One Knightsbridge Capital Monday Espresso Podcast

Monday Espresso Podcast - 24th June 2024

[00:00:00] Nathan Sweeney: It is Monday the 24th of June. Today I'm joined by Sarah Todino, our UK and European Analyst and Assistant Portfolio Manager on our funds. Good morning, Sarah.

[00:00:11] Sarah Todino: Good morning, Nathan.

[00:00:12] Nathan Sweeney: We'll get some insight from Sarah in a second. Firstly, as always, let's recap on what was driving markets last week. There's a lot to unpack, so let's dive straight in.

[00:00:20] Nathan Sweeney: If we look at equity markets, they were generally buoyant for the week. So, what are we seeing here? We had some lower inflation readings, which helped to lift the mood for markets. Central banks are reaching a turning point, and expectations are mounting that major central banks will deliver interest rate cuts this year and that helped to boost the outlook for markets.

[00:00:41] Nathan Sweeney: So, if you think about it, we've already had the ECB, the European Central Bank, the SMB, the Swiss National Bank and the BOC, the Bank of Canada beginning their interest rate cutting cycle. So, the interest rate cutting cycle is underway and tech also remained in the spotlight for the week. So, we're going to cover that too in today's podcast.

[00:01:02] Nathan Sweeney: Sarah, turning to you, what was on your radar last week?

[00:01:05] Sarah Todino: So, UK inflation was in the spotlight this week. The annual inflation data for the UK in May saw inflation has slowed to 2% and that was from 2.3% in April. So, this was in line with expectations and the lowest level since July 2021. So, inflation has now returned to the Bank of England's 2% target.

[00:01:26] Nathan Sweeney: I guess you know what the next question our listeners will want to hear. And what does that mean for the Bank of England?

[00:01:32] Sarah Todino: So, we saw the Bank of England keep rates on hold at 5.25% this week. So, rates have now been on hold since August last year. So, the cost of borrowing remains at 16 year high.

[00:01:44] Sarah Todino: So, within the Bank of England meeting, the votes remain the same as last time. Two voting to cut rates, and seven voting to keep rates on hold. But this time, the decision by those not to cut was said to be finely balanced, which indicated that cuts are on the horizon. But they're looking for more evidence of those inflationary pressures to ease before cutting begins.

[00:02:05] Sarah Todino: So, we've seen the inflation return to the target of 2%, driven by moderating inflation expectations, and declining energy prices from last year. However, services inflation does remain elevated and that was higher than expected at 5.7%. So, although it was down from April's 5.9%, it was still less than the forecast 5.5%. So, this is the sticking point. So, we'll be watching services, inflation, wage growth, and labour market tightness. And we'll be looking for progress here ahead of the next interest rate decision.

[00:02:38] Nathan Sweeney: Okay, so there's a lot in that, but it looks as if we're progressing towards that interest rate cut from the Bank of England, which is really good news, and we're seeing progress on inflation.

[00:02:47] Nathan Sweeney: Is there anything else to highlight?

[00:02:48] Sarah Todino: Yeah, so the good news is interest rate cuts are underway, as we've already seen from the ECB. This week, we also saw the Swiss National Bank cut rates by 25 basis points to 1. 25%, and this was the second consecutive cut, and that was driven by moderating inflationary pressures.

[00:03:07] Nathan Sweeney: Okay. So, thank you for that. I think the other thing in the news this week was tech, you know, so we've got tech companies in the spotlight. Clearly, we've got really strong earnings coming from tech companies, and this is driving share prices higher. Now we do expect earnings growth to moderate within the tech sector as we move throughout the course of this year.

[00:03:25] Nathan Sweeney: And we also expect to see other sectors within the market improve their earnings. Particularly as we now begin that rate cutting cycle. So for us, the key theme here is that we're expecting a broadening out in sector participation, or, you know, we've had this narrowly led market as in a couple of companies driving stock market returns.

[00:03:47] Nathan Sweeney: And we expect to see better performance from other sectors. That's a key thing, which I wanted to point out. So underneath the hood, you can see there's a little bit of a change in direction happening. If we look forward to next week, the big thing on the cards for next week is actually, inflation data within the US. So, there's a measure called the PCE data. So, this is the preferred measure that the Fed or the US Central Bank looks at, its personal consumption expenditure. And this reading is expected to come in at about 2.6% next week. And clearly that's moving towards the Central Bank's target. And again, it just means that the US Central Bank is also moving towards a position where they'll be in a place to cut interest rates and clearly that will lead to that broadening out, which we're anticipating in markets. But there's not a whole lot of other data points coming out next week. We do have a revision for UK GDP coming out, but it is quite a light week.

[00:04:50] Nathan Sweeney: So hopefully that's given you a quick recap of what was happening in the markets last week and what to expect next week. Thank you for listening and have a great week.