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Sheldon Macdonald and Nathan Sweeney talk about the topics driving the markets in their weekly Monday update.
Monday Espresso Podcast - 29th April 2024
[00:00:00] Nathan Sweeney: It is Monday, the 29th of April. Today, I'm joined by Andrew Shaw, our Japan and credit analyst within the multi asset team. Good morning, Andrew.
[00:00:08] Andrew Shaw: Morning, Nathan.
[00:00:09] Nathan Sweeney: We'll get some insight from Andrew 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.
[00:00:19] Nathan Sweeney: If we look at equity markets, we had a good week across equity markets. So we had the US market up over 2%, Japanese market up over 2%, UK equities were up over 2%, and a lot of that rebounding after a bit of weakness over the last couple of weeks. Why was that? It was largely in part to good earnings from big tech companies in the US so let's get a bit of insight into that. So Andrew, what was the key news driving markets last week?
[00:00:45] Andrew Shaw: Three of the Magnificent Seven were reporting last week and Tesla kicked off earnings with disappointing revenues but news that they'll be bringing forward the production and sale of their new cheaper model, the Model 2.
[00:00:57] Andrew Shaw: Alphabet announced its first dividend and a $70 billion dollar share buyback. Which led shares up 14% in aftermarket trading. And Microsoft announced cloud revenue was higher, with higher sales in computing than analysts were expecting. They also announced that they'll be spending more money on tech infrastructure with the CFO state near term AI demand is a bit higher than our available capacity.
[00:01:19] Nathan Sweeney: Okay. So some quite good news there, because ultimately a lot of people have been focused on the big tech names. There's been a lot of hype about AI and will this lead to increased earnings? And it's quite comforting for investors to see that we are getting investments into this space and these companies ultimately benefiting from that specifically Microsoft and Google, because there's more demand for their cloud computing, which is just the ability to host data.
[00:01:45] Nathan Sweeney: In data centers or on the cloud, as they call it you know, when you're looking at artificial intelligence, you're just computing large datasets. And to do that, you need data centers to house that data. So increased revenue coming through there, which is good news. I suppose from a data point, were there any big data points out last week or economic data?
[00:02:07] Andrew Shaw: In the US we had GDP figures. First quarter real GDP rose by 1.6% on an annualised basis. Analysts expectations were of 2.2% and the fourth quarter reading was 3.4%. The main drivers of growth were that household consumption was holding up well, growing at 2.5%, and that was driven by robust spending on services.
[00:02:28] Andrew Shaw: Exports were also the principal detractor in the first quarter reading, as growth in imports far outpaced that of exports.
[00:02:34] Nathan Sweeney: Okay, so quite an interesting reading there, because a lot of people have been talking about the strength of the US economy, being quite resilient, but what we can see here is a slowdown in economic growth.
[00:02:44] Nathan Sweeney: Now, clearly, we're nowhere near a recession. However, we can see that growth in the fourth quarter was 3.4%, it's now 1.6%. And However, one data point does not make a trend. So, a lot of people will be continuing to observe and watch this economic data to see actually what does that mean for the US economy.
[00:03:05] Nathan Sweeney: I suppose the bigger question people will be asking is, does that change our view on inflation or interest rates?
[00:03:12] Andrew Shaw: So US inflation called PCE figures were out on Friday came in marginally higher at 2.7%, analysts had expected it to be 2.6.
[00:03:21] Nathan Sweeney: Okay. So again, I think if we look at that inflation data, it's not really signaling that inflation is falling dramatically.
[00:03:28] Nathan Sweeney: Now, if you think about it, if the inflation number comes out at 0.3% for the month, multiply that by 12 and that would give you your average annual inflation. So that's about 3.6% if it was to stay the same from here on out. So no real change there in that inflation reading. But what we do have next week is we do have the Federal Reserve in the US.
[00:03:49] Nathan Sweeney: They have a central bank meeting. So a lot of people will be focused on that. So thank you, Andrew, and a lot of great insights there. I'll just do a quick recap of what to expect for the week ahead. So, as I mentioned, we do have that Federal Reserve meeting. There's no change to interest rates expected.
[00:04:03] Nathan Sweeney: However, they do have a press conference post that meeting, and a lot of people will be focused on that to see what do they have to say about that economic growth figure and what does that mean for interest rate cuts. We also have US unemployment data out next week. We've got UK house price data.
[00:04:19] Nathan Sweeney: We've got inflation data from Europe. And we will continue to see companies delivering their earnings reports for the first quarter of 2024. So we've got the likes of Apple, Pinterest, and PayPal announcing their earnings, among many other companies. So as always, if you have any questions that you'd like to submit, please send them in.
[00:04:38] Nathan Sweeney: We'd be delighted to bring them up on the show. Thanks, Andrew, for joining us on the show today and have a great week, everybody.