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Sheldon Macdonald and Nathan Sweeney talk about the topics driving the markets in their weekly Monday update.
Monday Espresso Podcast - 22nd January 2024
[00:00:00] Nathan Sweeney: It's Monday the 22nd of January. Today, I'm joined by Raj Manon, our Head of Investment Solutions. Good morning Raj.
[00:00:08] Raj Manon: Good morning.
[00:00:09] Nathan Sweeney: I'll get some insights from Raj 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.
[00:00:20] Nathan Sweeney: So if we look at markets, it was a bit of a mixed week for equity markets. We had the UK and Europe, they slipped back because you had some inflation data coming out there, which was a little bit higher than expected. So lingering inflation concerns, which raised the question about when do we get those rate cuts?
[00:00:37] Nathan Sweeney: Will it be spring? Will it be summer? But the notable thing for me was actually the U.S. stock market because U.S. stocks actually reached an all time high. So the last high for that market was set in January 2022, and they've now surpassed that. The big thing that was driving the U.S. market last week was AI stocks.
[00:00:58] Nathan Sweeney: So we're seeing a lot of optimism around AI. Speaking of which, we actually had world leaders meeting in Davos, Switzerland last week. So Raj, what does that mean for markets and what does that mean for the global economy?
[00:01:12] Raj Manon: Yes, we had the World Economic Forum held in Davos, Switzerland. For me, some of the key takeaways were that world leaders were certainly more optimistic on global growth than last year and that was something that really came through.
[00:01:29] Raj Manon: They did note some concerns about lingering inflation and geopolitical tensions along with cyber risks. Although there is significant optimism around the prospects for AI and the impact that AI will have on productivity and driving growth.
[00:01:45] Nathan Sweeney: Yes, and that should feed through to optimism on global growth, and we're certainly seeing some of that because we did have some stronger numbers coming out of China last week.
[00:01:54] Raj Manon: Yes, so China, the world's second largest economy, expanded an annual rate of 5.2% in the fourth quarter, slightly below most economists expectations, but an improvement from the third quarter's 4.9% figure. For the full year 2023, China's growth rate was 5.2%, that's compared with a 3% increase in 2022, and that was mainly on the back of an acceleration in industrial output.
[00:02:25] Nathan Sweeney: Yeah, I suppose it is important to remember that, you know, China still is the second largest economy in the world and ultimately it does supply a lot of the products that we all use today. So it's not unreasonable to see strong levels of growth coming through as the global economy rebounds and you're seeing that consumption coming through.
[00:02:49] Nathan Sweeney: But I think one of the things that investors are concerned about is clearly the potential for inflation to reassert itself and we did have some figures out in the UK last week, Raj.
[00:03:00] Raj Manon: Yes, we did. We had inflation figures in the UK and the market was expecting inflation to fall to 3.8% But instead of a fall, we actually got an increase to 4%.
[00:03:13] Raj Manon: So the FTSE fell 1.8% on the day, as the market reassessed how many interest rate cuts we'll see this year, and also when we will see that first rate cut. So June now being seen more likely than May. So that market reaction shows us that expectations had gotten ahead of themselves. Inflation doesn't fall in a straight line and we've seen similar surprise increases in the US and Europe, but importantly the general trend is still lower and the path will continue to be bumpy.
[00:03:48] Nathan Sweeney: Thanks, Raj, and great insights there.
[00:03:50] Nathan Sweeney: Finally, let's take a quick recap on the week ahead. So this week we actually have a series of manufacturing and services data coming out. So we're gonna see that for a raft of countries from Japan, to the Euro area, to the UK. So that'll give us a good indicator of what's happening within those segments of the market.
[00:04:09] Nathan Sweeney: The big one is Q4 GDP. So this is economic growth in the US for the fourth quarter of last year. Now we did have economic growth running at about 4.9% and it's quite hot actually. So we are expecting lower figures coming in from that side, but that's quite good because ultimately that should open up the doorway for those central banks to cut interest rates.
[00:04:33] Nathan Sweeney: So, we're not expecting interest rates to be cut in March. It's more likely going to be the summer months, so possibly May, possibly June. But the other thing that people are going to focus on this week is company earnings. So how are companies doing in this environment? And actually we get a lot of big name companies reporting this week, some of the biggest companies in the world, actually the biggest company in the world.
[00:04:53] Nathan Sweeney: So we've got Microsoft. We've also got Tesla, Visa, Netflix, Intel, Abbott, IBM. So clearly that will give us a good indication of how companies are doing in this current environment. And lastly, what I would say is that if you do have any questions that you'd like to submit into the podcast, please send them in because we'd love to cover those questions on the show.
[00:05:15] Nathan Sweeney: So thank you for joining us this morning and have a great week, everybody.