UK consumers are more willing to spend, chip stock selloff weighs on US markets
Matt Britzman, senior equity analyst, Hargreaves Lansdown: “UK markets are set to end the week with a slight spring in their step after struggling to find momentum in recent days, the FTSE 100 opened 0.2% higher. Stepping down into the FTSE 250 and Direct Line has had to flag an error in its reported solvency figures for 2023. The reported 197% capital ratio has been revised down to 188%, but this is still well above the target range of 140-180%. Errors are never good, but this doesn’t change much and the short update has actually given Direct Line the chance to deliver some positive guidance ahead of half-year results, with capital generation looking positive over the half so far.
GfK’s latest consumer confidence index was unchanged in August at -13, but households have greater confidence in their finances and are more willing to go out and spend. Interest rate cuts are likely the main catalyst as mortgage rates have eased, providing some welcome relief to those caught on variable rates. This report was somewhat offset by the UK energy regulator Ofgem announcing its new price cap which will see the average bill rise 10%. Most of the rise is due to extreme weather and international geopolitical tensions, though that will come as little reprieve for homeowners who’ll be seeing prices rise to £1,717 per year on average.
US markets struggled to find any real momentum as trading volumes were down 22% on their 20-day average, the S&P 500 fell 0.89% with the tech-heavy Nasdaq losing 1.67%. Earnings season is coming to an end and economic data from flash PMI’s was broadly net neutral, leaving little for traders to act upon. Chip stocks had a poor showing, with NVIDIA, Intel, and Applied Materials all seeing some weakness after a decent run of late. Markets are now poised for NVIDIA earnings next week, perhaps the most important of them all, as investors look for signals as to whether the AI trade is still on. NVIDIA’s CEO Jensen Huang has quite the knack of beating guidance of late, there’ll also be a lot of attention on whether rumoured delays to the next generation of its chip stack will have any tangible impact on results.
Mark Schneider is set to stand down as Nestlé CEO after 8 years at the helm. It’s surprising news, but not completely without reason. Nestlé has seen several missteps of late, and investors were running out patience so the news will likely be welcomed by many. There won’t be any drawn-out process of finding a replacement, Laurent Freixe will step straight into the role from the start of September. Freixe is a Nestlé veteran since way back in 1986, he’s been a member of the executive board for 16 years, and currently heads up the Latin America business – this is as close to a smooth handover as you could ask for. There’ll be a 3-day capital markets day late in November where investors will get a first look at where Freixe plans to take Nestlé in moving forward.
Brent crude is set for a weekly loss as it hovers around $77 a barrel. Similar forces continue to weigh on the demand side after weaker US jobs data, the struggling Chinese economy, and the latest Eurozone manufacturing activity all point to lower demand. Today’s speech from Fed Chair Jerome Powell at the Jackson Hole symposium will act as the next short term catalyst as traders try to gauge what the next move is for US interest rates.”
