As we look to the week ahead, 3 out of the 4 major central banks will make decisions on interest rates, Matt Henderson, Portfolio Manager, looks at the economic factors and market expectations on their decisions. We will also see company earnings reports from big tech with the likes of Microsoft and Amazon and a focus on consumer health from Mastercard, Paypal and McDonalds. 

Chris Leyland, Director of Investment Strategy, and Joe Forward, Investment Analyst, look back at a week of corporate earnings where Tesla saw a 12% drop in share price after CEO Elon Musk announced a delay to their self driving taxi service. Alphabet, the parent company of Google increased their revenue stream by 14% which was driven by advertising revenue and demand for their cloud computing services. We then get a reflection on the volatility of US equities this week and an understanding of the overall performance of mega cap equity stocks and how many of them have a strong link to artificial intelligence which will only continue to become a more significant. We then move over to PMI (Purchasing Manager Index) figures which help gauge the overall health of an economy, the release on Wednesday revealed the biggest expansionary reading in over two years for the US. We then finish with GDP data which actually exceeded market expectations for the US.

Chris Leyland, Director of Investment Strategy, looks East to China, where an unexpected interest rate cut has been announced in a bid to stimulate the economy on the backdrop of high youth unemployment, problems with the property sector and a lack of foreign investment post Covid. The fact that China cut rates ahead of the Federal Reserve in the US illustrates an acknowledgment of challenges in the economy and a willingness to tackle them. Will this be the start of a major cutting cycle in China? Elsewhere in US equity markets and we see the technology led sectors which have had great success so far this year begin to cool slightly with marginal price falls coming through.

With corporate earnings now in full swing, Paul Durrans, Investment Director, looks at some big names reporting within Technology, Consumer Discretionary and Industrial sectors. Tesla and Google were the first of the seven giant US tech companies to announce second quarter earnings results. Tesla disappointed investors as profits dropped 45% as it faced higher costs from employee lay-offs, slower sales and heavy investment into AI infrastructure. In contrast, Google exceeded analyst expectations with boosted advertising and cloud computing services demand. Turning to Luxury brand LVMH (Louis Vuitton Moet Hennessy) sales growth slowed as wealthy shoppers reined in spending. We then finish with United Parcel Service (UPS) that saw its shares fall the most in 15 years after they missed profit estimates.

Today our focus is China with Kevin Kidney, Head of Asset Allocation, looking at the People’s Bank of China and their decision to lower interest rates to encourage further borrowing from the private sector. China remains in a post property crash bust with an equivalent one trillion dollars worth of unsold properties, which will cause prolonged consequences for growth in an economy which is aging rapidly. Similar property bubbles in the west have historically taken 5-7 years to resolve so China is facing a big challenge and interest rate cuts will just not be enough to stimulate the economy.

George Bell, Portfolio manager reflects on the challenges presented by a global IT outage impacting a range of sectors, and key political developments as President Biden withdraws from the 2024 campaign rally. As we look to the week ahead, we are expecting to see some strong numbers in respect of US economic growth and corporate earnings, along with an update on US inflation and European business sentiment.

In our round up of the week, Kevin Kidney, Head of Asset Allocation, and George Bell, Investment Director cover the cooling UK jobs market and how it reflects on the global cycle. How the UK is lagging behind the global disinflation cycle but still making modest progress, as well as an unexpected technology headline which has affected equity markets.

Today, Kevin Kidney, Head of Asset Allocation, looks at the weak performance of global equities which followed comments from the Biden administration on exploring further restrictions to western microchip manufacturers and their ability to export to China. Closer to home and the UK employment data continues to paint a rather mixed picture, importantly, wage growth remains extremely sticky, at +5.7%, led by accelerating pay awards within the public sector and private sector pay growth continues to slow. With pay growth and underlying pressures with services inflation, this presents a challenge for the Bank of England for interest rate cuts.

Today, Chris Leyland, Director of Investment Strategy, looks at the new UK inflation data and what it may say about the potential direction of interest rate policy. Services inflation remaining sticky at 5.7% could be a sign for concern with the largest upward contributions coming from the cost of restaurants and hotels. The Bank of England will be watching this figure with a keen eye as it looks to bring in the first interest rate cuts.

Corporate earnings season is in full swing with the US and Europe reporting. Both BlackRock and Goldman Sachs have beat market expectations on earnings. Goldman Sachs saw total earnings rising 150% while BlackRock reported an 8% rise in revenue. We’ve also had comments from Chair of the Federal Reserve, Jay Powell, on the Fed’s dual mandate to foster stable inflation and maximum employment. Markets now place a 97% probability of a 0.25% interest rate cut in September.