Market report: Focus on Bank of England after Fed rate decision and…
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “With inflation largely keeping in step with central bank forecasts, policymakers are continuing to dance to the same ‘wait-and-see’ tune, but interest rate cuts still hover on the horizon, providing plenty of cheer. The Federal Reserve stayed steadfast to its repeated mantra that more data is needed before cuts can come but welcomed the march down in prices. The status quo has reassured investors that cuts will arrive in the summer, although more patience is needed. It’s helped stocks surge on another wave of enthusiasm and the feel-good factor is set to keep reverberating through early trading today.
Bank of England policymakers are highly unlikely to waver from their stance and are likely to continue to stress that vigilance is still needed while they spy the prospect for rate cuts on the horizon. With February’s inflation snapshot coming in slightly lower than expected, it’ll give the monetary policy committee a little more confidence that their action is doing the trick in bringing down demand in the economy, but a majority vote for rates to be held is still expected. However, there may well be more dissenters around the table, arguing for earlier cuts, given the super-stagnant nature of the economy and the worry that inflation may end up undershooting the target not just briefly but for a more sustained period.
With an election date still up in the air, it’s not clear if Jeremy Hunt will be able to squeeze in another fiscal event to announce tax cuts, but even if he does, he’s set to have a less wiggle room to offer sweeteners to voters. February’s public sector net borrowing came in way above forecasts at £8.4 billion compared to analysts’ expectations of £6 billion. The public finances are looking more fragile than just a few months ago, which will mean whoever forms the next government will have to make some very tough decisions over tax and spending if they keep abiding by their set fiscal rules.
With fresh hopes that an era of high borrowing costs will come to an end this year, it’s boosting hopes of better growth potential for the global economy, lifting expectations of higher energy demand. Oil price have regained ground after data from the EIA showed that US crude stocks fell by 1.95 million barrels last week, instead of a forecast increase, indicating stronger appetite than forecast. Supply concerns are continuing amid attacks on Russian refineries by Ukrainian drones, while concerns about conflict in the Middle East is also keeping a floor under prices.
The IPO market continues to thaw with Reddit about to make a big splash into listed waters. Shares were priced near the top end of the target range at $34 a share, giving the company a market value of $6.4 billion. Given the social media platform is a household name and there has been a distinct lack of opportunity for investors to get their hands on new listings, there is likely to be a surge of interest in the stock when it begins trading on the New York Stock Exchange. The IPO is believed to have been oversubscribed multiple times, even though the company is still loss making and a steady path to profitability is far from clear.
Reddit has no problem getting eyes on screen, but it has had a challenge so far in working out how to monetise its large and growing fanbase who are obsessed with using its message boards. It is increasing ad presence which should provide relatively steady income streams though won’t shoot the lights out. The real potential is likely to come from making the most of its vast store of data in the form of a deep well of conversations on the site. This could be harvested by AI models, and in its prospectus the company revealed it’s already been licensing some data. This direction of travel looks even more likely given that Open AI’s Sam Altman is a key investor, controlling 9.2% of the voting power. The governance structure has been questioned given that it cements control of the company among current investors and company insiders with very limited voting rights for new shareholders. The IPO will give Reddit a strong balance sheet to pursue a path towards profitability and growth, but with so much power concentrated in a few hands, risks of missteps are higher.”