Monday motivation as interest rate fears subside, Chinese data surprises on upside
- FTSE 100 set for a positive trading session after US interest rate fears subside.
- Better Chinese manufacturing data helps buoy the positive mood.
- Brent crude hovers around $88 a barrel, the highest level since November.
- As Google celebrates its 25th birthday, Alphabet unwraps its AI future.
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The FTSE 100 is set for a positive trading session, with a dose of Monday motivation, as investors assess the slightly sunnier prospects for the world economy. Hopes have lifted that the Fed’s efforts in taming unruly inflation in the US are working and not much more interest rate stick will be needed. There is also relief that Chinese efforts in stimulating demand might finally be paying off.
Friday’s US jobs numbers showed the tightness in the jobs market was easing, while the United States is still considered resilient enough to avoid a recession. Extra space Given the sheer size of the American economy and its interconnectedness with the rest of the world, its health is a big driver of sentiment. There is an expectation that interest rates will be kept on hold at the upcoming Fed meeting, and now might not budge by the end of the year, offering a bit of relief for companies and consumers who had been bracing for further hikes in borrowing costs.
Fears about the fragility of the Chinese economy have also subsided a little after a more positive outlook on manufacturing activity has come into view. The Caixin PMI data on Friday surprised on the upside, showing factories were churning out more goods than expected, with output increasing in August as domestic demand improved. There had been concern that the support offered by authorities so far wouldn’t not buoy sentiment, but it appears to be slowly trickling through, reviving hopes that the Chinese economy may turn a corner, especially with fresh measures announced last week to ease borrowing rules and offer more tax incentives to homebuyers and investors. However, the economy is likely to need a shove, with a much bigger stimulus package, to start steaming ahead.
Oil prices have acquired new muscle, thanks to the more upbeat manufacturing picture in China and the expectations of a continued squeeze in supply from OPEC+ countries. Saudia Arabia is expected to keep restricting the supply of crude into October, maintaining its reduction of 1 million barrels a day. Brent Crude is hovering around $88 a barrel, a level not reached since November. While this may reflect increased demand and a slightly more positive global outlook, the higher prices will trickle through to the pumps. Consumers are set to face higher charges to fill cars, just as we head into the colder months, when more boilers will also be fired up, adding to household costs.
Trading pauses in Wall Street today for the Labour Day holiday, so there will be few markets cues coming from Stateside, though the focus is turning on Alphabet given Google’s key anniversary today.
Alphabet shares might have ended lower on Friday, but it was a miniscule back step after months of gains with the stock up by 52% year to date. As Google celebrates turning 25, the birthday a mark of the company’s inauguration back in September 1988, Alphabet is intent on unwrapping its AI future. In a coming of age move, Alphabet is positioning itself to be at the centre of the AI revolution with its Google Cloud business, given the huge demand from businesses large and small to update infrastructure and storage ready to whirr through huge workloads. It may still be the smallest of the three big cloud providers, behind Amazon’s AWS and Microsoft Azure, but it still packs a punch. While the possibilities are exciting, and have helped propel the share price this year, it’s a hugely competitive field and the core business remains advertising.
Alphabet has grown up to be a giant in the ad world with marketing teams ringfencing budgets to spend big despite the economic headwinds. Revenues at the last count were better than forecast, which is testament to the tech giant’s huge clout in the ad space. Social media fans can be fickle, but while the success of rival platforms will undoubtably keep luring eyes away from Alphabet’s offerings, there aren’t any red warning lights flashing yet. Harnessing AI capabilities should make those potentially disloyal customers stickier, given the technology is expected to help generate more personalised and powerful ads. It’s also planning to incorporate large language models in its search engine to answer queries more conversationally, but this update is set to be reserved in the Search Labs space initially. On the other hand, AI could see its core search market share chipped away by rivals. As the AI juggernaut thunders through the tech landscape, it’s unclear who the ultimate winners will be.”
