Market Update – 21st February 2024.

It has been a relatively calm week for markets thus far, with the US observing Presidents’ Day on Monday.

In a shortened trading week in the US, attention is focused on Nvidia, the semiconductor powerhouse, as it prepares to release its earnings report after the market closes today. Central to the artificial intelligence (AI) surge within the technology sector, Nvidia is under the microscope with analysts projecting a staggering 240% revenue increase compared to last year, leaving the company with minimal margin for error. With their shares having surged over 200% in 2023, investors are eagerly awaiting forward guidance to gauge the sustainability of Nvidia’s growth trajectory and the broader AI boom in the tech industry.

Following an unexpected rise in the US Consumer Price Index last week, investor sentiment has become cautious, dimming hopes for early interest rate cuts. Market participants are now keenly awaiting the minutes from the Federal Reserve’s latest policy meeting, seeking additional insights into the central bank’s policy direction for the year. Despite this anticipation, significant revelations are unlikely, given the Federal Reserve’s consistent emphasis on price stability. The central bank has reiterated its approach of closely examining incoming data to ensure inflation decreases and remains subdued.

Chinese equities opened positively after the Lunar New Year holiday, with China implementing a substantial 25-basis point cut to the five-year loan prime rate to support the property market and the broader economy. The impact on the real estate sector is expected to be significant, lowering mortgage costs. Stocks have jumped to the highest in weeks as property developers are among the biggest gainers following a state media report on billions of dollars’ worth of funding approved for the sector. The larger than expected cut signalled a shift in Beijing’s priorities and follows recent measures to inject CNY 1trn into the financial system.

In the aftermath of last week’s revelation that the UK briefly slipped into recession in the latter half of 2023, Bank of England Governor Andrew Bailey assured the Treasury Select Committee yesterday that the economic downturn would be short-lived, pointing to early signs of recovery helping stocks reverse earlier losses. Despite a phase of rapid disinflation and stringent monetary policy, Bailey expressed optimism, noting that the economy seems to have reached full employment.

The committee faced the question of how long to maintain restrictive rates, with Bailey emphasising the need for sustained progress in service prices, pay, and job vacancies. With the headline rate standing firm at 4%, inflation is expected to reach the 2% target in the coming months, though unlikely to persist due to energy price volatility. The committee anticipates a slight increase to 2.75% by the end of 2024. Governor Bailey stressed that sustained progress, not necessarily hitting the 2% target, is crucial for considering rate cuts.

Still to come this week: Minutes from the European Central Bank and the Federal Reserve’s last policy meetings.  Eurozone & UK consumer confidence. PMI data for Eurozone, UK and the US.

Kate Mimnagh, Portfolio Economist 

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