Written by Shane Balkham
It was mixed results for some of the Magnificent Seven, the name coined to describe the largest of the US technology companies. Both Meta and Amazon reported strong earnings, which sparked a rally in the share prices of these two companies. This was in contrast to the fortunes of both Alphabet and Apple, who saw a sell-off in their shares, whose earnings were below the high market expectations. Meta stole the show though, with an announcement of plans to buy back an additional $50 billion in shares and issue its first ever quarterly dividend.
Aside from the earnings updates from big tech, we had the central banks of the UK and US meeting last week, to decide on the immediate level of interest rates and give guidance on the future path of rates.
The Bank of England announced that it would keep interest rates on hold, citing the need for more evidence that inflation would continue to fall. However, Governor Andew Bailey did confirm that the central bank has seen good news on inflation over the past few months. It is likely that the next move from Bank of England will be a cut in rates and the decision is now when and by how much.
This was evidenced by the breakdown of the vote within the Monetary Policy Committee. It was interesting to see that two members voted to raise rates, and that a majority of six members continued to vote to maintain rates, but we had the first vote to cut rates.
As we wrote last week, the US economy was reported to have grown strongly in 2023, leading to expectations that the US Federal Reserve will hold rates at their current level once again. On Wednesday, the Federal Open Market Committee did indeed keep rates on hold, commenting on the current market conditions as being too strong to consider a rate cut at this time.
The probability of a rate cut in March was dealt another blow on Friday, as employment data was published showing that the US economy added 353,000 jobs in January, almost twice that of the consensus expectation. The Fed has consistently put employment as one of the key metrics for measuring policy response to inflation and with such strong numbers, the likelihood of a rate cut in Q1 is as low as it has been.
Although the US Central Bank is politically independent, it did not stop Donald Trump accusing Jermone Powell of helping the Democrats. Trump is interpreting the forecast of rate cuts this year as aiding Joe Biden, rather than attempting to control inflation. A clear example of how politics will dominate the headlines this year and we are still nine months away from the election.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 05 February 2024.
© 2024 YOU Asset Management. All rights reserved.