Many equity indices in Europe are close to record highs, despite stagnation in the real economy. Yet the structural picture is far from rosy. The continent’s share in global market cap continues to decline and there is a dearth of growth stocks from the tech industry. IPOs and follow-on transactions have been on a downward path over the past decade across Europe. The trade venue landscape remains fragmented. But there are important differences between European markets. The Nordic and Baltic countries, Switzerland and the UK have a large number of listed firms as well as high market caps compared to GDP. By contrast, the German market performs strongly in terms of IPO volumes, capital increases and liquidity. The DAX has outperformed all other major European stock indices over the long term. In addition, the German stock market has a solid valuation. It may therefore be a hidden European champion, overall.

Groq, which designs chips specifically for running large language models (LLMs), is due to receive more than $300m from a funding round co-led by BlackRock. This shows that investors are scrambling to find ways to capitalise on this growing demand for more and more AI chips.In this ‘Latest in AI’ edition, we analyse how Anthropic’s refreshed ‘prompt generator’ may cause the hottest job in Silicon Valley to fall to earth and how Microsoft and Apple will no longer have ‘observers’ on the OpenAI board.

The big question in the German housing market is when will the price correction end? The current market situation is unclear. Our fair value prices based on a net present value model indicate that a further price correction may be necessary. At the same time, inflation is high. Probably the most important reason in favor of prices rising again is the continuing high fundamental shortage of supply in the metropolitan regions and large cities. The regulatory uncertainty that contributed to investor restraint in 2023 is decreasing and CO2 emissions fell more sharply than expected in 2022 and 2023. Another positive development which is helping to find a new normal is that the cost pressure due to higher interest rates and regulation has awakened the spirit of innovation and entrepreneurship.

The energy shock of 2022 posed an existential challenge to Germany's export-based and manufacturing-led growth model. Pessimists worried that without cheap energy, Germany would see a structural decline in both its industrial base and its trade surpluses. Optimists argued that the model would adapt to higher energy prices. So where do we stand? As the chart below shows, it is a bit of both.

Which AI models do you use? For now, proprietary models from OpenAI are leaving their rivals in the dust. Meanwhile, open-source developers are coming under pressure for not being fully ‘open’.In this ‘Latest in AI’ edition, we analyse how Big Tech firms further exert influence on small AI firms. We then discuss the release of the talking AI named Moshi and how text-to-audio AI start-up ElevenLabs is resurrecting the voices of celebrities.

Manufacturing output in Germany declined by 2.9% mom in May, significantly missing market expectations of a marginal increase. The three-month comparison (+0.5% qoq) looks a bit more encouraging, but the disappointment prevails, not least in light of yesterday’s weak order numbers for May (-1.6% mom). The overall downturn in manufacturing industry is still driven by capital goods producers. Automotive production remains quite volatile but will decline in 2024 on average (Jan-May 2024 versus per-year level: -9.3%). At least energy-intensive industries stopped their decline registered in 2022 and 2023 and continue to stabilize/recover at a low level.

Recent collective wage negotiations have produced high outcomes, in line with our expectations. This was driven by both permanent increases and strong one-off payments. The latter temporarily contribute to stabilizing purchasing power and help to limited wage related cost pressures. Strong absolute wage increases are often offset by agreements running up to 36 months.

In this piece, we show how new exploitation methods (most notably fracking in the US), the war in Ukraine and strong growth in global gas demand, driven by China and the US, have changed global gas markets structurally. With the war in Ukraine, mutual sanctions between the EU and Russia and declining domestic gas production (e.g. in the Netherlands), the EU had to diversify its gas imports. Higher US LNG imports partly compensated for lower pipeline imports from Russia. Gas prices in Europe remain elevated compared to pre-war levels and compared to the US.

AI’s insatiable hunger for energy is only likely to increase as more data centers are built. Companies have consequently been ramping up deals to buy renewables s in an attempt to maintain their energy security and sustainability goals.Later, we analyse how Apple has blamed concerns about privacy for its decisions against launching AI features in the EU and putting Meta’s large AI model on the iPhone.

Last week shortly after this research article was released in German, the Federal Statistical Office has published the results of the latest population census. Census data often leads to revisions relative to current estimates. However, the now published number is a massive surprise. For 2022 the population has been revised down by 1.4 million to 82.7 million. This change has an impact on our results and projections. It will take some time before we have recalculated our projections in detail. However, details matter. For example, it may be also the case that the number of dwellings has been revised. Our current assessment is that the new data will clearly lower the supply shortages in the housing market. We assume that due to the new data the supply shortage will turn into excess supply in roughly a dozen districts by 2040. However, we show in this article that even if the nationwide number of newly constructed dwellings reached 400k per year (base line assumption ca. 300k) that it would not be sufficient to eliminate the supply shortage in all districts. Demand massively outperforms supply in the large cities and the most dynamic metropolitan areas. Hence, the present results should nevertheless be helpful in estimating future developments.

AI-chip designer Nvidia became the world’s largest public company last week. The market success of the Big Tech has encouraged other AI investment. In this edition of ‘Latest in AI’, we explain why Ilya Sutskever’s newly founded Safe Superintelligence is the antithesis of OpenAI. Later, we analyse the several new video-generating AI models that could soon start an avalanche of highly realistic videos and we discuss the opening of the AI Office in the European Union.