21 May 2024
If you are covering the latest financial market news, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“With developed markets such as the US and Europe having touched all-time highs in recent days, amid signs of returning confidence in a soft-landing scenario, investors are this week watching the all-important Q1 results from Nvidia. With this stock now accounting for around one quarter of the year-to-date performance of the main index as a whole, the reliance of market performance on one theme – the opportunity set in AI – remains high. Demand growth for Nvidia’s H100 chips, priced at around $25,000 dollars apiece, has in recent quarters surpassed expectations as the development of large language models to fuel AI tools has continued apace. However, with investor expectations becoming ever more optimistic, any signs of cracks appearing in the demand profile could serve to cause an outsized upset in market performance whilst a continued bullish message could see US markets attain new highs.
“Turning to the UK, outgoing deputy governor Ben Broadbent, who retires next month, has teased a summer rate cut if inflation data continues to head back towards target. With expectations of headline CPI to come in at 2.1% tomorrow, down from 3.2% last month, this would put considerable pressure on the MPC to act as early as the next meeting on 20th June. What may stand in their way is the ongoing pace of wage inflation, which whilst running in the region of 6% is not indicative of CPI being able to stay at 2.1% for long, possibly signalling that pay deals will come under ever closer scrutiny as the year progresses.
“Meanwhile, in the battle against sticky inflation in the US, comments out yesterday from four different members of the Federal Reserve indicated that the mood was one of patience as they wait to see how prices evolve in the coming months. With headline CPI in line with expectations last week, as month on month inflation edged down slightly after a three month wait, concerns of resurgent inflation have been dampened even though at this level, interest rate cuts are expected to be only minimal by year end. However, after a relatively strong set of Q1 earnings in which market expectations for growth crept up slightly for 2024 as a whole, corporate profitability has been helping to push US equities higher even as economic indicators paint a mixed picture of the US economy.”
