The BoE holds rates steady despite elevated inflation, AI leaders push for safety regulation, and Houthi drone strikes cut off a key Saudi oil route.

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 the Bank of England’s decision to hold rates steady as inflation runs hot, a growing push from AI leaders for safety regulation, and Houthi drone strikes threatening Saudi Arabia’s oil exports.

But first, our number of the week…

440%

That’s the increase in malware instructions hidden on blockchains over the past year, according to a leading crypto analytics firm. Open-source AI models have made it easier for hackers to embed malicious code in on-chain transactions and smart contracts.

Sidekick Takeaway: Blockchains offer an unusual case study for computer security, since token programs are public and auditable. The staggering increase in malicious code is a signal of how deeply AI is reshaping offensive hacking capabilities.

Only have a minute to read? Here’s the TL;DR:

• The Bank of England held its policy rate at 3.75% for a sixth consecutive meeting, even as UK inflation remains above target. The decision puts the BoE at odds with the ECB and the Fed, both of which hiked rates this week on rising energy prices.
• Following high-profile resignations from several researchers, AI leaders are increasingly calling for industry-wide safety regulations. Anthropic CEO Dario Amodei published a lengthy essay calling for frontier labs to slow the pace of model development.
• Houthi drone strikes have knocked out Saudi Arabia’s East-West pipeline, cutting off up to seven million barrels a day in oil exports. Combined with a Houthi advance along Yemen’s coast, both of Saudi Arabia’s main export routes are now under direct threat.

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.

Steady On: BoE Holds Rates Level Despite Elevated Inflation

The Bank of England held interest rates steady on Thursday, even as inflation remains above the central bank’s target.

Investors widely expected the BoE to keep its policy rate at 3.75%. However, the decision comes after the latest UK inflation report showed CPI running at 3.1%.

Notably, several officials voted in favour of a rate hike, with the board split six-three.

Governor Andrew Bailey warned that if energy price levels remain elevated, a rate hike could be coming later this year.

BoE splits with ECB, Fed

The BoE has now held rates unchanged at six consecutive meetings. That stands in contrast to other global central banks:

• Last week, the European Central Bank voted to raise its benchmark interest rate by 25 basis points. On Wednesday, the Federal Reserve did the same.
• The BoE’s decision to buck the trend shows that officials are fearful of pushing the country into recession. Economic growth in the UK has been sluggish in recent months.
• Yet waiting to act now could mean that the BoE needs to hike more forcefully later. Goldman Sachs expects UK inflation to peak at 3.9% early next year.

The UK’s economic situation will depend on how the Iran war unfolds over the next few months.

With Iran-backed militias recently closing another key oil route, elevated energy levels could be here to stay.

Sidekick Takeaway: Monetary policy is only half the equation, with fiscal policy also playing an important role in the economy. Unfortunately, PM Andy Burnham hasn’t offered much room for optimism, noting that the UK’s upcoming budget could be ‘challenging.’

Hitting the Brakes: AI Leaders Call for Safety Regulation

Following several high-profile resignations from the industry, AI leaders have become increasingly vocal about the need to regulate the technology.

Last week, researcher Jacob Coxon quit Anthropic, citing concerns about the irresponsible development of AI. Coxon noted that his colleagues ‘earnestly believe’ the technology could cause human extinction.

In the wake of Coxon’s departure, a researcher from Google DeepMind also resigned, expressing similar fears over AI safety.

Despite these warning signs, it seems that few companies – or countries – have a realistic plan to contain AI.

The growing consensus

Anthropic CEO Dario Amodei has been the most vocal proponent for regulation, publishing a lengthy essay this week on the topic:

• Amodei called for frontier labs to ‘slow the pace’ at which AI models improve and pushed for third-party evaluators to implement industry-wide safety protocols.
• OpenAI CEO Sam Altman concurred with Amodei’s view, noting that safety has been a ‘primary topic of discussion’ at the company in recent weeks.
• The safety push comes amidst increasing evidence that autonomous models can do real-world damage, with OpenAI’s agents recently hacking into multiple software platforms.

Nonetheless, critics have argued that calls for regulation are nothing more than marketing in disguise, showcasing the capabilities of AI by highlighting its danger.

Sidekick Takeaway: Amodei’s essay is somewhat ironic, given that Anthropic recently declined to offer UK safety regulators pre-release access to one of the firm’s models. Despite what private firms may say, it’s up to public authorities to design and implement the type of regulatory regimes that industry leaders are calling for.

Pipe Down: Houthis Cut Off Key Saudi Oil Route

Saudi Arabia is racing to repair a vital oil pipeline after drone strikes targeted the country’s energy infrastructure.

The East-West pipeline, operated by Saudi Aramco, has been a key route for oil exports during the Iran conflict. The pipeline bypasses the Strait of Hormuz, which remains largely shut.

The Houthis – an Iran-backed militia group – launched drone strikes against the pipeline in recent weeks. The Houthis have also made a lightning advance along Yemen’s coast.

Together, these developments are compromising one of Saudi Arabia’s most important secondary oil routes.

Oil stuck near $100 a barrel

Despite hopes of a drawdown, the Iran war has now become even more perilous for energy markets:

• With Iran continuing to strike tankers in the Strait of Hormuz, the Houthis are now seizing coastal positions in the Red Sea, pressuring both maritime oil routes.
• Despite requests from the Saudi government, the US has so far declined to strike Houthi targets directly, hoping to contain the conflict.
• Even if the US manages to make a deal with Iran, it’s not clear that any agreement will extend to the Houthis, who have been fighting in Yemen’s civil war for decades.

Repairing the East-West pipeline could help contain the damage in the near term, but only a robust and expansive peace agreement will settle energy markets in the long term.

Sidekick Takeaway: Yemen is nearly 4,000 miles from London, yet these developments have a direct impact on the UK’s economic outlook over the coming months. Higher oil prices are pushing up costs across the economy and strengthening the case for BoE rate hikes.

Notices

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