- FTSE led higher by futures markets
- Semiconductor shares routed after Trump comments on Taiwan
- TSMC beats forecasts, but shares dive overnight
- SSE highlights new Governments renewables drive
- UK jobs data shows a cooling market
Steve Clayton, head of equity funds, Hargreaves Lansdown:
“The UK market has opened strongly, led higher by futures markets that were pricing in an opening gain of around 0.8%. Frasers Group is the top riser in the FTSE this morning, up 8% after well-received full year results.
Semiconductor shares have been some of the strongest in the market so far this year. At one point, Nvidia, the leading AI chip producer, became the world’s most valuable company. Last night, however, investors took a very different view, leading to sharp declines in the prices of major chip producers, from Nvidia to AMD and beyond. An interview with Donald Trump, for Bloomberg Businessweek saw the former President casting doubt on US willingness to defend Taiwan, should he be elected in November. With much of the world’s most advanced chip manufacturing capabilities located within Taiwan, sixty-eight miles offshore China. That was not a message the market wanted to hear. Nor did it want to hear the Biden administration talking about tougher trade restrictions against China.
The US is already spending many billions of dollars sponsoring chip makers to build plants in the USA, but these will not be sufficient to remove American dependency on Taiwanese chips anytime soon. For some of the most advanced AI chips, Taiwan Semiconductor Manufacturing Company is currently the only supplier, and it in turn is only able to produce them because it possesses unique manufacturing technology, created by ASML of the Netherlands. ASML itself saw its shares tumble yesterday after reporting results which in themselves were fine but overshadowed by fears over a mounting trade war between the US and China.
With profits there to be taken after their outsize gains earlier this year, Chipmaking stocks were quickly into the red in US trading yesterday. By the end of the evening’s trading session Nvidia was almost 7% lower, with TSMC down 8% and rival chip maker AMD over 10% weaker.
TSMC themselves have reported a strong quarterly trading update this morning, with net income of NT$248bn usefully ahead of analyst forecasts of NT$235bn. Margins were stronger than expected and the company hinted that prices for chips are likely to rise. ‘My customers are doing very well, and we should do as well’ said Chairman/CEO Wei. TSMC talked of strong and growing demand for their most advanced chips. Whether the buoyant trading news will support the stock when trading commences on Wall Street later today is yet to be seen.
SSE, one of the UK’s largest power producers and grid operators, with a high exposure to renewables generation highlighted a 60% increase in their renewables output in Q1. Much of this was down to more normal wind patterns compared to last year, but SSE also highlighted their delivery of new generation assets. SSE have wind farms under construction offshore the UK, onshore in the Shetlands and Ireland and a huge project offshore the Netherlands. SSE highlighted the new Government’s enhanced clean power target, which they see themselves as well placed to help deliver.
Jobs data released this morning shows signs of a cooling in the labour market. Average earnings rose 5.7% in the three months through May, a reduction from the previous month’s reading of 6.0%. Private sector wage growth showed a similar pattern, declining to 5.6% from 5.9%, an easing that will be welcomed by policy makers at the Bank of England. Unemployment remained at 4.4% or 1.53 million people. The number of people actually in work grew by 19,000 to 33 million but with more people entering the workforce, unemployment rose by 88,000. Vacancies fell back below 900,000 in a further sign of cooling, taking them to their lowest level since 2021.
All in all, these numbers are probably seen as a mixed bag from the Bank’s perspective. The labour market is not tightening, nor is it loosening fast enough, to decisively bring down wage growth back toward levels compatible with the Bank’s inflation target of 2%. Hopes of a cut to interest rates in August have not disappeared altogether. But with Services inflation remaining stubbornly high in yesterday’s inflation data and wages growth easing, but still at elevated levels, the path to lower rates is by no means clear just yet.
Brent crude was trading higher this morning, with spot up $0.55 to $86.20, roughly in the middle of the trading range it has occupied for much of the last couple of years.”
