Aurelia Butler

Here are the latest steps national and international governing bodies are taking to regulate AI tools:AUSTRALIA* Seeking input on regulationsThe government is consulting Australia’s main science advisory body and considering next steps, a spokesperson for the industry and science minister said in April.BRITAIN * Planning regulationsThe Financial Conduct Authority, one of several state regulators that has been tasked with drawing up new guidelines covering AI, is consulting with the Alan Turing Institute and other legal and academic institutions to improve its understanding of the technology, a spokesperson told Reuters.Britain’s competition regulator said on May 4 it would start examining the impact of AI on consumers, businesses and the economy and whether new controls were needed.Britain said in March it planned to split responsibility for governing AI between its regulators for human rights, health and safety, and competition, rather than creating a new body.CHINA* Planning regulationsThe Chinese government will seek to initiate AI regulations in its country, billionaire Elon Musk said on June 5 after meeting with officials during his recent trip to China.China’s cyberspace regulator in April unveiled draft measures to manage generative AI services, saying it wanted firms to submit security assessments to authorities before they launch offerings to the public.Beijing will support leading enterprises in building AI models that can challenge ChatGPT, its economy and information technology bureau said in February.EUROPEAN UNION* Planning regulationsThe U.S. and EU should push the AI industry to adopt a voluntary code of conduct within months to provide safeguards while new laws are developed, EU tech chief Margrethe Vestager said on May 31. Vestager said she believed a draft could be drawn up “within the next weeks”, with a final proposal for industry to sign up “very, very soon”.Key EU lawmakers on May 11 agreed on tougher draft rules to rein in generative AI and proposed a ban on facial surveillance. The European Parliament will vote on the draft of the EU’s AI Act in June.The European Consumer Organisation (BEUC) has joined in the concern about ChatGPT and other AI chatbots, calling on EU consumer protection agencies to investigate the technology and the potential harm to individuals.FRANCE* Investigating possible breachesFrance’s privacy watchdog CNIL said in April it was investigating several complaints about ChatGPT after the chatbox was temporarily banned in Italy over a suspected breach of privacy rules.France’s National Assembly approved in March the use of AI video surveillance during the 2024 Paris Olympics, overlooking warnings from civil rights groups.G7* Seeking input on regulationsGroup of Seven leaders meeting in Hiroshima, Japan, acknowledged on May 20 the need for governance of AI and immersive technologies and agreed to have ministers discuss the technology as the “Hiroshima AI process” and report results by the end of 2023.G7 nations should adopt “risk-based” regulation on AI, G7 digital ministers said after a meeting in April in Japan.IRELAND* Seeking input on regulationsGenerative AI needs to be regulated, but governing bodies must work out how to do so properly before rushing into prohibitions that “really aren’t going to stand up”, Ireland’s data protection chief said in April.ISRAEL* Seeking input on regulations Israel has been working on AI regulations “for the last 18 months or so” to achieve the right balance between innovation and the preservation of human rights and civic safeguards, Ziv Katzir, director of national AI planning at the Israel Innovation Authority, said in June.Israel published a 115-page draft AI policy in October and is collating public feedback ahead of a final decision.ITALY* Investigating possible breachesItaly’s data protection authority plans to review other artificial intelligence platforms and hire AI experts, a top official said on May 22.ChatGPT became available again to users in Italy in April after being temporarily banned over concerns by the national data protection authority in March.JAPAN* Investigating possible breachesJapan’s privacy watchdog said on June 2 it has warned OpenAI not to collect sensitive data without people’s permission and to minimise the sensitive data it collects, adding it may take further action if it has more concerns.SPAIN* Investigating possible breachesSpain’s data protection agency said in April it was launching a preliminary investigation into potential data breaches by ChatGPT. It has also asked the EU’s privacy watchdog to evaluate privacy concerns surrounding ChatGPT.U.S.* Seeking input on regulationsThe U.S. Federal Trade Commission’s chief said on May 3 the agency was committed to using existing laws to keep in check some of the dangers of AI, such as enhancing the power of dominant firms and “turbocharging” fraud.Senator Michael Bennet introduced a bill in April that would create a task force to look at U.S. policies on AI, and identify how best to reduce threats to privacy, civil liberties and due process.The Biden administration earlier in April said it was seeking public comments on potential accountability measures for AI systems. More

