Ear to the Ground

23 February 2024

Despite the half term holidays there has been enough to keep eyes on this week.  In the UK we saw the release of the GfK Consumer Confidence data for February.  This was a little weaker than expected, which is perhaps surprising given that we are now seeing real wage growth in the UK.  Reasons for this weakness were quoted as being due to weaker readings on personal finances and the broader economic outlook.  Looking forward, however, future expectations for personal finances were unchanged.

The latest S&P purchasing managers indices (PMI) to February, meanwhile, continue to suggest that we continue to have a two speed economy.  The composite index, which includes both services and manufacturing pleasingly came out stronger than expected, with a reading of 53.3 against the January figure of 52.9 and consensus forecast of again 52.9.  As a reminder, a reading of above 50 implies expansion, whereas below 50 implies contraction. 

Looking under the hood however we see two different pictures.  The driver of this headline figure remains the services sector, where a figure of 54.3 was posted.  S&P were quoted as saying here that “service providers are optimistic about the future due to lower borrowing costs, steady consumer demand, along with expectations for the broader UK economy to return to growth.”  Conversely, manufacturing remains in a phase of contraction, which it now has since April 2022.  Whilst the reading of 47.1 was stronger than that recorded in January, it was below the consensus forecast of 47.5. 

The same figures, but for the US, painted a slightly different picture.  Here the composite index was again showing expansion with a reading of 51.4, although this was below the January figure of 52.  The service sector continued to expand here also, although at a slower rate than in January, with a reading of 51.3.  This was below the January reading and also below consensus forecast.  Unlike the UK, we saw expansion in US manufacturing, with a figure of 51.5 recorded, which was above the previous reading of 50.7 and forecast of 50.5.  Here it was a pickup in new orders which helped. 

Policy makers also had an influence this week.  Bank of England Governor Andrew Bailey whilst speaking to Members of Parliament suggested that inflation would not need to fall to 2% before it started to cut rates.  In the US, meanwhile, the last minutes from their rate setting meeting suggested that the Federal Reserve are in no rush to cut.  Within they noted the risks of moving too quickly to ease policy and that they would need to carefully assess such, along with being sure that inflation was moving toward the 2% target and was sustainable at such.  A rate cut in March is now pretty much ruled out by the market.

Also grabbing the headlines this week was the Japanese equity market.  After a 34 year hiatus, the Nikkei 225 finally eclipsed its previous high set way back in December 1989!  Monetary policy still remains loose here, with no real signs of change coming from the Bank of Japan for now.  At the same time, corporate governance within the country continues to go through something of a revolution.  The shareholder is being pushed to the front of the queue in terms of consideration, with even the stock exchange involved in trying to encourage companies to improve their valuation.  They want to know how they plan to do this, and if not, why not.

Finally, the last word goes to NVIDIA.  Following the stronger than expected corporate results announced this week share price action has been nothing but sensational.  The daily move recorded was the largest on record in the US market.  The company is now within a whisker of being the third largest company in the US.  Figures from Bloomberg show that this one company now has a market capitalisation larger than the whole of the German Dax index, which includes companies such as SAP, Siemens, Allianz, Mercedes Benz, Volkswagen and Deutsche Telecom, to name but a few.

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