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04 July 2023

Market Round-Up

US President Joe Biden's administration has set its sights on intensifying export controls surrounding the coveted microchips used in artificial intelligence computing systems. These controls, initially implemented in October 2022, are aimed at creating significant hurdles for China's development of various cutting-edge technologies which could be used in areas including research for military weapons and wider government projects. This move, however, casts a shadow of uncertainty over some of the world's largest chip companies, including Nvidia and AMD. These industry giants boast substantial revenue ties with China, rendering them vulnerable to the potential consequences of the new export controls. Therefore, rather unsurprisingly, the markets reacted with a tinge of pessimism as the share prices of both companies tumbled in response. However, this is not Nvidia’s first encounter with export restrictions. When previous restrictions had been enforced, the company adapted by creating a lower-spec chip tailored specifically for the Chinese market. If the impending regulations take effect, even this workaround may prove difficult without the required licensing. While we are yet to see any official reports from President Biden’s administration, the impacts of these decisions could loom large across global financial markets and create a sense of uncertainty in the realm of international affairs. China has also tightened its own controls, restricting exports of two key materials used in microchip production. Beijing stated that from August, special licenses will be needed to export gallium and germanium, of which China is the world’s largest producer, which are used in semiconductor manufacturing.

Chancellor of the Exchequer, Jeremy Hunt, has voiced concerns that banks are dragging their feet when it comes to passing these increased savings rates onto savers while ensuring swift repayment increases for mortgage holders. Although savings rates and mortgages are not directly correlated, the disparity between the average mortgage and savings rates has reached its widest point since December 2021 at the time of the Bank of England's first interest rate raise in the current uptick. Back in 2021, the difference between the average two-year fixed mortgage rate of 2.38% and a typical savings account rate of 0.19% was 2.19%. However, as of Monday 26th June, the gap was considerably wider, with the average two-year mortgage rate surging to 6.23%, while the typical savings account offered a modest 2.36%, resulting in a wider gap of 3.87%. This glaring discrepancy likely highlights the growing frustration felt by Mr Hunt. Yet, many banks argue that a considerable portion of fixed-rate mortgages in the UK were secured at lower costs compared to today. Consequently, as the bank rate rises, these mortgage holders continue to enjoy the benefits of the lower rates, leaving banks with little room to manoeuvre and pass on higher savings rates to protect their margins.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
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