TSMC has defended its push to diversify manufacturing beyond the company’s native Taiwan as a vital step to secure the future of the world’s largest contract chipmaker, amid increasing geopolitical tensions.Taiwan Semiconductor Manufacturing Company’s overseas expansion plans have triggered concerns at home, with shareholders challenging management at its annual meeting on Tuesday. They asked chair Mark Liu to explain the rationale behind his decision to invest $40bn in two fabrication plants in the US, build another one in Japan and consider one in Germany.Liu said the company needed to globalise to retain and expand its technology and manufacturing leadership. The initial decision to invest in a fabrication plant in Arizona had been triggered by demands from customers in 2018 that the company made available capacity in the US for defence and sensitive infrastructure-related products.“Going to the US is not all downside, it is not just about additional cost, but it is a long-term development direction for TSMC,” he added. “How can we keep our position as global technology leader in the coming 10 to 20 years? That has to do with the question whether Taiwan has enough talent, whether Taiwan has enough research and development. We must not assume that our current success will continue in the future.”Liu’s comments marked the first time geopolitics has taken centre stage at a TSMC annual meeting — a change sparked by the mounting competition between the US and China. Their battle for tech supremacy is piling pressure on the Taiwan-dominated global tech supply chain to take sides, while China is responsible for a growing military intimidation campaign against Taiwan.There are fears of catastrophic supply chain disruptions if China were ever to attack Taiwan, with more than 90 per cent of the world’s most advanced semiconductors made in the country. However, Taipei has pushed back against pressure from the US and other governments for TSMC to move chip production outside Taiwan.The capacity TSMC is building overseas accounts for less than 10 per cent of its total capital investment. CC Wei, chief executive, reassured shareholders that the lion’s share of capacity at N3, the most advanced process technology currently in mass production, as well as the next two generations, N2 and N1.4, would remain in Taiwan.Liu expressed cautious optimism that governments both in the US and Germany would support TSMC with the subsidies and supply chain backing it needed to make its overseas plants profitable.In current negotiations over the company’s plans to build a fabrication facility in Dresden, “the feeling is not bad”, Liu said. He added that there were some gaps in Germany’s supply chain and labour, but Berlin was promising a rapid build-up of capabilities.In the US, he said the commerce department was open to addressing TSMC’s concerns over some preconditions for subsidies foreign chipmakers see as vital to bridge the cost gap with fabrication plants in Asia.“Their goal is to make these investments in the US competitive. So as long as we don’t violate US national security, they will be able to accept,” Liu said. He argued that part of the high costs in the US was down to the fact that there had been barely any investment in chip manufacturing in the country for many years. “Once this effort gets up to a certain scale, these costs will start coming down,” he added. More

Good morning. I’m no Luddite, but virtual reality headsets strike me as something out of a dystopian future, as imagined by the film director David Cronenberg. All the more so when they cost $3,500. That said, I’ve underestimated Apple plenty of times before. Email me with your grand vision of computing’s future: [email protected] big has happened. Specifically: nothingThe most significant thing that has happened on Wall Street in the past few months is a reassessment of inflation, and therefore the likely path of Federal Reserve policy.The market-implied federal funds rate for the end of this year has risen steadily since March. Three months ago, the broad consensus was that we had seen the peak, and rates would soon start to fall. Now the consensus is that rates will still be where they are — about 5 per cent — in six months’ time. Here is the evolution of the futures market-implied fed funds rate for December 2023:But it is wrong to characterise this as something happening. What it really is is something not happening, something that everyone thought was going to happen. The big fall in expectations for the year-end policy rate in early March happened because a banking crisis seemed imminent. What has happened since, as reflected in the rising line on the chart, is that crisis not coming to pass — and, while we are at it, a debt-ceiling crisis not happening, either.As a result of these two non-events, policy expectations have simply returned to somewhere around the level they were before Silicon Valley Bank mismanaged itself into insolvency. And of course there is a third thing that has not happened, possibly the most important non-event of them all. The Federal Reserve’s very rapid 5 percentage point increase in the policy rate has not broken the US economy.This last point is worth lingering on. The Fed’s quick tightening job does seem to have forced core inflation down a bit (core CPI has gone from an 8-ish per cent annualised rate to 5-ish per cent) and kept inflation expectations well anchored. Meanwhile, unemployment remains near pre-pandemic and indeed near multi-decade lows.As Unhedged has noted, there are significant weaknesses at the periphery of the economy. But to my surprise (and I would think to the surprise of most people) while we are experiencing an economic slowdown, there are no signs of crisis or recession in the aggregate economy. Earnings are a great example. In the first quarter, according to FactSet’s earnings monitor, earnings at S&P 500 companies fell 2.1 per cent from the year before. That’s not great, but just two months ago, analyst consensus was for a 7 per cent decline. Earnings, following the broad economy, have surprised to the upside. Correspondingly, earnings estimates for this year and next are starting to creep upwards after a long period of decline.Where does this year of non-events leave us? The Wall Street consensus, as far as I can make out, is that what we are experiencing is recession (or near-recession) delayed. A day of reckoning is coming. That day could take a number of forms:The slowdown visible in certain parts of the economy and certain economic indicators will show up in falling corporate earnings. This widely held view is usually expressed in a dual-axis chart plotting a chosen indicator (manufacturing ISM surveys; the yield curve; and index of leading indicators; or whatever) against earnings growth, showing that earnings usually follow the chosen indicator, but that the two have diverged. The implication is that the normal relationship will be re-established through a fall in earnings. Here is my favourite example of this species, as presented by Strategas’ Ryan Grabinski, comparing S&P earnings to South Korean exports, which are a global activity bellwether:

