Chips spice up any meal

Another week, another bill in Congress to avoid a Government shutdown, well it feels a bit like that anyway. Neither party will want to be seen as responsible for allowing the brinkmanship to go too far and risk a default. This latest agreement goes until March when the whole negotiation will start again. The optimistic view portfolio managers had coming into this year was reinforced by the latest Merrill Lynch fund manager survey. What do fund managers think are the biggest tail risks, according to the survey? In reverse order, inflation rearing its ugly head again, risks of a hard landing and, in the first place, geopolitics. Once again demonstrates whatever is making the headlines at the time is considered to pose the greatest risks to capital markets. Always looking at today’s headlines, not the potential for what could be next week’s breaking news.

Consensus was overwhelmingly in the view that the US economy was heading for a soft landing and extremely confident rate cuts were coming at some point this year. I’m not sure the latter takes a genius to figure out; it’s more about when and not if. The former is surprising that the consensus is so high. A strong US retail sales report this week apparently reaffirmed the underlying resilience of the US economy. Davos, where once a year, all the financial great and good freeze in an effort to be seen and heard, appeared this year to deliver the same positive message on the outlook for the US economy and, therefore, the world’s.

Although we entered this year wearing our best stock market rose-tinted glasses, stocks have naturally struggled a little under that weight of expectation and some of last year’s late gains probably ate into some of the early gains for this year. We know that as a result of higher interest rates and economic uncertainty, many savers had understandably deposited savings into money market funds. At the start of the year, deposits in money market funds had grown to almost 6 trillion dollars. At some point, some, not all, of that money will be redeployed; but one has to anticipate a fair chunk of that wall of money to head back into equities and alternative investment classes. Apparently, 1 billion dollars went into the newly announced Bitcoin ETFs this week. FOMO demonstrated at its best.  

Stocks are having a better end to the week as tech and a resurgence of AI optimism from the chip manufacturing sector helped drive indexes higher on Thursday. Stocks in Europe appear to be following the lead higher today, led by moves around the rest of the world.