Is this the levelling off ?

INSIGHT WEEKLY : April 14, 2024

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An easy to read summary of topical issues in economics, finance, technology and AI, and cryptos.

🌐 Major indexes and major stocks

Markets levelling off this week, due to the prospect of immediate interest rate cuts receding and increasing geopolitical tensions. The escalation on Saturday night may push the markets down next week.

Japan’s Nikkei 225 recovered this week after the pullback in the previous week.

Only one record set this week with India’s Nifty 50 again setting a new record.

Major stocks of interest :

🇬🇧 UK

Growth in February, as the UK's GDP eked out a 0.1% increase, signalling a step out of recession in Q1, despite a start that hit construction and retail hard. This uptick was expected and follows an upbeat revision for January's growth to 0.3%. Driven by a 17.8% jump in car production from last year, manufacturing was the driver for growth. Meanwhile, construction efforts were washed out by heavy rains, putting a damper on overall growth.

Last week, the Purchasing Managers' Index (PMI) showed a strong performance.

Growth is not expected to increase by much and the economy is expected to flatline for the next few months.

Interest rates are a balancing act for the Bank of England. Inflation is sticky, and growth has shown just a small uptick. A cut will be good for growth but bad for inflation. Not enough good data to support a decision to cut. Maybe the BOE thinks that it is better to kick this can down the road for a little longer.

Bank of England forecasts are not in good shape, according to Ben Bernanke, former chair of the US Federal Reserve. These have been described as having “serious deficiencies”. The report done by Bernanke was looking at the historical inability to estimate inflation. "While the accuracy of the BoE's forecasts has deteriorated significantly in the past few years, forecasting performance has worsened to a comparable degree in other central banks and among other UK forecasters” was the conclusion he came to. He recommends better risk assessment and better scenario analysis.

FTSE100 is +3.5% since the start of the year. It is over +1% this week adding to the optimism of the last few weeks.

🇺🇸 US

Bond yields have gone up in the last few days in response to the inflation numbers. Bond yields line up with interest rates. If inflation does not come down, interest rates are not going to come down.

Bond yield and bond prices move in opposite directions.

2024 was earlier billed as the “year of the bond” as investors in bonds were expecting to make gains as interest rates fell. This has not happened so far.

Investors are still interested in bonds as they can lock into good yields.

Interest rate cut in June is now expected to be 20% likely, compared to 50% likely just one week ago.

S&P500 at 5,123 is -1.5% in the week and up 8% so far this year.

A Goldman Sachs report highlights the concentration in the S&P 500 index. The top 10 stocks are 33% of the value compared to 27% during the tech bubble of 2000. There are concerns at this level of concentration.

How does it look from an earnings perspective ? The top 10 have a forward P/E (price to earnings ratio) of 25 which is below 2000, 2020 and mid 2023 levels. Investors do not seem too concerned, but there is an increasing view that the markets may be levelling off for some time.

S&P500 ETFs have become increasingly popular (ETF’s are Exchange Traded Funds enabling investors to buy into the market rather than individual stocks).

In 2023, investors heavily favored S&P 500-tracking ETFs, attracted by the index's impressive 24.2% rise, significantly outperforming smaller company indices. This enthusiasm rolled into 2024 as the index continued to hit record highs. In contrast, smaller U.S. companies struggled, experiencing their worst run in over two decades. A massive surge in investment occurred in December when the SPDR S&P 500 ETF Trust pulled in a record-breaking $20.8 billion in a single day, partly because investors preferred it to overvalued futures. Despite some outflows this year, the S&P 500 ETFs still captured 20% of global equity ETF investments in early 2024, highlighting the continued interest in the US markets in general and the S&P 500 specifically.

This chart shows the outstanding performance of the S&P500 v other asset classes for a $100 investment in 1970.

🇯🇵 Japan

Yen weakened further this week (-0.9%) and breached the 152 level but there was no government intervention. Perhaps there has been a change in the thinking on intervention. The Yen v USD is +8.6% since the start of the year.

Nikkei 225 is +1.3% this week recovering from the pull back last week.

See previous spotlight on Japan.

🌐 Artificial Intelligence

This cover has been designed using assets from Freepik.com

Taiwan earthquake did not affect chip making. After a brief shutdown, manufacturers have resumed operations. At nearly 70% of the world’s capacity for advanced semiconductor manufacturing, a disruption of the supply chain would have been far reaching.

Major semiconductor companies by 2023 revenue

Intel’s share price has dropped this year, and may be overtaken by Nvidia in 2024.

GPT-4 Turbo with Vision has been launched by OpenAI's via its API is a game-changer, offering developers and enterprises revolutionary language and vision capabilities. This turbocharged version boosts processing speeds, handles up to 300 pages of text, and enhances affordability. It also lets users leverage vision recognition to automate real-world actions directly from apps. Since its debut, innovative startups like Cognition (whose AI coding agent Devin relies on the model to automatically generate full code) are already using it to power AI-driven applications

London hub to be developed by Microsoft as it expands its AI footprint in the UK with a new AI hub in London, focusing on developing advanced language models and supporting infrastructure. Led by AI scientist Jordan Hoffmann, previously of Inflection and DeepMind, the hub aims to harness UK's rich AI talent. Mustafa Suleyman, EVP and CEO of Microsoft AI, emphasised the strategic, long-term investment in the UK.

US and Japan have launched significant initiatives in AI, quantum computing, and semiconductors, announced by President Biden and Prime Minister Kishida. Central to their plans is a $110 million AI research partnership backed by NVIDIA, Arm, Amazon, and Microsoft as well as Japanese companies. They also plan to collaborate on AI safety standards and quantum technology, with agreements to build quantum supply chains and develop a skilled quantum workforce.

🌐 Crypto Corner

Bitcoin halving expected to be on April 20.

The pricing has not been affected so far by the upcoming halving.

Previous newsletter spotlight on Bitcoin halving.

🏅5️⃣ Billionaire Leaderboard

Mostly driven by stock market performance :

Change in week :

1. Bernard Arnault and family (LVMH) $209bn ⬇️ $9bn (LVMH down over 2% this week, following last week’s decline of 4%)

2. Jeff Bezos (Amazon) $203bn ⬆️ $1bn

3. Elon Musk (Tesla, SpaceX) $192bn ⬆️ $3bn

4. Mark Zuckerberg  (Facebook/Meta) $179bn ⬇️ $5bn

5. Larry Ellison (Oracle)  $150bn ⬇️ $3bn

and watching

19. Jensen Huang (Nvidia) $77bn no change

Potential entrant to the top 5.

SPOTLIGHTS

Earlier :

Residential property ;

Japan ;

India - an emerging economic power ;

Recession ;

AI chips ;

Bitcoin halving ;

Coming soon : National debt, future growth sectors, Gold and more !