It could be that the economy has been supported by the pandemic-era build-up of household savings, and the wheels will finally come off when those savings are depleted. A recent paper from the San Fransisco Fed estimated that at the current burn rate, the excess will be exhausted sometime around the fourth quarter.The trouble could kick off when companies have to refinance their debt at higher rates. There is a so-called “maturity wall” of high-yielding debt coming due next year. According to Morgan Stanley, $260bn in US high-yield bonds will be within their 18-month “refinancing window” by January. That is more than double the current total. Debt costs go up, margins go down, hiring stops, unemployment rises. Recession.So much for the nasty, left tail of the distribution of outcomes from here on out. What about the happy right tail? It’s easier to explain: inflation continues to fall as the year goes on, the economic slowdown remains gentle, and the Fed cuts rates slowly and deliberately starting next winter. In other words: nothing keeps on happening.A brief and possibly obvious comment about the sexy six tech stocksThe other very big thing to happen in markets this year is the massive outperformance of six big tech companies, which has accounted for essentially all of the positive returns in the S&P 500. The sexy six (yes, I am trying to make that name happen) of Alphabet, Apple, Amazon, Meta, Microsoft and Nvidia have been treated (in Unhedged, among other places) as a unitary phenomenon, driven largely by AI hype. But there is an important distinction to be made among them. A table (data from S&P Capital IQ):

Earnings estimates are flat or down this year at all of the companies except Meta and Nvidia, where they are up quite a lot. Valuations are up a lot at all the companies, except Nvidia, where the P/E multiple has risen a moderate 15 per cent.This simple exercise makes it clear that the sexy six are heterogeneous, and that their future returns are likely to be, as well. Alphabet, Amazon, Apple and Microsoft are experiencing a valuation surge. Nvidia is undergoing a rapid reappraisal of its short-term earnings prospects. Meta is a little of both.One good readI have written approvingly about the royal family’s clothes. Clothes aside, though, I have a lot of sympathy for this guy. More

