Microsoft and OpenAI partner on Stargate, a US$100 billion US data centre

Microsoft and artificial intelligence developer OpenAI have confirmed reports that they are working on plans for a data centre project that could cost up to US$100 billion and include an AI supercomputer called “Stargate” set to launch in 2028.

Rapid adoption of generative AI technology has triggered-rocketing demand for AI data centres capable of handling more advanced tasks than traditional data centres.

According to the reports citing inside sources, Microsoft would likely finance the project, which is expected to be 100 times more costly than some of the biggest existing data centres.

The proposed US-based supercomputer would be the biggest in a series the companies are looking to build over the next six years, the report added. It attributed the tentative cost of US$100 billion to a person who spoke to OpenAI’s CEO Sam Altman about it and a person who has viewed some of Microsoft's initial cost estimates.

Altman and Microsoft have spread the supercomputers across five phases, with Stargate as the fifth phase. Microsoft is working on a smaller, fourth-phase supercomputer for OpenAI to be launched around 2026, states the report.

Microsoft and OpenAI are in the middle of the third phase of the five-phase plan, with a significant portion of the cost for the next two phases involving acquiring the needed AI chips, it added.

AI chips are often sold at high prices. Chip company Nvidia CEO Jensen Huang said last month that the latest “Blackwell” B200 AI chip will be priced from $30,000 to $40,000.

Microsoft had also announced a duo of custom-designed computing chips last November.

The report said the new project would be designed to work with chips from different suppliers.

"We are always planning for the next generation of infrastructure innovations needed to continue pushing the frontier of AI capability," a Microsoft spokesperson said, without commenting directly on the report about the planned launch of the Stargate supercomputer.

Total expenses for the plan could exceed US$115 billion, more than triple Microsoft's expenditure last year on capital spending for servers, buildings and other equipment, the report stated.

 

Turkish lira firms after local elections upset

Turkey's lira reversed initial weakness but stocks have wobbled in the aftermath of Sunday’s local elections, when the political opposition won a resounding victory over President Tayyip Erdogan's AK Party (AKP).

Analysts said Turkey's near 70% inflation rate, slowing economic growth and an aggressive monetary tightening campaign that has lifted borrowing costs had hurt the AKP result. Erdogan has stood by the tightening despite the high-stakes vote.

Many foreign financial markets were closed on Monday for the Easter holiday, but Turkey’s five-year credit default swaps, a measure of investment risk, was little changed at 306 basis points, while bond yields dipped basis points to 293 basis points, according to JPMorgan data.

The nationwide results in Sunday’s vote marked the biggest electoral blow for Erdogan and his AKP in more than two decades in power, reaffirming the opposition as a force and reinforcing Istanbul Mayor Ekrem Imamoglu as the president’s chief rival.

Following the result, Turkey’s Finance Minister Mehmet Simsek said that the government would continue to implement its medium-term economic programme decisively with a major focus on s reducing inflation and achieving sustainable growth.

The premium demanded by investors to hold Turkey hard-currency bonds over safe-haven US Treasuries tightened slightly with Turkey's international sovereign bonds marginally up in price.

Goldman Sachs said markets would likely welcome the fact that Erdogan's government has not disputed the outcome of the municipal elections and that it has recommitted to the current economic policy.

“Just maintaining current policies, which we expect to be the case, should in our view support capital flows in the coming weeks and with the current account having structurally corrected sharply and seasonally going to improve, we think the lira should be much better supported than in recent months,” said Clemens Grafe, co-head of CEEMEA Economics at Goldman Sachs, in a note.

Tellimer Insights said that if Erdogan's defeat was linked to the high inflation “and the only way to address this is to stay the course on orthodox policy, then President Erdogan is likely to continue backing his technocratic economic policy team”. However, Tellimer analyst Hasnian Malik said the medium-term risk of a return to populist policies had increased.

Since last summer, Turkey’s central bank has steadily increased interest rates, most recently to 50% last month from 8.5% less than a year ago.

 

Foreign investors attracted to India FAR bonds

India is attracting investment cash from its watershed inclusion into key global bond indexes, which is already reshaping markets in a country long keen to insulate itself from hot money flows.

