Issue #11 - AI vs. Internet Revenue: The Battle You Didn't See Coming

What’s in this issue;

Welcome back to our latest issue!

This week, we dive into a market shaken by President Trump’s new tax bill and renewed trade war threats, with stocks tumbling and bitcoin soaring to record highs.

We cover Moody’s downgrade of the US credit rating, Japan’s shrinking trade surplus under US tariffs, and a warning from Cloudflare’s CEO about AI’s threat to the internet’s revenue model.

You’ll find a detailed look at inflation’s real-world impact on household budgets, with essentials like food and energy up over 25% since 2020.

We also spotlight key economic news from the US, UK, China, and India, and preview the week ahead—especially Nvidia’s earnings and major economic data releases. Plus, don’t miss our “In Case You Missed It” roundup of global headlines.

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What is Moving the Markets This Week

The stock market ended a volatile week with losses of nearly 3%, as investor anxiety was stoked by President Donald Trump’s policy moves, including the passage of his sweeping “One Big Beautiful Bill Act”—a multitrillion-dollar tax reform narrowly approved by the House 215-214 and now awaiting Senate debate, which triggered a sharp bond sell-off due to concerns over the ballooning U.S. deficit.

After the bill’s passage, Trump reignited trade war fears by threatening new tariffs on Apple and the European Union, sending markets tumbling and reminding investors of the unpredictable risk of further escalation.

Meanwhile, bitcoin grabbed headlines by hitting a record high above $111,000 on the 15th anniversary of its first commercial use, buoyed by positive regulatory news in the U.S. For the week, the S&P 500 fell 2.6%, the Nasdaq Composite slipped 2.5%, and the Dow Jones lost 2.5%.

Moody’s Downgrades US Credit Rating, Increasing Debt Pressure

Moody's downgraded the US credit rating from Aaa to Aa1 on May 16th, 2025, marking the third major rating agency to lower America's rating after Fitch in 2023 and Standard & Poor's in 2011.

The downgrade reflects concerns about the nation's escalating debt, which has reached $36 trillion, widening fiscal deficits, and rising interest payments.

Moody's projects federal debt to increase to approximately 134% of GDP by 2035, up from 98% in 2024.

This decision could complicate President Trump's initiatives to implement tax reductions and may have repercussions in global financial markets, potentially leading to higher borrowing costs for both the public and private sectors.

The downgrade comes amid increased uncertainty in US financial markets, as Trump's tariff policies have heightened investor fears of inflationary pressures and economic downturn.

Japan’s Trade Surplus Shrinks as U.S. Tariffs Hit Exports, Fueling Economic Jitters

Japan’s trade surplus has narrowed significantly in April 2025, largely due to the impact of increased U.S. tariffs on key Japanese exports such as automobiles and electronics.

The tariffs have dampened demand in the United States, Japan’s largest trading partner, leading to a slowdown in export growth.

Additionally, rising energy costs and supply chain disruptions have further pressured Japan’s trade balance, raising concerns about the country’s economic outlook amid a challenging global trade environment.

Cloudflare CEO Warns: AI and Zero-Click Search Threaten Internet’s Revenue Model

In a stark warning, Cloudflare CEO Matthew Prince has said that the rise of AI and zero-click search results—where users get answers directly on platforms like Google without visiting original websites—could dismantle the internet’s long-standing revenue model.

Prince explained that while search engines once drove significant web traffic, now 75% of Google queries are answered on the results page itself, drastically reducing visits to content creators’ sites.

AI tools exacerbate this trend, with companies like OpenAI using vast amounts of web content to generate responses but sending almost no traffic back to source sites.

Prince cautioned that unless this model changes, content creators will lose their incentive to produce quality material, threatening the very fabric of the web.

Bitcoin Hits Record High Above $112,000 Amid US Regulatory Optimism and Institutional Surge

Bitcoin soared to an all-time high above $112,000 this week, fuelled by growing optimism over US cryptocurrency regulations and unprecedented institutional investment.

The rally, which saw Bitcoin surge nearly 50% since April’s lows, was driven by robust inflows into US-listed spot Bitcoin ETFs, positive regulatory signals—including Senate progress on stablecoin legislation—and high-profile endorsements from financial leaders like JPMorgan’s Jamie Dimon.

Analysts attribute the surge to a combination of macroeconomic factors, increased corporate adoption, and Bitcoin’s appeal as a hedge against fiat instability, with some projecting the price could reach up to $180,000 by year-end.

Top Economic News

1. US Economy Faces Sharp Slowdown in 2025

Economic forecasts indicate the US is heading for a significant slowdown this year, following strong 2.8% growth in 2024. The outlook reflects concerns over high tariffs, policy uncertainty, and slowing consumer demand.

2. UK GDP Surprises on the Upside in Q1

The UK economy grew by 0.7% quarter-on-quarter in Q1 2025, outperforming expectations and marking a notable rebound from just 0.1% growth in the previous quarter.

3. China’s Industrial and Retail Data Signal Resilience Amid Tariffs

Official Chinese data for April showed industrial production up 7.7% year-on-year and retail sales rising 5.9%, both beating forecasts. These numbers suggest some resilience despite ongoing US-China trade tensions and tariffs.

