Market report: Tech nerves are calmed but rate worries continue to cloud the outlook
Susannah Streeter, chief investment strategist, Wealth Club: ‘’A mini rotation back into tech has seen the Footsie lose some of its shine at the end of the week. The blue-chip index was slightly lower in early trade, but is still ending the week up markedly, 2.7% higher after more investors sought shelter in its defensive qualities.
The strings have been pulled back to the AI trade after a big player helped calm nerves about whether the mega spending spree on the infrastructure build-out will reap enough rewards. Nvidia’s Jensen Huang, who brings the tech world to attention whenever he has a mic, has justified his company’s investment in cloud infrastructure provider CoreWeave, saying its situation was improving. His intervention came after the company had been hit by a serious case of the jitters over its debt and financing deals.
But still big questions remain about the impact of higher borrowing costs on debt-laden tech companies, especially with markets currently predicting more rate hikes from the Fed. Investors have been on alert for any hints about just how soon the next move upwards will come, but Fed chair Kevin Warsh has given little away. Speaking at the IMF/World Bank meetings in Bangkok, he struck an upbeat note about the resilience of the US and global economies, but dodged the opportunity to guide expectations ahead of the meeting in two weeks. With inflation still proving stubborn, markets are left guessing how much further the Fed may need to go to bring price pressures under control.
Right now Treasury yields have eased off a little after shooting back up above 5.3% this week. But volatility looks set to reign supreme in the bond markets, especially with the war in the Middle East still creating turmoil for the energy trade. The sinking of the Singapore-registered container ship GFS Pride in the Strait of Hormuz has underlined how fragile shipping security remains. Even though oil flows have recovered towards pre-conflict levels, the risk premium isn’t going away, and traders are on guard for a fresh flare-up in tensions. This is all keeping the price of Brent Crude elevated at around $105 a barrel.
WISE shares have come under pressure in early trade despite the international payments group upgrading its revenue outlook. It seems to be swimming against the tide of high expectations, which are proving difficult to beat. On the face of it the numbers look buoyant with net revenue rising 21% to $739 million in the second quarter, active customers up 20% to 12.5 million and cross-border volumes climbing 22%. However, the pace of year-on-year revenue growth eased from 25% in the previous quarter, and WISE has trimmed fees, with its cross-border take rate slipping to 0.49%. The strategy is attracting more customers and boosting volumes, in a highly competitive market but investors will be watching closely to see whether that momentum can translate into sustainable profit growth. The outlook upgrade, pointing to full-year revenue growth of 17.5% to 20%, is encouraging, but does not appear to be enough to satisfy investors looking for stronger growth momentum.’’