Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.
Today, we’re looking at Keir Starmer standing firm against US aggression over Greenland, OpenAI turning to ads in a push for profitability, and the UK making an investment in energy software giant Kraken.
But first, our number of the week…
4.0%
That was the yield on the Japanese 40-year government bond on Thursday following a record surge in yields. This week, Japanese bonds traded over 4% for the first time in more than three decades.
Sidekick Takeaway: To some extent, the rise in Japanese yields reflects positive signs of recovery in the country following decades of economic stagnation. Still, this trend has helped draw substantial capital into the country, pushing up global rates at a time when geopolitical uncertainty and inflation fears are already keeping yields elevated.
Only have a minute to read? Here’s the TL;DR:
- Keir Starmer has vowed not to yield to US demands regarding Greenland, a move that could jeopardise the UK’s trade deal with the US. While Rachel Reeves has indicated the deal is safe for now, the defiant stance – backed by a majority of Britons – risks placing the UK in the crosshairs of tariff retaliation from Donald Trump.
- OpenAI confirmed that ads will soon come to ChatGPT as the company faces potential annual losses of up to $14 billion. The pivot suggests that the company has exhausted other avenues to operate its current-generation models profitably despite hitting $20 billion in annualised revenue.
- The British Business Bank plans to invest £25 million in Kraken, an energy software firm valued at ~£6 billion. The investment is part of a strategy to encourage Kraken to list in London and help revive the city’s flagging IPO market, a new tool in the UK government’s efforts to kickstart growth.
It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.
Greenland, Red Lines: Starmer Stands Firm on US Aggression
Keir Starmer has sometimes been accused of being too soft on US President Donald Trump.
Recently, that has included condemnations from his own MPs after failing to criticise America’s raid in Venezuela.
But there are signs that this conciliatory approach could be fading.
This week, Starmer vowed not to cave to US demands about the future of Greenland.
As Starmer put it in a session at Parliament, ‘[Trump] wants me to yield on my position, and I’m not going to do so.’
The PM’s comments are a strong show of resolve against American aggression. But they also put the UK’s trade deal with the US in uncertain territory.
UK trade deal proceeds as EU falters
Trump’s bellicose language on Greenland has been joined by threats to implement additional tariffs on countries that oppose a US takeover.
That’s placed the EU’s carefully negotiated trade deal with the US in flux:
- While the bloc initially moved to suspend ratifying the deal, reports now indicate that EU leaders may approve the agreement after all, following a recent climbdown.
- Based on comments from Rachel Reeves, the UK’s own trade deal with the US appears safe for the time being.
- Nonetheless, Trump’s track record of tariff retaliation means that further economic threats may be coming – and Starmer’s resolve could put the UK in the crosshairs.
Encouragingly, opinion polls show that Starmer’s defiant stance is backed by broad public support.
The majority of Britons support using military force to deter US aggression and expelling US troops from the UK in the event of a Greenland invasion.
Sidekick Takeaway: US-UK relations are likely to grow more strained after Trump’s comments this week that NATO allies stayed ‘off the front lines’ in Afghanistan. 457 British troops died in the conflict, which was launched in response to the 9/11 attacks in the US.
Ad It Up: OpenAI Turns to Ads in Revenue Push
OpenAI’s ChatGPT is recognised as the most rapidly adopted consumer application in history.
Yet turning that popularity into profits has proved challenging.
This week, OpenAI’s CFO confirmed that the company’s annualised revenue has eclipsed $20 billion.
But just days later, an insider report indicated that OpenAI could lose up to $14 billion this year, reflecting soaring training and research costs.
In a bid to bridge the gap, the company is turning to a familiar tool for tech giants – advertisements.
OpenAI ad push sparks user frustration
Last week, OpenAI confirmed that ads would soon be rolled out for ChatGPT, starting in the US and expanding globally.
That announcement sparked mixed reactions from users and commentators:
- OpenAI insisted that advertising would not influence ChatGPT’s answers. Instead, ads will be separate and labelled as such.
- Nonetheless, fears of OpenAI leveraging user data to optimise ads have mounted, an approach pioneered by competitors like Meta.
- OpenAI is far from the only AI company exploring ads as a revenue source, however. Perplexity has experimented with ads for several years now.
Nonetheless, OpenAI’s decision could signal a shift in the state of the AI industry, moving from prioritising growth to harvesting profits.
Sidekick Takeaway: OpenAI’s ad push must be seen in the context of CEO Sam Altman’s 2024 comments in which he called advertising a ‘last resort’ for the company. The pivot toward ads could indicate that OpenAI has exhausted all other avenues to operate current-gen AI models profitably.
Into the Depths: UK Makes Kraken Investment in IPO Push
This week, the British Business Bank announced plans to invest £25 million in energy software company Kraken.
At first glance, that might seem like an odd choice for the BBB. The state-owned development bank is tasked with helping smaller companies access financing.
At a ~£6 billion valuation, Kraken is far from small. What’s more, the company has little trouble accessing financing, recently raising a £1 billion round.
In fact, the BBB’s investment is part of a distinct strategy: convincing Kraken to conduct its hotly anticipated IPO in London.
If successful, direct investments like this could be a new tool to help revive the city’s flagging IPO market.
Direct investments could help fuel London IPOs
Following a spin-off from parent company Octopus Energy, Kraken is expected to IPO within the next two years.
However, Octopus founder Greg Jackson has stated that it’s a ‘coin toss’ between listing in New York or London.
London’s IPO market has been dwindling for years. According to UK officials, the BBB’s investment is part of a strategy to keep Kraken in the UK.
When it comes to sparking a turnaround in the UK’s capital markets, some of the most important tools remain investments in infrastructure, accessibility, and education.
But if the Kraken plan works, it could help showcase the power of direct investments to convince firms to pursue a London listing – while also providing potential upside for British taxpayers.
Sidekick Takeaway: The BBB’s investment has some overlapping motivations with the US government’s investment in Intel last year. Both examples showcase governments growing increasingly comfortable using direct investments to achieve strategic goals.
Notices
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