Foreign investors have pumped around rupees (INR) 780 billion (US$9.4 billion) into eligible sovereign bonds since JPMorgan Chase announced last September that 23 Indian government bonds would be added to its widely tracked emerging market debt index from 28 June this year, paving the way for billions of dollars in investment flows. These are already leaving their mark on a variety of assets, with corporate bonds outperforming peers and foreign exchange reserves hitting a record high. The rupee has shrugged off the impact of a broad strengthening in the US dollar.

“This is a significant event. The long-awaited inclusion of India in the index should open the door for increased participation by foreign investors,” said Chidu Narayanan, head of the macro strategy Asia-Pacific at Wells Fargo. Inflows of around US$25 billion for Indian bonds by the middle of next year are set to support the rupee, he said.

The influx of money has helped Indian Fully Accessible Route (FAR) bonds, which are set to join the gauges, to return 2.76% this year in dollar terms, data compiled by Bloomberg show. They have outperformed a global index of emerging sovereign debt as well as a gauge of corporate and sovereign notes in emerging Asia.

The inflows have helped make them one of the best performers in local currency emerging market government debt in 2024.

“You’re seeing a bit of frontrunning,” ahead of the June deadline, said Radhika Rao, senior economist at DBS Group Holdings. “The bulk of the flows is still to come, which we think will come as the inclusion starts” and when the JPMorgan index reflects the full 10% weight for India toward the end of the year.

One outcome of the  inflows has been accelerated intervention by the Reserve Bank of India (RBI), which has been buying the incoming dollar flows, resulting in its foreign reserves rising to a record US$642.5 billion. The intervention is largely aimed at shielding the rupee from volatile moves.

The RBI has stepped up purchases in recent weeks, buying a total of US$20 billion since the start of February, according to Bloomberg Economics. Corporate bonds have also benefited from flows into government debt as the former is largely priced off sovereign notes. The yield on top-rated 10-year notes has declined about 30 basis points since the index announcement.

Bloomberg Index Services will also include some Indian bonds in its emerging market local currency index from next year, according to reports.

 

US and Mexico to partner on semiconductor supply chain development

The United States will partner with Mexico to explore semiconductor supply chain opportunities, the US State Department has confirmed, as the Biden administration pushes to reduce reliance on China and Taiwan for the technology.

The collaboration will take place as part of the US’ CHIPS Act, a 2022 law that created a US$500 million fund for developing the semiconductor supply chain.

“Manufacturing of essential products ranging from vehicles to medical devices relies on the strength and resilience of the semiconductor supply chain,” the department said in a statement. 

The partnership will begin with an assessment of Mexico's existing semiconductor industry, regulatory framework and workforce needs, the department added.

The statement noted that “the United States and Mexico are key partners in ensuring the global semiconductor supply chain keeps pace with the digital transformation underway worldwide. Manufacturing of essential products ranging from vehicles to medical devices relies on the strength and resilience of the semiconductor supply chain.

“This collaboration between the United States and Mexico underscores the significant potential to expand Mexico’s semiconductor industry to the benefit of both nations and will build on existing cooperation under the bilateral High-Level Economic Dialogue and trilateral North American Leaders Summit process. This partnership will also support the work already underway to bolster regional competitiveness in semiconductors, including workforce development, in the Americas Partnership for Economic Prosperity.”

In August 2022, President Biden signed the CHIPS Act, which appropriated new funding to boost domestic manufacturing and research of semiconductors in the US.  The Act of 2022 created the International Technology Security and Innovation (ITSI) Fund, which provides the US Department of State with US$500 million (US$100 million per year over five years, starting in Fiscal Year 2023) to “promote the development and adoption of secure and trustworthy telecommunications networks and ensure semiconductor supply chain security and diversification through new programmes and initiatives with our allies and partners.”

 

Jakarta to remain Indonesia’s economic hub

Indonesia's parliament has designated special status for Jakarta, keeping the city as the country's economic epicentre despite plans to establish a new capital on Borneo island.

