- Investors await Federal Reserve minutes for indications about the path of interest rates.
- FTSE 100 expected to hang onto small gains made after Bank of England indicated the recession may already be over.
- UK records record budget surplus in January but it won’t add much more wiggle room for pre-election sweeteners.
- Brent Crude hovers under $83 a barrel as global demand concerns linger while Middle East crisis keeps a floor under prices.
- Nvidia slips ahead of hotly anticipated earnings report as expectations are sky-high.
- Tesla knocked off spot as Wall Street’s top traded share by Nvidia.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’The hunt for clues about when central bankers will vote to cut interest rates is intensifying, with the minutes of the Federal Reserve set to be poured over later. Investors are in search of pointers about when borrowing costs will be pushed lower, given that inflation is making its way downwards, while the American economy still shows signs of resilience. Recent comments from policymakers have urged patience, but multiple cuts are on the horizon this year. It’s just a question of when.
The FTSE 100 is expected to largely hang onto gains made on Tuesday in early trade as a brighter picture for the UK emerges. The government recorded a record budget surplus in January as the end of the energy support scheme and lower debt interest payments boosted coffers. January is a big month for tax receipts especially with the self-assessment deadline, but lower expenditure has put the finances on firmer footing. A large surplus was expected however, so its not going to move the dial much on wiggle room for pre-election sweeteners. However, coming hot on the heels of the assessment by the Bank of England that the UK recession will turn out to be super-mild, it does offer more rays of optimism. The Bank of England Governor Andrew Bailey, speaking to MPs, suggested the economy may already have turned a corner, adding that he is comfortable with market assessments that interest rate cuts will come this year. Relief is simmering that there could be light at the end of the tunnel for sectors hit hard by cost-of-living headwinds. But there remains uncertainty ahead, with central banks still not prepared to rush in too soon and ease monetary policy in case inflation starts to charge higher again. A survey by Boston Consulting Group has highlighted potential inflationary risks ahead, with its finding that 30% of UK businesses planned to lift their prices by 6% to 10% this year. Wage growth is falling but remains elevated and the worry is that expensive labour costs could keep being passed on to customers.
Hopes that authorities in China may jump in with more stimulus following a bigger than expected cut to a key lending rate, have added a little more positive sentiment. Stocks were propelled higher in Shanghai and Hong Kong but Japan’s Nikkei has taken a breather, just below its 34-year high.
Brent Crude is hovering below $83 dollars a barrel, making up some losses after losing ground as hopes for early interest rate cuts in the United States have retreated. Still, prices are up around 7% since early February as high tensions in the Middle East have pushed up supply concerns. China’s UN ambassador is the latest to warn that the spillover of the Israel-Gaza conflict is destabilising the entire region. Houthi rebel attacks, which the group claims are in retaliation for Israel’s military action, are continuing. The crew of a British-registered cargo vessel was forced to abandon ship after it was hit by missiles. The US has vetoed a draft UN Security Council resolution calling for an immediate ceasefire and instead is pushing for a temporary truce linked to the release of hostages. Despite worries of escalation, expectations of falling global demand for oil is the main price driver, with China’s economic woes continuing and slower growth expected in the US as higher interest rates linger.
Nervousness has hit Wall Street as the lofty valuation of chip giant Nvidia has caused jitters, ahead of its hotly anticipated earnings report. The more cautious sentiment also dragged down other tech stars, like Amazon. Investors are baulking at the price put on the big tech names as although another big growth number is expected from Nvidia, the company will need to shoot the lights out again to justify its huge share price gains. It’s up 44% year to date and a whopping 236% over the past 12 months. But given Nvidia’s stratospheric rise, expectations for the fourth quarter are very high indeed. AI has the potential to transform a wide range of industries from healthcare through to education and Nvidia’s products provide the infrastructure backbone to the technology, which is behind the buying frenzy. Quarterly revenue of around $20 billion is expected, after its Q3 numbers stunned the market and any miss is likely to be punished. Nvidia is in an enviable position given that its powerful graphics processing units are in such high demand from tech titans who are powering their own AI revolutions. And, for now, with budgets being ringfenced for these technological innovations, even as other projects are scaled back, the immediate future looks bright. However, longer-term the path of demand is harder to map. The company has significant first mover advantage, but smaller rivals, and increasingly Nvidia’s big customers, are marching into the space. The company is also having to grapple with regulatory challenges particularly the ban on the sale of high-tech chips to China, which could potentially have a material impact on its longer-term growth, if strong demand wanes elsewhere.
The surge in enthusiasm for all things AI has meant that Nvidia has now pushed Tesla off the top spot of Wall Street’s most traded stock, with Tesla’s shine tarnished as EV competition has heated up. Shares have fallen by another 3% and are down 22% year to date. The shine is coming off its brand power, faced with steep discounting from rivals in China in particular. There is also concern that rivals like BYD will make deep inroads into other key markets, given their aggressive pricing strategies. However, Tesla has an excellent product, and if production can be ramped up at pace, the horizon for more attractive per-unit costs looks potentially promising.’’