4. India overtakes Japan as world's fourth-largest economy

According to the IMF's latest World Economic Outlook, global economic growth is projected to remain steady at 3.2% for both 2024 and 2025, with advanced economies seeing a slight uptick and emerging markets experiencing a modest slowdown.

Long-term growth prospects remain subdued, with a five-year global forecast at just 3.1%, the lowest in decades. Inflation is expected to continue declining, dropping from 6.8% in 2023 to 4.5% by 2025, while Africa stands out as a region of resilience, forecasted to rebound strongly and become the world’s second-fastest growing region over the next two years.

Tracking Inflation Across Europe & US

This week we are looking at inflation trends on a basic level in regard to how far money goes on a granular everyday level.

I have been very interested in this, trying to see how everybody is reacting to inflation.

Inflation Trends: Europe & US (2019–2025)

Both regions saw inflation surge in 2022, peaking near 8–9%, before easing back to around 2–3% by 2024–2025.

How Far Does £20 Go Now vs Five Years Ago?

- In the years leading up to 2020, £20 would buy a typical basket of household food and non-alcoholic drinks.

- By early 2023, the same basket cost about £25—a 25% increase in just three years for older London households, with younger households seeing an 18% rise.

- For lower-income households, food and non-alcoholic drinks that cost £57 weekly before 2020 now cost £72—a rise of about 26%.

- Energy costs have more than doubled for many, with the same usage costing £51 now versus £23 pre-2020 for the lowest income group.

A £20 shop for household staples in 2020 would now require about £25 to purchase the same items, reflecting a 25% increase in staple prices.

Price Rises for Household Staples (2019–2024)

- Food & Non-Alcoholic Drinks: Up about 25–26% since 2020 for most households.

- Energy Bills: Up over 100% for lower-income groups; from £23 to £51 per week for the same energy use.

- General Consumer Prices: UK, Euro area, and US all saw cumulative inflation of roughly 15–20% over five years, but staples rose faster than the average.

Visual Impact: Inflation Chart (Euro Area & US)

*2025 data to May (Euro area) and April (US)

Key Takeaways

- £20 now buys about 20%–25% less in household staples than five years ago.

- Food and energy prices have risen faster than overall inflation, squeezing household budgets especially for lower-income groups.

- Inflation in both the Euro area and US peaked in 2022 and has since moderated, but the cost of essentials remains significantly higher than pre-pandemic levels.

Looking Forward: What We Anticipate Next Week

All eyes are on Nvidia this week as markets navigate a packed calendar after the Memorial Day holiday.

Nvidia in Focus

- Nvidia (NVDA) reports quarterly results on Wednesday. The company is expected to post nearly 66% revenue growth, making this a key test for the AI sector. Investors will scrutinise its guidance, especially around export controls and tariffs.

- Analyst consensus: EPS of $0.85 on $38.15 billion revenue, with strong expectations for continued AI-driven growth.

Economic Highlights

- Second estimate of US Q1 GDP growth

- April core PCE price index (Fed’s preferred inflation gauge)

- Several Federal Reserve speakers and the release of the Fed’s May meeting minutes

Earnings Calendar

Key Economic Events

Monday:

US and UK markets closed (Memorial Day, Spring Bank Holiday)

Tuesday:

- US Durable Goods Orders: Forecast -6.5% (Prev. 7.5%)

- US CB Consumer Confidence: Forecast 84 (Prev. 86)

Thursday

- US FOMC minutes

- Japan Consumer Confidence: Forecast 32.8 (Prev. 31.2)

Friday

- Canada GDP Growth Rate (annualised): Forecast 0.6% (Prev. 2.6%)

- US Personal Spending MoM: Forecast 0.1% (Prev. 0.7%)

Stocks to Watch

- Nvidia, Costco, Salesforce, PDD, Synopsys, Dell, Marvell Technology, Lululemon, ZScaler, Veeva Systems, Agilent Technologies

Things I’m Paying Attention To

BYD outsells Tesla in Europe for the first time - Link

Jamie Dimon – JPMorgan’s CEO – Warned That Markets Could Change On A Dime - Link

Microsoft Is Rolling Out AI Agents. Developers Are Finding Coding Errors - Link

ICYMI

- Massive Russian Attack on Ukraine: Russia launched its largest drone-and-missile attack of the war so far, targeting Kyiv and several other cities for a second consecutive night. At least 12 people were killed and dozens injured, with significant damage to infrastructure and residential areas.

- Xabi Alonso Returns to Real Madrid: Former midfielder Xabi Alonso has been appointed as Real Madrid's new head coach on a three-year contract, marking a high-profile return to the club.

- Romanian Presidential Election: The first round of Romania's presidential election concluded, with George Simion leading but no outright winner, prompting a run-off.

- India–Pakistan Conflict: Escalating military action led to airstrikes on both sides, civilian casualties, and a temporary closure of Indian airspace. A US-mediated ceasefire was announced, though violations were reported shortly after.

- Microsoft Shuts Down Skype: After over 20 years, Microsoft has officially shut down Skype in favour of Teams.

- Australian Political Shift: The Australian Labor Party overtook the Liberal–National Coalition as the largest group in the Senate, altering the legislative landscape.

- German Chancellor Elected: Friedrich Merz was elected as Germany's 10th Chancellor by the Bundestag.

- Wildfires in Russia: A state of emergency was declared in Buryatia, Russia, due to wildfires burning over 53,000 hectares.

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