Indonesia plans to shift its capital city from congested and sinking Jakarta, to Nusantara, a US$32-billion city under construction in the jungles of East Kalimantan on Borneo.

The city is a flagship project of outgoing President Joko Widodo, who pledged to redistribute wealth and development currently concentrated in Java, across the archipelago.

An “agglomeration” council will be created to harmonise development plans between Jakarta and its satellite cities, according to a copy of the new law dated 18 March.

Home Affairs Minister Tito Karnavian said after deliberation in parliament that Jakarta should still be improved to compete with other “world-class cities” once the seat of government has been moved to Nusantara.

“After it's no longer a capital, it still has to be sealed with a special status so that it can accelerate economic growth and to increase contribution to the country's GDP,” he said.

Under current rules, Jakarta will remain Indonesia's capital until the president issues a decree officially naming Nusantara as the new capital, which is expected late this year.

The government is expected to hold this year’s Independence Day ceremony on 17 August in Nusantara and thousands of civil servants are expected to move there by December.

South Africa to get a new bank in 2024

South Africa’s insurance group Old Mutual is on track to launch its new bank before the end of 2024, with the insurer submitting its systems and processes for regulatory approval from the Prudential Authority early this year.

This was revealed in the company’s annual results for its 2023 financial year, where it posted strong growth. The company’s insurance revenue grew by 7.84% to rand (ZAR) 68.26 billion (US3.62 billion), while non-insurance revenue grew by 12.1% to ZAR 15.71 billion.

The company’s profit growth was largely driven by its impressive investment return, which increased from R20.41 billion to R135.9 billion — a 565% increase, which resulted in profit after-tax growing from ZAR 5.65 billion to ZAR 7.63 billion.

In a media briefing following the release of the company’s results, Old Mutual CEO Iain Williamson provided an update on the company’s plans to launch a bank.

The company received approval from the South African Reserve Bank’s (SARB) Prudential Authority to apply for a banking licence in November 2022. The group already has existing lending and transactional solutions — an unsecured lending product and the Old Mutual Money Account — with the latter handled through a partnership with Bidvest Bank.

Old Mutual said that the unsecured lending solution, in particular, is already a strong contributor to group profitability.

“The establishment of a bank within the group will allow us to maintain a primary relationship with our customers, driving greater regular interaction with them and enhancing cross-sell opportunities across the group,” the insurer said.

“It will also enable the group to accept retail deposits, thereby providing a cheaper source of funding.”

Williamson said Old Mutual’s bank completed its section 16 submission to the Prudential Authority at the beginning of 2024 and is now awaiting approval.

Ivory Coast increases cocoa price by 50%

The West African nation of Ivory Coast, the world's largest exporter of cocoa is poised to increase the official cocoa farmgate price to 1,500 CFA francs (US$2.47) per kg from today from the previous 1,000 CFA. Major chocolate producers such as Hershey, Nestle, Mondelez and Barry Callebaut buy their cocoa from Ivory Coast.

The increase comes after President Allassane Ouattara over the weekend validated a proposal for a price of between 1,100 and 1,200 CFA francs per kg before reversing his decision and asking that the price be even higher.

Cocoa prices have more than tripled over the past year as disease and adverse weather pushed the global market to a third successive deficit, but the official farmgate price that growers can charge for their beans in Ivory Coast, a top producer, has yet to reflect this.

In 2022, Ivory Coast along with Ghana boycotted industry meetings in Brussels over a price dispute.

Nearly six million people rely on the country’s cocoa industry.

 

Vietnam’s economy grows 5.66% in Q1 as exports boom

Vietnam's gross domestic product (GDP) grew by 5.66% in the first quarter of 2024 from a year earlier as exports boomed, government data shows, despite higher shipping costs due to turmoil in the Red Sea.

Growth in the January-March quarter was faster than the expansion of 3.41% in the corresponding period of 2023, but slower than the fourth-quarter growth of 6.72%. First-quarter numbers are generally lower because of the region’s festival holidays.

The Southeast Asian nation, a manufacturing hub and key exporter of smartphones, electronics and garments, is seeking to shore up business activities after missing last year's growth target on weak global demand and brief power shortages.

