ALEX BRUMMER: Interest rates soar on bond havoc

There was a moment of gloating when it was announced that Germany had entered a recession in the first quarter of this year.

For some time we have been hearing from Euro enthusiasts, including the Labor leadership, a version of events that say the Tories crashed the economy.

It doesn’t seem as bad as Berlin, with the UK avoiding a slump and both the Bank of England and the IMF quickly revising UK expansion forecasts for 2023.

Granted, the differences are fractions of a percentage point.

Still, the resilience of UK business and consumers in the face of the energy price shock is remarkable.

The latest rapid data from the Office for National Statistics shows that shop attendance is 105 per cent higher than the week before, energy prices are down 16 per cent and job vacancies are strong.

There are indications that the number of laggards – those aged 16 to 24 not in education, work or training – fell in the first quarter, with 26,000 finding jobs.

Before anyone celebrates loudly, the public should pay attention to the gilt market. The Bank of England’s floundering performance against inflation looks as toxic as Liz Truss-Kwasi Kwarteng’s mini budget last year.

Yields (the yield) on two-year British bonds rose by half a percentage point this week, prompting L&G, the UK’s largest asset manager, to warn against investing in government bonds, which should be considered the safest investment. are considered. .

Nationwide has increased the cost of new tracker and fixed-rate mortgages by 0.45 percentage points in no time, effective today.

The rising yields are an arrow aimed at financial stability.

People whose fixed-rate mortgages are due are facing a price shock – we can expect a renewed focus on the liability-driven investments used by pension funds and those outside the regulated banking system.

The stress can pass. After all, a US debt burden hovers on the horizon.

But there can be no question of complacency.

Arm injury

The fate of Cambridge-based Arm Holdings if it had been bought by US advanced semiconductor champion Nvidia for £32 billion is impossible to know.

Competition authorities were concerned that Nvidia would harm Arm’s open architecture model, which allows anyone to license its smart chips.

What’s clearer now is that if Nvidia had triumphed, it would have snapped up Arm’s intellectual property and gateway to artificial intelligence (AI) at a bargain price and likely vanished into a semiconductor behemoth.

Shares of Nvidia soared after it surprised Wall Street with a stunning second-quarter forecast of 50 percent higher revenue than anyone had estimated.

Wall Street failed to make a connection between the sudden escalation of interest in AI, the chips needed to launch it, and Nvidia’s ability to make advanced semiconductors.

Nvidia chief Jensen Huang moved it from the darling of chip making to the burgeoning computer games set long before AI and ChatGPT were on everyone’s lips.

Wall Street broker Bernstein described the outlook upgrade as “cosmological,” and shares, appropriately, rose into the stratosphere, valuing the company at nearly $1 trillion.

As part of SoftBank, it’s hard to get to grips with what all this means for Arm. It says on its website that it has the ability to process data in a way that extends the benefits of AI to all connected devices.

If so, then it’s hard to imagine there will be anything but ravenous demand for Arm stock when it’s listing in New York.

The chance to become a tech superpower has been mishandled hopelessly by successive, unwary Tory governments.

Lifesavers

Recognition of the life sciences is critical as Britain attempts to restart its economy.

So full marks to Chancellor Jeremy Hunt for recognizing the UK’s opportunity to accelerate clinical trials and bring new compounds to market.

Whether the £650 million pledged is enough to really make a difference is open to question.

It is also disappointing that the government was nowhere to be seen when British pharma and oncology champion AstraZeneca decided in February to move its next production facility from Macclesfield to Dublin.

That is the cost of high tax rates.