
• Persistent wage growth, yen depreciation, and improving labour market conditions underpin inflation forecasts. However, due to commodity price volatility and exchange rate sensitivity, inflation risks are tilted to the upside.
• While financial conditions remain accommodative, future rate hikes are likely if inflation expectations and wage-price dynamics sustain alignment with the BoJ’s medium-term stability target of 2%.

HEW: Realising Policy Divergence

• The chasm between the US and European PMIs compressed, removing this justification for the massive Fed-ECB policy divergence in the price. Ironically, their policies are set to start diverging next week with the ECB cutting while the Fed holds rates.
• The BOJ hiked while the Norges Bank approached its first cut in March. Meanwhile, UK pay awkwardly surged, but rising unemployment will help justify a cut on 6 February. Sweden, Canada, Chile, Brazil, and Colombia will also announce policy before then.
• Note: Smartkarma will become the sole distributor of our research in February, so clients should prepare their access now (send queries to transition@smartkarma.com).

By Philip Rush