The week ahead

Ahead of Nvidia results, it rather felt the S&P 500 was running a little out of steam, or it may have been some profit-taking ahead of the results. By the end of Friday, both the S&P 500 and the Nasdaq had climbed into the blue once again. The FTSE 100 finished the week roughly where it started. The Vix index closed lower, trading back close to its traditional lows. Nvidia’s earnings appear to have maintained the sense of optimism surrounding stocks, particularly the large-cap tech names that have been most apparent since last October. Back then, signs that prices were beginning to fall spurred on the hope of expectation that the Fed would start to ease monetary policy. Old news, I know; wind forward to today; last week’s Fed minutes, along with some less encouraging news on the prices front, as the latest Producer prices index came in higher than expected, has resulted in the expectations for the first cut to US interest rates being pushed out until June. At the start of the year, some of the most dovish economists were forecasting the first cut in March. Despite the winding in of rate expectations the resilience of the US economy has maintained that sense of optimism.

In contrast, as we wait for the budget next week, hoping Jeremy Hunt uses some of the 20 billion he has at his disposal to reduce personal taxation due to lower debt costs. At the same time, the Bank of England is being encouraged to start to bring forward their timing for the first cut in interest rates. There is one story doing the rounds that the Chancellor is considering introducing first-time buyers the chance to buy properties almost entirely without any form of deposit. This week is the annual Bank of England research conference so we may get some further insights from MPC members on their policy thoughts.

Back to the Fed and US stocks, whose focus has now turned away from rate cuts to the underlying strength of the US economy, apparently bulletproof to the higher rates for longer. Are we in a bubble? Maybe, but not one as we know it, so often driven by excess leverage. This week, on Thursday, we get the monthly Personal Consumption and Expenditure Index, which is expected to increase by 0.3%; we also get Durable Goods, the ISM Manufacturing index consumer sentiment, the second estimate of US GDP. So plenty of data for investors and economists to pour over. At the end of the week, we get the monthly PMI data from around the globe.

Just as the Fed was slow to raise rates as prices started to rise, they will be slow to cut and will then cut harder, but that will only happen when the US economy shows real signs of weakness.