There was great excitement yesterday ahead of Apple’s most significant product launch since Steve Jobs unveiled the iPad in 2010. The technology company’s share price hit a record high before a demonstration of its Vision Pro headset at the company’s Cupertino headquarters.Apple’s chief executive Tim Cook made some grand claims for the company’s latest hardware, including that the “mixed reality” headset would be used for “seamlessly blending the real world with the digital world” and that the new product represented “the beginning of a journey” in what Apple calls “spatial computing”. But the excitement waned after the company revealed the headset’s price of $3,499, more than most analysts had expected and 12 times the price of Meta’s Quest 2 headset, the current market leader. The launch date of “early next year” was also a disappointment as it ruled out a sales boost for this year. Read more about the launch event here.In pre-market trading, Apple shares were down 2.7 per cent. Testing the new technology: The FT’s San Francisco correspondent Patrick McGee was among the first to try out the Vision Pro headset. Read his verdict here.Comment: The FT’s investment column Lex is unconvinced by Apple’s latest product launch: Are VR headsets a good use of its $166bn cash and marketable securities pile, it asks. Here’s what else I’m keeping tabs on today:US presidential election: Chris Christie, the brash former governor of New Jersey, is expected to announce his second run at the White House in New Hampshire. Results: Food and beverage maker JM Smucker is expected to report that revenue and profit grew in its last quarter as demand for items such as peanut butter and coffee remained strong despite price increases.Private equity: The annual SuperReturn International annual event, attended by executives at some of the world’s leading buyout groups, begins in Berlin today. Five more top stories1. A dam spanning Ukraine’s most significant river has been breached following an explosion. Russia and Ukraine blamed each other for the attack, which threatens “catastrophic consequences” for thousands of residents in nearby settlements and puts one of Europe’s biggest nuclear power plants at risk. Read more on the attack. 2. A severe shortage of cancer therapies is forcing thousands of patients to miss life-saving treatments, several leading healthcare organisations have warned. Experts said an increasing dependency on offshore manufacturing made the US healthcare system vulnerable to shortages. 3. Talks begin this week between Hollywood’s largest actors union and the studios over the use of “digital doubles”. Performers are worried artificial intelligence will reduce work and pay for actors and screenwriters as the threat of a strike looms. Read more on how AI is shaping Hollywood’s latest pay dispute. 4. The US securities market watchdog has sued Binance, the world’s largest crypto exchange, accusing it of violations, including mixing billions of dollars of customer cash with a separate trading company owned by its chief executive. The Securities and Exchange Commission filed 13 civil charges in total against Binance and its founder Changpeng Zhao. The FT’s Alphaville has the details.5. The US is prepared to address China’s “increasing level of aggressiveness” in the Taiwan Strait and South China Sea, a senior official said yesterday. The warning from John Kirby, National Security Council spokesperson, comes after two “unsafe” intercepts in recent days. The Big Read

Labour leader Sir Keir Starmer, centre, and shadow chancellor Rachel Reeves, left © FT Montage/Getty

With Labour now consistently more than 15 percentage points ahead in opinion polls, the UK opposition party’s agenda for a future government is coming under scrutiny in the run-up to next year’s expected election. Senior figures led by Labour leader Sir Keir Starmer are piecing together a manifesto that represents a striking shift in the way the economy is run, despite its soothing, pro-business rhetoric.We’re also reading . . . A new Washington consensus: Strategic rivalry with China is central to America’s new approach to international economics, writes Gideon Rachman.Digital nomads: The romantic dream of working wherever one wants has collided with realities such as tax and immigration, writes Sarah O’Connor.Property: About half of large multinationals are planning to cut office space in the next three years as they adapt to the rise of homeworking since the pandemic, a survey has found. Chart of the dayOver the weekend, India suffered its worst rail accident in decades. The disaster evoked the darker past of a railway system previously beset by under-investment in infrastructure, maintenance and rolling stock. But government safety data shows India has been reducing the number of train accidents since 1980. Our data visualisation team has been looking at the statistics.

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Take a break from the newsGo on a wild ride to South America’s northern tip with travel writer Ruaridh Nicoll, who documents an extraordinary journey through Colombia’s Guajira peninsula, a smugglers’ desert of snaking paths and ancient laws.Additional contributions by Tee Zhuo and Benjamin Wilhelm More

