Market update: Interest rates in focus while Alphabet spending adds to tech worries
Susannah Streeter, chief investment strategist, Wealth Club: ‘’The Footsie is taking a breather from its record run upwards, as investors await key interest rate decisions. A fall back in metals and oil prices is also putting pressure on miners and energy giants, amid some easing of geopolitical tensions.
Central bankers are set to take a ‘wait and see approach’ when they meet later, as they wait for cloudy data to become clearer before they make their next move. The Bank of England is expected to press pause on rate cuts, given inflation is still proving stubborn, and it’s likely the majority of policymakers will be on board. The latest snapshot of growth in the UK economy, the PMI data out yesterday, showed activity accelerating. Budget blues were cast away, and companies appear to have renewed confidence about the future, after an uptick in new orders in January. That’s added to expectations that borrowing costs will be kept on hold. Nevertheless, with labour market showing weakness, more cuts are still likely to be on the table for this year, but the timing is slipping back. The European Central Bank has its eye on fresh disinflationary forces set to ripple through the region. Cheap Chinese imports look set to flood in, while the weaker dollar also looks set to push down prices, but on the flipside, it could also hurt European exporters, and the ongoing economic recovery. These are uncertain currents to navigate, but for now the ECB is holding the ship steady with inflation still close to target.
Gold’s turbulent journey continues as it snaps its two-day streak back upwards. The precious metal is back below $5,000 an ounce, while silver has also retreated. With talks ongoing to try and solve the conflict in Ukraine and negotiations planned between the US and Iran, the easing of geopolitical tensions has dulled demand for safe havens a little. Concerns about an attack on the independence of the US Federal Reserve, which risked seeing the central bank shrug off troublesome inflation, had also pushed up the precious metal. But there’s now an expectation a harder line will be taken, given comments from Fed governor Lisa Cooke, that she’d vote against further cuts. This comes as Trump’s pick for the next Fed chair, Kevin Warsh, is also expected to take a bit more of a harder line overall, even though he seems keen for a cut sooner rather than later.
Wall Street has been left reeling by a tech sell off with volatility continuing for a second day. Stocks so far look set for a moment of relief with the S&P 500 expected to open slightly higher. But the rotation away from tech stocks towards value looks set to continue, as investors continue to have the jitters over return on investment from huge AI spending plans. Alphabet’s update was the latest to unnerve investors, given that the tech giant is planning to be very flash with its cash this year, planning to splash $185bn, on infrastructure to power the AI revolution. Given that it’s more than double last year’s total, it sets a super high bar for return on investment but also could intensify the spending race among the biggest tech firms. It also demonstrates how determined the most powerful players are in investing even more heavily in the tech, which is already proving to be a great disruptor across industries and companies, so investors are bracing for more casualties to come.’’