Will this carry on ?

INSIGHT WEEKLY : February 25, 2024

An easy to read economic and financial summary. If the images do not load, click to download external images in your email to see the newsletter in full, or click the link above to read online.

🌐 Major indexes and overview

New records set this week :

France’s CAC 40 hit another new record in the week driven by strong earnings.

S&P 500, Dow score new records.

Nikkei 225 as mentioned in last week’s newsletter finally broke the 34 year old record set in December 1989 on Thursday.

India’s Nifty 50 also set a new record in the week.

Markets are fired up by AI and especially by one company’s results. Nvidia produced very good earnings and also set a record for the largest increase in a company’s stock market value in a single day, adding $277bn on Thursday. Its value now is $1.97 trillion, and is the fourth largest in the world.

Biggest five companies by stock market value are Microsoft $3.0tn, Apple $2.8tn, Saudi Aramco $2.0tn, Nvidia $1.97tn and Amazon $1.8tn

In Nvidia’s case, the results matched the hype. Will future AI results be up to the hype ? If not, we will see a correction in tech stocks, and it could be substantial !

Japan’s Nikkei 225 continues to show great promise (as mentioned in previous weeks’ newsletters) with a 1.6% increase this week, following the 4% increase last week.

India will also be of interest, especially after the elections are over.

🇬🇧 UK

Recession may be over says the Bank of England. There were two successive quarters of contraction indicating a technical recession, but the Bank of England have said that this definition of a recession was not “helpful”. The contraction is expected to be shallow. We saw last week that retail sales were up in January, so this may be one reason for the BOE to be optimistic. Is this the classic “V” shape of a decline followed by a rapid recovery ?

Other positive news came out last week that the UK is running the largest budget surplus since records began 30 years ago, which the government could see as a tantalising opportunity to fund some tax cuts. Also business activity beat expectations in February.

Consumer confidence slipped in February so not all good news.

Interest rate cuts will be dependent on other indicators such as wage growth and number of job vacancies turning decisively, says the BOE.

Inflation is currently 4%. The target remains at 2%. This gap needs to be narrowed before the first cut in interest rates gets done.

UK Corporate bonds are experiencing high demand from pension funds. Yields are higher now, and it is an opportune moment for these funds to lock into good yields in order to pay “defined benefits”. These can then be packaged and sold to insurers.

FTSE100 is -0.2% since the start of the year.

🇺🇸 US

S&P500 at 5,088 is up over 7% this year. Goldman Sachs have updated their year end forecast to 5,200 in the expectation of a strong economic growth and higher profits from information technology and communication sectors. Other sectors are not expected to perform well.

Inflation data shows that inflation is sticky and some commentators are wondering if there will be rate cuts at all this year and even if there might be a rate hike ! One month’s data is not a trend and the Federal Reserve will not make a move until there are more months of data with a definitive trend. The minutes of the Federal Open Market Committee meeting stated that they are looking for “greater confidence” that inflation is receding. FOMC sets the rates, so there will not be any cuts until they see evidence of falling inflation. Some were expecting that there will be five cuts in 2024. This may be too optimistic.

More data is expected in the coming week, including PCE data and initial jobless claims.

Treasury yields are reflecting the current outlook on interest rates. At the short end there is a slight increase, and at the long end (over 1 year) a slight decrease. The reflection is that there are no cuts expected for now !

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🇯🇵 Japan

Nikkei 225 was up 1.6% in the week. It is now up over 17% so far this year, breaking a 34 year record on Thursday. In the late 1980’s a large asset bubble started to develop. Japanese companies were among the largest by market value. Since then, Japan has been in a stagnation as the asset bubble deflated. Japan’s recovery is under way and the breaking of the 1989 record is an important milestone. The structural changes going on in Japan are resulting in good gains for investors and the cheaper yen means cheaper stock prices. International investors are likely to continue to buy.

_{Nikkei 225 index history of major events :}

1. Dec 29 1989: Nikkei 225 hits then-record high of 38,915
2. Mar 27 1990: Property bubble pops after regulation to curb loans to developers
3. Aug 1 1990: Bank of Japan headline interest rate hits 6%
4. Jan 17 1995: Kobe earthquake
5. Mar 20 1995: Sarin gas attack in Tokyo subway
6. Jul 1 1997: Asian financial crisis begins
7. Oct 23 1998: Long-Term Credit Bank of Japan collapses
8. Jan 1 2006: Takafumi Horie, CEO of internet group Livedoor, arrested
9. Jul 15 2008: Lehman Brothers on the brink in US
10. Mar 11 2011: Tohoku earthquake and tsunami
11. Dec 26 2012: Shinzo Abe becomes PM and launches 'Abenomics'
12. Feb 1 2016: BoJ introduces negative interest rates
13. Feb 1 2020: Start of Covid-19 pandemic
14. Jan 1 2023: Tokyo Stock Exchange starts campaign to raise corporate valuations
15. Feb 22 2024: Nikkei 225 hits record high of 39,098

7 Samurai Stocks is another version of the Magnificent 7 in the US. Goldman Sachs have come up with a Japanese version. These are Toyota, Subaru, Mitsubishi, and four semiconductor plays in Screen Holdings Co, Advantest Corp, Disco Corp and Tokyo Electron. These could be the most watched stocks in the Nikkei 225.

See previous spotlight on Japan.

🚢 Shipping

Attacks on shipping are not making the headlines but a recent attack has caused an 18 mile long oil slick after a ship was hit and currently taking on water.

Retaliatory military action, including on Saturday, is not stemming the attacks on shipping.

Inflation is only marginally affected as ample ship availability and soft demand (according to Moodys) makes the longer route around Africa not as inflationary to the end consumer as originally thought.

Panama canal drought continues to affect shopping. The canal operates through a system of locks and an artificial lake. The drought caused by lack of rain makes the lake too shallow for large ships.

🏅5️⃣ Billionaire Leaderboard

Change in week :

1. Bernard Arnault and family (LVMH) $231bn ⬆️ $10bn (increase in LVMH and CAC40 in the week)

2. Elon Musk (Tesla, SpaceX)$204bn ⬇️ $1bn

3. Jeff Bezos (Amazon) $196bn ⬆️ $6bn

4. Mark Zuckerberg  (Facebook/Meta) $170bn ⬆️ $4bn

5. Larry Ellison (Oracle)  $139bn flat

SPOTLIGHTS

Earlier :

Residential property

Japan

India - an emerging economic power

Last week : Recession

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