27/05/24: Election surprises, easing inflation & NVIDIA's AI surge
Monday Espresso Podcast - 27th May 2024
[00:00:00] Nathan Sweeney: It is Monday the 27th of May. Today I'm joined by Sarah Todino, our UK analyst and a system portfolio manager on our funds. Good morning, Sarah.
[00:00:11] Sarah Todino: Good morning, Nathan.
[00:00:13] Nathan Sweeney: We'll get some insight from Sarah in a second. Firstly, let's quickly recap on what was driving markets last week. As always, there's quite a lot to unpack, so let's dive straight in.
[00:00:24] Nathan Sweeney: Looking at equity markets, we had a mixed week, and a lot of this was due to changing expectations on interest rates, and the market is very focused on the moment at when are we going to get those interest rate cuts in the UK, Europe, and the US. And when we get data points out, it changes their expectations slightly.
[00:00:43] Nathan Sweeney: And this can have very short term impacts on markets. If we think about the data we had coming out this week, it was actually a relatively light week for data. So, we did have some inflation data and some earnings data and that was the key focus for the week. So over to you Sarah, what was the big news in markets last week?
[00:01:02] Sarah Todino: Well, the annual inflation rate in the UK eased to 2.3% in April, and that was compared to March's reading of 3.2%. So, despite being slightly behind market forecasts of 2.1%, it's still a three year low for inflation, and that was due to cuts in home energy bills and base effects.
[00:01:22] Sarah Todino: So, we had the lowering of the energy price cap in April, and this limits the amount that suppliers can charge for energy, which leads to lower costs for households and businesses.
[00:01:33] Nathan Sweeney: Okay, so some really good news there. So, what does that mean?
[00:01:36] Sarah Todino: Well, we're on the cusp of interest rate cuts, but when remains the question.
[00:01:41] Sarah Todino: Whether it be June or possibly August, we'll have to wait and see. But a rate cut would ultimately be good for bonds.
[00:01:47] Nathan Sweeney: Okay, so the inflation data there opening up the door for the central bank to cut rates. And the market's still wondering whether that'll happen in June or August. And that remains to be seen.
[00:01:57] Nathan Sweeney: But I suppose the good news is, is that we're really close to that interest rate cut. And ultimately that sets a change in direction for central banks, because they've been on hold for a period. So were there any other data points out this week or any other surprises?
[00:02:12] Sarah Todino: Yes, this week we also saw Rishi Sunak announce a UK general election for the 4th of July.
[00:02:19] Sarah Todino: So, this was a surprise as many were thinking autumn for the election. So, how does this affect the UK market? Well, a short term election promise could impact on a sector basis, but we think longer term, the UK market wouldn't really be impacted by the election as it's important to remember that 80% of the FTSE100 revenues are from overseas.
[00:02:40] Nathan Sweeney: Yeah. And that's quite an interesting point because people do wonder, you know, what would be the impact on markets. But as you quite rightly point out, companies are generating their revenue from the global economy. So, they're more linked to the global economy than the UK economy. So, what really matters there is the strength of the global economy.
[00:02:58] Nathan Sweeney: Now, was there anything else on your radar last week?
[00:03:00] Sarah Todino: Well, over in the US, it was a strong week for NVIDIA after a strong quarter. So, the shares rallied 9% on Thursday following its upbeat revenue forecast. And that was driven by upside in its core data center business. So, NVIDIA is a well known supplier in the AI market.
[00:03:17] Sarah Todino: And the news was well received within the semiconductor market as well.
[00:03:21] Nathan Sweeney: Yeah, so we're definitely seeing a gold rush at the moment for anything AI. Now, NVIDIA obviously plays a crucial role because it's at the center of that AI gold rush and ultimately they provide the picks and shovels for companies who are trying to compute large amounts of data.
[00:03:38] Nathan Sweeney: So, you're seeing a quite a, you know, a strong move in their share price this year as a result and they deliver their quarterly earnings and as you quite rightly point out, they didn't disappoint. And, you know, we saw some strong share price movements. as a result of those positive earnings. And it just shows that there's continued demand for those picks and shovels to drive this new AI age in markets.
[00:04:01] Nathan Sweeney: Now, thank you for those snippets. There are some great content there. So, let's finally just take a quick look at the week ahead. And you know, it's almost similar to this week in that there's not a lot of data coming out. We're coming towards the end of May. If I look across the board, we've got consumer confidence data coming out in Japan on Wednesday.
[00:04:20] Nathan Sweeney: We've got GDP growth in the U. S. on Thursday. So this is just economic growth. How is the economy doing? So, the forecast there is for growth of about 1. 6%. So, we'll see if the forecasts are right and we'll find out next Thursday. And we also have some inflation data too. So, we've got some inflation data coming out in Europe.
[00:04:41] Nathan Sweeney: Inflation in Europe is currently 2.4%. It's forecast to come out at about 2.5%, so no real change there. And we do have some inflation data out in the US. In terms of company earnings, we're pretty much at the end of the earning cycle for this quarter. So that's pretty much it. So, thank you for dialing in and have a great week, everybody.
