26th January 2025

1) Europe's Hooked on Cheap Russian LNG

• Donald Trump has threatened the EU with tariffs unless it imports more US LNG, but Europe’s reliance on cheaper Russian gas poses challenges.?
• While the EU signalled interest in increasing American LNG imports, it lacks authority to enforce such purchases, and its companies imported record volumes of Russian LNG in 2023.
• The EU has set a goal to phase out Russian fossil fuels by 2027 but hasn’t banned LNG like it did coal, as some member states oppose stricter measures.
• The US has the capacity to replace Russian LNG in Europe by 2029, but higher prices for US gas and the absence of government-to-government energy deals complicate matters.
• Efforts like sanctions on Russian LNG or creating strategic reserves might help, but EU gas demand is projected to decline, and global competition for LNG is increasing, especially from Qatar and Canada.

2) The UK's R&D Decline

• The UK’s presence among top global R&D spenders has sharply declined over the past decade, with only 63 British companies making the top 2,000 in 2023, down from 118 in 2013.

• In contrast, the US and China have increased their numbers, with China emerging as a major R&D rival, especially in AI.

• Despite strong academic research, the UK struggles to translate scientific advances into economic gains, with limited private sector R&D and venture capital investment in AI compared to the US and China.

• Experts warn that the UK risks becoming a “lab of the world,” exporting innovation benefits elsewhere. However, recent government initiatives, including AI-focused policies, aim to harness opportunities for growth.

• While the UK excels in academic research and top-performing universities, including in healthcare and life sciences, this scientific knowledge is not translating into significant economic value or high private sector R&D investment.

3) Netflix is Streaming Ahead

• Netflix shares hit a record high after adding 18.9 million subscribers in Q4 2024, driven by live events like the Jake Paul vs. Mike Tyson boxing match and the return of Squid Game.
• This is Netflix’s biggest subscriber gain ever, bringing its total user base to over 300 million.?
• Revenue grew 16% to $10.2 billion, and Netflix plans further growth by raising subscription prices in major markets like the U.S.
• The company is ending quarterly subscriber updates, shifting focus to financial metrics like sales and profits.?
• Live programming, including sports and events, is part of its strategy to boost its advertising business, which is gaining traction but won’t be a major revenue driver until 2026.?
• Netflix projects $44.5 billion in revenue for 2025 and continues to explore new initiatives like video games and selective sports partnerships.

4) The Bank of Japan's Highest Rates in 17 Years

• The Bank of Japan (BoJ) raised its short-term interest rates to 0.5%, the highest level in 17 years, marking its third rate hike since ending the negative interest-rate policy in March.?

• The 8-1 vote?reflects the central bank's efforts to normalise monetary policy amid improving economic conditions and rising inflation.

• The BoJ's move was widely anticipated following weeks of speculation and recent comments from Governor Kazuo Ueda and his deputies. The central bank cited Japan's economic activity and prices aligning with its outlook as key reasons for the hike.

• The BoJ targets a stable inflation rate of about 2% and expects underlying inflation to reach this level in the second half of the three-year projection period ending March 2027. Japan's core consumer prices rose 3% in December, the highest in 16 months, driven partly by the reduction of government energy subsidies. The central bank's latest forecasts show consumer inflation reaching 2.7% by March 2025.

• Analysts think the BoJ could consider further rate hikes at a pace of about once every six months, provided economic activity and price increases continue to meet forecasts. The decision to hike rates in January was influenced by the stable reaction of markets to President Trump's return to office and the relative stability of global financial markets.

Harry Mills | Director, Oku Markets

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