Market report: Ukraine minerals deal, trade hopes and buoyant corporate earnings
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The FTSE 100 took a pause from its winning streak in early trade but, as we’ve seen this week, it’s had a tendency to power higher after a faltering start. The blue-chip index has been on its best run in more than eight years, as investors eye trade deals on the table with the US and its trading partners and encouraging corporate results buoy sentiment. The United States has also clinched the long-awaited minerals deal with Ukraine. The frosty scenes in the Oval Office have been replaced by significantly warmer relations between the two countries, and there are hopes that this is a significant step towards a peace deal with Russia.
Amid an easing of geo-political tensions, at least in Europe and a softening of the US in terms of the trade war, demand for safe-haven assets has dipped back, while equities are back in fashion. Gold prices have fallen for the third session in a row, hitting their lowest level in two weeks.
Wall Street is set to power higher as buds of May optimism unfurl helped by big tech strength. Meta and Microsoft unveiled results showing the AI juggernaut is showing little signs of slowing down. Microsoft beat earnings estimates as growth in its Azure cloud business beat expectations. Stocks also largely recovered from the initial shock of the snapshot showing the US economy contracted by 0.3% in the third quarter on an annualised basis. While the headline looked bleak, investors dug deeper into the data which showed a more nuanced picture. The threat of tariffs has induced unusual buying behaviour with importers stockpiling goods, which skewed the figures, and the federal firings reduced state spending, but business investment powered higher and private consumption was also strong, so a bounce back in the second quarter is expected. The economy and the markets are behaving erratically in this unpredictable climate, so until the clouds clear a little, the Fed looks highly likely to keep interest rates on hold next week.
The Bank of Japan is reading from the same book of uncertainty and has kept rates on hold, even though it expects tariffs to induce an economic slowdown. Its cut its growth forecast from 1.1% to 0.5% given the forecast hit to corporate profits. However, it’s mindful that inflation risks rising again, due to the tight jobs market.
The threat of stagflation is hanging over economies, as tariffs threaten to hurt growth and domestic pressures continue to warm prices. There are renewed hopes that deals will be inked shortly between the US and a string of trading partners, including with Japan, South Korea and India, but the waiting list is long for agreements to be struck and the 10% blanket duties is still set to prove inflationary in the United States.
Oil prices are at lows not seen since the pandemic, as concerns about the trade hit to global growth keep swirling. The benchmark Brent Crude is heading towards $60 a barrel, trading at a level not seen since February 2021. As economies are expected to slow, demand for energy is set to follow suit. Also, Saudi Arabia doesn’t appear keen to help put a floor on prices by cutting output amid expectations that the oil cartel OPEC+ may announce increases to production. A peace deal in Ukraine could also open the door to more Russian oil in markets, adding to expectations of extra supply. Gas prices have edged up as warmer weather limits demand but are still around the lowest levels in around 3 months. The drop in oil prices will feed through to cheaper prices at the pumps, and if gas prices stay lower, it bodes better for the energy price review due to be announced on 25 May, given the cap is based on the average wholesale prices of energy in the three months leading up to the review period.
Meta is shaking off the tariff turmoil and charging ahead with its AI ambitions. Faster growth than expected has given investors renewed confidence in its road map as it looks well positioned to deal with trade induced uncertainty. With more here’s my colleague Matt Britzman.”
Matt Britzman, senior equity analyst, Hargreaves Lansdown: “Meta shares raced higher in after-hours trading after a strong set of results – and, more importantly, a confident outlook. This was never really about the quarter just gone for Meta; all eyes were on guidance for the second quarter and capex for the full year – and neither disappointed. The midpoint of the revenue guide is bang in line with consensus, but Meta usually hits the top end, and the big surprise was another bump to capex as Meta goes full throttle on investments in AI.
Meta is more insulated than other names in the ad space, like Snapchat, which tumbled after ditching guidance. But with about 10% of ads tied to Chinese sellers, Meta’s still got some serious skin in the game. Full-year expectations may need to be revised slightly from the 10% revenue growth currently priced in, but Meta has some levers to pull in other areas if it needs to limit the impact on profits.
The number that may go under the radar was the 6% jump in daily active users. There had been some concerns that we might see a slowdown in new users this year, but this was a very strong start – and a signal to investors that Meta’s family of apps has a grip on users that’s hard to displace.”