- Wait and see mood on markets ahead of US inflation data with PCE Index out on Friday.
- Latest chip skirmish puts pressure on semi-conductor companies and shows risks ahead in China.
- Brent Crude hangs above $86 a barrel despite UN vote calling for an immediate Gaza ceasefire.
- Ocado sees rebound in customers, just as it faces a shareholder revolt.
- Flutter shares up after forecasts of a big boost in revenues in the United States
- Bitcoin surges again pushing back past the psychologically important $70,000 mark.
Susannah Streeter head of money and markets, Hargreaves Lansdown:
‘’The wait and see mood on the markets is continuing with recent exuberance fading, as investors look ahead to key consumer inflation data stateside, while they assess the implications of the latest ‘chip wars’ between the US and China. Shares in a number of semi-conductor specialist Advanced Micro Devices and Intel slipped after Beijing signalled that foreign company chips would be phased out of government computers and services and replaced with home produced versions. This latest chip skirmish isn’t not going to stop the AI juggernaut in its tracks, but it highlights one of the risks ahead for demand in the world’s second largest economy. It’s likely two spheres of AI influence will eventually emerge, one initially much larger led by US tech giants but China will attempt to play catch up in the years to come and forge alliances and partnerships with its own technology. The US is pedalling fast to create more supply chain independence with the proposal of up to $8.5 billion in direct funding through the CHIPS programme to advance Intel’s semi-conductor projects in Arizona, New Mexico, Ohio and Oregon. Tax credit initiatives spearheaded by the Biden administration is also aimed at ensuring US chip giants up production on American shores.
The FTSE 100 has gone further into reverse, a change from the exhilarating progress it made last week when it flirted with record highs. There are still hopes it will power up again given economic conditions appear more clement than just a few months ago.
While there is relief that a more united diplomatic front has brought about a call for an immediate ceasefire in Gaza at the UN, it hasn’t moved the dial much on oil prices, with Brent Crude still trading well above $86 a barrel. An immediate end to hostilities from Houthi rebels isn’t expected, so shipping companies are still going to be voracious in their demand for more fuel to power their longer journeys away from the Red Sea. Ukrainian attacks on Russian refineries, responsible for around 12% of output, have also added to global supply concerns especially with Moscow’s order for oil companies to reduce their output to meet OPEC targets in the second quarter of the year. It’s a reminder that despite the sanctions Russia still has plenty of customers around the world.
Ocado has found success at its virtual tills, reporting a 10.6% surge in sales over the last quarter. Cost-of-living pressures are subsiding for more shoppers and Ocado appears to be succeeding in winning back old fans and drawing in new, as active customers rose 6.4% to £1.02 million. This should be clicked up as a win in the super tough grocery market and may reassure Ocado’s partner Marks and Spencer that although the marriage has been through a rough patch, more harmonious times could be ahead. It’s also testament to Marks and Spencer’s skill at delivering highly curated food ranges which are clearly a significant draw. Pulling more customers into virtual aisles is essential, as average basket size hasn’t budged compared to last year.
Despite the progress in Ocado Retail, it’s unlikely to stop a potential shareholder revolt over executive pay which pulled down the share price on Monday. Proxy advisor Institutional Shareholder Services has recommended they vote down the groups new remuneration policy and performance plan at the AGM in April. The new proposals could see the groups CEO Tim Steiner paid almost £15 million. ISS said it was materially above market norms and not in line with UK market standards and investor expectations. Ocado’s share price has been under the cosh in recent years. Although prospects for Ocado retail have improved, it’s the Solutions business that really moves the dial in terms of the investment case. It charges third party retailers to use Ocado’s robotic warehouse systems, but demand has been slower than hoped amid the tougher economic outlook and these customer fulfilment centres are super expensive to deliver. They offer long-term potential, but shareholders are short on patience.’’
Bets on Flutter have increased, with the share price up in early trade, after it forecast its US business is going to fly this year. The online betting firm estimates that its core profits will jump by around 30% as it gets a bigger foothold in the lucrative American market. Its brand Fanduel is growing super-fast with its market leading edge widening, exploiting the explosion in demand for sports betting following the lifting of a ban in 2018. Flutter now has its sights set on acquisitions to make the most of US opportunities. Flutter is also powering more steadily upwards in other markets such as the UK and Australia with its Paddy Power, Betfair and Sportsbet brands, with core profit set between $1.63 billion to $1.83 billion compared to $1.71 billion in 2023.
Bitcoin is enjoying a moment in the sun again, resurging more than 7% in around 24 hours, heading back above the psychologically important $70,000 mark. It lost ground last week following on from hitting an all-time high of $73,797.68 on March 14. ’The arrival of spot ETFs on the market has prompted a surge of activity and a growing trend of more institutional investment in Bitcoin. These funds make it easier to gain Bitcoin exposure without having to own the currency through a digital wallet. The valuation also appears to have been super-charged in anticipation of a halving event taking place in April, which reduces the reward for mining blocks and has in the past fuelled price gains.
Bitcoin ETF issuers are setting fees low, to attract new custom and is also likely to have encouraged new entrants into the market, but investors should beware such cut-price offers as they are time limited. There are some signs these new entrants are skittish when it comes to volatile moves, with moves downwards accompanied by a fresh wave of selling. The temptation to ditch other investments for Bitcoin funds may be strong given the surge in value crypto this year, but it’s important to remember just how volatile the currency is, and how it can’t be relied on as a store of value. While the approval of Bitcoin ETFs has excited the crypto world, the SEC’s decision at the end of last year should not be seen as a signal that crypto has acquired a new shine of legitimacy. SEC chair Gary Gensler has underlined the risks associated with the currency and products whose value is tied to crypto.
Bitcoin may have edged more into the mainstream with the approval of these ETFs and increased interest from institutional investors, but it’s still showing all the hall marks of an unpredictable teen, given its volatile temperament. However, you have to keep an eye on it, as its offspring, via blockchain developments, look likely to present opportunities.”