Something unusual has happened to the price of butter in Germany this year — it has fallen sharply even as the cost of many other foods kept rising at double-digit rates.Following a dip in energy prices, surging food costs have become the main source of inflation for the eurozone consumers. They are up 20 per cent since the start of last year, causing alarm among politicians and central bankers.But economists and industry executives increasingly believe the factors behind a fall in the price of German butter — down almost 30 per cent since in December as dairy producers’ costs have fallen — will soon begin to have a broader impact.If other food prices follow suit, it would not only boost strained household budgets, but also help eurozone inflation to keep falling fast enough for the European Central Bank to stop raising interest rates this summer.The German butter market is somewhat unusual. Often prices are negotiated between maker and retailer every few weeks, allowing lower producer costs to be reflected much quicker than in other markets, where contracts are renewed only every six months, or even every year in the case of branded products.Butter prices in the rest of the eurozone have not fallen as fast and in April they were still rising in some countries, such as France and Spain. However, Thomas Carstensen, senior vice-president of global trading at Denmark’s Arla Foods, which makes Lurpak and Anchor butter as well as cheeses and milk, said the German market could be “an early indicator” for the price of other dairy and food products.Its fall reflected a drop in dairy producer prices that stemmed from lower cattle feed and energy costs, as well as lower consumption that led to a glut of milk production late last year.Other producers of dairy products agreed. “Cheese prices have already fallen in Germany and when the July contract for milk is agreed, I can see a price cut there,” said Eckhard Heuser, general manager of the German dairy industry association. He predicted that German milk prices could fall from €1.15 per litre back below the psychologically important “magic price” of €1 per litre, adding: “There is pressure in the market”.For now, surging prices for others foods are having a marked impact on demand. The value of retail food sales in the eurozone has risen almost 10 per cent in the past year but they are down almost 5 per cent in volume terms, after adjusting for inflation. Lower demand is eventually expected to put more downward pressure on wholesale prices, which have been falling globally since last summer. Those lower wholesale prices, coupled with falling energy and commodity costs, should be passed on to shoppers — at least partially. “It is not one-to-one, but it should start to feed through steadily,” said Carstensen.Most economists are confident the surge in food inflation has peaked, after it fell for the last two months, from a high of 17.9 per cent in March to about 14 per cent in May. But there is still great uncertainty over how fast the price surge will dissipate in the months ahead.“If you look at the mechanics of the market, the sharp falls we have seen in energy prices and food commodity prices should feed through to the end prices paid by consumers with the usual lag of about three to six months,” said Ludovic Subran, chief economist at German insurer Allianz who used to work for the UN’s World Food Programme.Allianz forecast eurozone food prices will decline so much that food inflation will turn negative by early next year. But Subran warned that some 10-20 per cent of recent food inflation was not explained by higher costs, suggesting price-gouging by companies. That greedflation could put a brake on price falls.“There is some oligopolistic behaviour, especially among the producers, distributors and transportation companies,” he said.There are other potential reasons why food inflation could be sticky. They include higher wages, rising borrowing costs and the slow pass-through of earlier energy and commodity price surges. “Food importers and producers typically lock-in long term wholesale contracts, so changes in commodity prices feed through to their cost base with a lag,” said Gerardo Martinez Garcia, an economist at French bank BNP Paribas. “So we expect them to benefit from cheapening commodities only slowly.”BNP Paribas expects eurozone food inflation to end this year at 8 per cent and remain above 4 per cent in the first half of next year.Others said food inflation was on a clear downward path, but they were doubtful it would fall as fast as it rose. Ariane Curtis, an economist at Capital Economics, said the acceleration of eurozone wage growth above 5 per cent in recent months could slow the decline.“Strong wage growth is one of the factors keeping food inflation so elevated,” she said. “The historical relationship between food inflation and agricultural prices has seemingly broken down recently and so it’s unlikely that the fall in energy input prices in itself will be enough to drive food inflation negative by the end of the year.”Many national specialities in Europe have jumped in cost by unprecedented amounts since the start of last year — just before food and energy commodity prices were sent soaring by Russia’s invasion of Ukraine. Spanish omelettes have been hit by a one-third jump in egg prices and an almost 40 per cent rise in the cost of oil to fry them. Belgium’s chip lovers have had to deal with a 27 per cent rise in potato prices. Croatian oenophiles are paying a fifth more for local wines, while the sugar used to make Italian panettone now costs two-thirds more.Higher food prices hit the poorest people hardest because they spend a higher proportion of their income on groceries — partly explaining why food banks have experienced a surge in demand across Europe. Economists said food inflation was particularly important for the ECB because it had extra sway over consumers’ perception of inflation.“Not all inflation is equal,” said Katherine Neiss, chief European economist at US investor PGIM Fixed Income. “These high-frequency purchases — like food — are noticed more by people when their prices change so this feeds into things like their wage demands.” More

The Australian Securities and Investments Commission (ASIC) said in a statement that directors should ensure that investors are duly informed of the impact of changing and uncertain economic and market conditions on financial position and future performance. “Impacts on asset values and provisions should be assessed, and uncertainties, key assumptions, business strategies and risks disclosed,” its Commissioner Danielle Press said. The ASIC asked to take certain conditions into consideration including COVID-19 and restrictions during the trading period, impact of rising interest rates and inflationary impacts, among others on property valuations, while preparing financial reports for the upcoming earnings season. Australia has borne the brunt of higher interest rates ever since the country’s central bank started raising its key policy rates since May 2022, which have in turn pushed commercial rents higher, making fewer retail businesses less viable. More