It has set a target of 6.0% to 6.5% GDP growth this year.

The manufacturing and construction sector grew 6.28% in Q1, while the services sector expanded 6.12% in the quarter from a year earlier, the General Statistics Office (GSO) said in a report.

Goods exports from Vietnam grew sharply in the quarter, despite Red Sea shipping disruptions caused by the Houthis' attacks, which official estimates show boosted costs by 55% to 73% for cargoes from the country.

Goods exports in the quarter grew 17% from a year earlier to US$93.06 billion, while imports were up 13.9% at US$84.98 billion, giving a trade surplus of US$8.08 billion.

 

UK taskforce recommends T+1 settlement by 2027 in two-phase approach

The UK’s Accelerated Settlement Taskforce has recommended a two-phased approach to shortening the settlement cycle for securities transactions. This would initially involve some operational and behavioural changes mandated for 2025 to enable the market to prepare in advance of the formal move with a full transition by the end of 2027.

In its report, the group added however, that if the European Union (EU) commits to move to the next business day after a trade, aka T+1 within a timeframe that aligns with the UK’s plans, simultaneous adoption should be considered. The US is due to move from T+2 to T+1 settlement from 28 May, while India has already rolled out same day settlement, aka T+0.

The UK taskforce also recommended a Technical Group should be established, comprising operational and market experts to work through the details including how changes can be best implemented to enable a smooth transition to T+1.

Andrew Douglas, who has worked for 35 years in the post-trade industry, most recently with Depository Trust & Clearing Corporation (DTCC), will lead the group, which will report later this year to confirm the dates for both phases of the transition.

More than 80 trade associations and industry participants have volunteered to support the Technical Group. They include AFME, Baillie Gifford, Brown Brothers Harriman, DTCC, Euroclear, FMSB, Forvis, Goldman Sachs, ICMA, ISITC Europe, ISLA, JP Morgan, Linklaters, LSEG, PIMFA, Santander CIB, The IA and UK Finance.

 

HSBC Canada branches join RBC network

HSBC Holdings said it has completed the C$13.5 billion (US$9.96 billion) sale of its Canadian unit, HSBC Bank Canada, to Royal Bank of Canada (RBC) late last week and the transaction will result in the recognition of an estimated gain of US$4.9 billion in the first quarter of 2024.

RBC previously said the acquisition, which merges Canada's biggest and seventh-biggest lenders, will boost its domestic business as well as its position on the global stage. HSBC Canada's branches and offices opened for business yesterday for the first time as RBC locations.

The merger, RBC's biggest, overcame opposition from environment and anti-monopoly groups as well as conservatives, who lamented the increasing concentration of the industry and the possibility of higher fees for consumers.

Deals of this size in the Canadian banking sector have not been attempted since the early 1990s when RBC’s bid for Bank of Montreal was blocked by regulators.

 

Tesco and NatWest launch sustainable finance scheme for UK farmers

Tesco, the UK’s biggest supermarket chain and NatWest Bank have launched a discounted climate and sustainable finance scheme for 1,500 of the retailer’s farmers. The company said that 1,500 of its farmers are set to benefit from the voluntary scheme, as well as access to Tesco preferred suppliers, with potential volume discounts offered on assets such as solar panels and heat pumps.

The scheme will offer preferential rates on finance to help farrmers switch to sustainable farming methods, including installing renewable energy sources, such as solar panels and wind turbines, and fossil fuel-free heating or cooling systems.

Ashwin Prasad, Tesco Group Chief Commercial Officer, said: “We have long-term, trusted relationships with our farmers and suppliers and are proud supporters of British agriculture. We know a lot of our farmers are looking at ways to reduce costs on farm and move to renewable sources of energy at the same time, which is why we’re delighted to be partnering with NatWest in offering our green finance initiative.

"The food industry has a clear role to play in ensuring we maintain food security while also helping to protect the environment, and we hope innovative programmes like this will play a crucial part in achieving this. The initiative will provide our farmers with the confidence to invest in sustainable farming methods and infrastructure, while also helping us meet our target of reaching net zero across our supply chain by 2050.”