This week has seen Nvidia claim the top spot as the largest listed company, surpassing Microsoft. The company is the posterchild for artificial intelligence (AI) and its market capitalisation has risen by over $2 trillion in 2024 alone. The company is expected to experience extreme growth over the coming years as businesses invest in their AI capability.
Nvidia accounts for 80% of the market for AI chips that companies such as Microsoft, Amazon and Meta have all purchased to implement their own AI models. Tesla and X (formally Twitter) CEO, Mr Elon Musk this week made orders for server chips which will be used for the X AI tool, Grok. We’ve seen the continued impact that Nvidia and the “magnificent seven” firms are having on US equity markets as the S&P 500 and Nasdaq are both up 1% and 1.5% respectively this week.
Staying on the topic of the US, retail sales for the month of May (month-on-month) rose to 0.1%, below market forecasts of 0.2%. This figure can be interpreted as slowing consumer spending; however, this is slightly misleading as the fall in sales was due to the decline in gasoline (oil) prices, which skewed service station spending (dropping 2.2%). Retail sales ex Autos did not budge, remaining at -0.1% for the second consecutive month. A modest slowdown in US household consumption could be the tipping edge for the US Fed to cut rates in September.
There was positive news in the UK as for the first time since 2021, UK headline inflation returned to its 2% target. Core inflation (year-on-year) for May fell as markets forecasted to 3.5%. Goods inflation has fallen from it’s peak of 14% to now becoming deflationary, however continually strong services inflation at 5.7% remains the worry. It is key to note that the effects of subsidised energy bills is set to wear off later this year where markets can expect to see inflation rise again to 2.5%.
The Bank of England (BoE) met the following day after the inflation data and to no surprise kept interest rates firm at 5.25%. Members of the monetary policy committee are still waiting for more reassuring data as we know services inflation is still yet to moderate as far as expected and private sector wage growth has been noted as twice the appropriate level. The market is pricing in a 50% chance of a rate cut in August and the odds of a cut will likely be determined by inflation and jobs data next month. Staying with the UK, there was mixed data on Friday morning with retail sales beating expectations, however services PMI data was weaker than expected.
China continues to struggle, highlighted by weaker than expected industrial production. There were hopes that stimulus measures from Beijing would help turn around the world’s second largest economy, however, it appears the support package has not been big enough to meaningfully help. The Chinese renminbi continues to weaken against most major currencies, which could help their export market.
Market expectations were fulfilled from the Swiss National Bank (SNB), who cut interest rates for the second time this year to 1.25%. We reported on their first cut which came in March, but the SNB felt it was necessary to continue to cut rates despite a slight uptick in economic growth and inflation over the last two months. Chairman Thomas Jordan was also positive, hinting this was not the end of the easing. We are beginning to see diverging monetary policy in the developed world, although it is expected that the US and UK will join the Eurozone, Sweden, Switzerland and Canada in cutting rates later this year.
Equity markets continue to be led by a narrow range of stocks, which has made diversification a difficult strategy to follow of late. We continue to believe it makes sense to have a broad approach to equity investing, exposing portfolios to a wide range of sectors, styles and geographies.
Nathan Amaning, Investment Analyst
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