UK and Japan slide into recession

Good morning. Here's what happened overnight and what you need to know today.

1.

Technical recession: The UK economy contracted more than expected during the fourth quarter last year, at 0.3%, tipping it into a recession. The pound weakened in reaction to the data, but traders moved back to fully pricing in three 25 basis point cuts in 2024. Japan also reported weak domestic consumption and investment data yesterday, pushing it into a recession. The country’s GDP contracted at an annualised rate of 0.4% during Q4 2023, following a revised 3.3% retreat during the previous quarter. Japan has now fallen to the position of fourth-largest economy in the world, behind Germany. (Bloomberg)

2.

Frugal consumers: US retail sales dropped by the most in almost a year during January, as consumers stepped back from spending after a strong holiday season. The value of retail purchases, unadjusted for inflation, decreased 0.8% from December after a downward revision to the prior month. US factory production also fell in January for the first time in three months, with a 0.5% decrease seen in manufacturing output. ING explains that US inflation coming in hotter than expected on Tuesday implies consumer spending fell in real terms during January, which would be the first decline since August. (Bloomberg)

3.

Altium acquired: Japanese semiconductor business, Renesas, announced it will acquire ASX-listed software firm Altium for $9.1 billion. Altium shares soared as Renesas confirmed it will pay $68.50 per share, a 34% premium to the Thursday closing price of $51.26 and 31% above its previous record highs. JP Morgan advised Altium on the deal, which represents one of the largest all cash cross-border transactions in ASX history. Renesas CEO, Hidetoshi Shibata, said: "[The] addition of Altium will enable us to deliver an integrated and open development platform, making it easier for businesses of all sizes and industries to build and scale their systems." (Capital Brief)

4.

Damned with Putin’s praise: Putin has said that a Biden presidency will be better for Russia than a Trump win. When asked about the US election during an interview on Wednesday, Putin endorsed Biden “because he is a more experienced person, he is predictable, he is a politician of an old formation.” The comment is a shift from the support the Russian president gave Trump ahead of the 2016 elections, praising Trump as “a bright and talented person without any doubt.” Putin’s comments come a week after Trump said that he would encourage Russia to do “whatever the hell they want” to NATO countries that fail to meet defence spending thresholds. (CNN)

5.

On a tear: Nvidia has passed Alphabet in market cap value, becoming the third most valuable US company behind Apple and Microsoft. Surpassing Google’s parent company Alphabet on Wednesday, Nvidia rose over 2% to close at USD739 per share, reaching a market value of USD1.83 trillion. Google’s market cap sits at USD1.83 trillion. Nvidia shares are up over 221% over the past year due to robust demand for its AI chips that can cost upwards of $20,000 each. Shares in smaller AI firms including Arm Holdings also rose yesterday after Nvidia disclosed that it held stakes in a selection of tech investments. (CNBC)(Reuters)

6.

AI Gulf: The United Arab Emirates has backed OpenAI CEO Sam Altman’s idea to become a global leader in testing and regulating AI technology. Earlier this week Altman said that the Gulf state could serve as the world’s “regulatory sandbox,” a place to experiment with AI technologies and then lead on global rules for their use. The UAE’s minister of state for artificial intelligence, Omar Al Olama, told Bloomberg that Alman’s belief in the UAE being a “serious player” in the AI space is “an opportunity I personally want to see happen, it is something we are going to push for.” (Bloomberg)

7.

Toxic associations: JP Morgan Asset Management and State Street Global Advisors have withdrawn from the Climate Action 100+ investor group, which was established to pressure large carbon emitters to decarbonise their operations. Blackrock has said it will transfer its membership to BlackRock International, a unit of the asset manager whose clients are specifically focused on decarbonisation. CA100+ is the world’s largest investor group formed to fight climate change, however its members are now experiencing heightened political backlash in the US against ESG investing. (Reuters)(Bloomberg)

8.

Allemagne AI: Microsoft announced it plans to invest €3.2 billion into German AI infrastructure over the next two years, as the tech giant builds up its European footprint. The commitment is Microsoft’s largest direct investment into Germany to date, and will be used to build data centres and to train workers. Germany will not provide state subsidies. Regulators in the bloc are currently pushing cloud providers to store data within the region to satisfy privacy and security obligations. (Bloomberg)