Market report: UK economy expands, Wall Street exuberance and Apple’s app store change
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The UK economy snapped back to growth in January, adding fuel to the fire of speculation that the recession will indeed be super-short and ultra-mild. The latest snapshot showed that GDP was estimated to have come in at 0.2%, and while the economy is hardly shooting the lights out in terms of growth, there will be relief that light has emerged at the end of a difficult tunnel for many companies. Shoppers easing purse strings and spending on sales bargains helped lift the retail sector, and there was a burst of activity on building sites, increasing output for construction. Still, ongoing strikes have been weighing on the healthcare and transports sector and it continues to be a dismal time for TV and film production. There is hope that with interest rate cuts eyed on a summer horizon, consumers and companies will continue to be more optimistic about the road ahead, and that the recession will be in the rear-view mirror. These figures are unlikely to be a game changer for Bank of England policymakers, with a June date now largely the earliest expected for an interest rate cut.
The FTSE 100 is expected to tread water in early trade, hanging onto Tuesday’s strong gains as investors digest the prospects for the UK, the slightly improved outlook for the global economy and the fresh heights scaled on Wall Street. The wheel of exuberance continues to turn for US stocks, with investors still enthused by the prospects for big tech, as demand for artificially intelligent powered services continues to grow sharply. Firms spurred by the FOMO effect, fearful of missing out on opportunities, are investing heavily on increasing data capacity. Oracle’s shares surged as it has emerged as another winner in the AI revolution. It’s third-quarter results beat forecasts and its strong pipeline of deals for its cloud services appears to indicate that demand for AI capabilities continues to defy expectations. The fresh tide of enthusiasm lifted Nvidia, helping it regain recent losses. Inflation may have ticked up in the US, but the glass half-full mentality rules for now, as the underlying strength in the US economy prompts celebration rather than caution. US retail sales due out will now be eyed up for signs of consumer resilience. The markets are pricing in that the Fed will keep the pause button pressed on interest rates until June, before making the first cut, to give time for the final hard yards to play out of bringing inflation closer to target.
With projections for interest rate cuts largely unchanged and the outlook being maintained about robust energy requirements around the world, oil prices have lifted away from two-week lows, with Brent Crude trading around $82 a barrel. OPEC’s forecasts that global oil demand will increase through 2024 and 2025 remained unchanged in its monthly report, and its assessment that economic growth might be slightly stronger also gave some support to prices.
Apple’s shares initially shrugged off concerns about the impact of changing its app store policies to allow developers to distribute their iOS apps directly through a website, although a little weakness is expected to creep back in, linked to ongoing concerns it’s not as big an AI player as its tech peers. Efforts to chip away at Apple’s dominance in the app space had been building, culminating in the European Commission fine, so in many ways this decision by Apple was looking inevitable, and had already been reflected, to some extent, in recent share price weakness. But there are also limits to the repercussions of this move.
While the App store won’t be able to be milked as freely, it’s still likely to remain a considerable cash cow for some time, as there are strings attached to this peace offering from Apple. Authorised developers will have to meet certain requirements to protect platform integrity, which ultimately means that they already will have to have distributed high numbers of apps to show they can be trusted.
Services like Music and TV and Fitness or the Apple One package, are still set to be a potential of future strength for Apple. But it’s also vital that Apple stays one step ahead in developing the hardware people crave, to justify its products’ high price points, so it can fully exploit future opportunities.’’
