FEDMAS Eve

The current backdrop of lower growth and declining inflation has now played out as focus turns to the Federal Reserve meeting this week. The widely anticipated August US inflation data brought little surprise to markets, although it was still above the Central Bank target. The way is all set for another quarter point cut in rates on Wednesday evening. Although whispers of a ‘jumbo’ half point cut still echo around corners of the market - the loudest being the President calling for a bigger cut.

While inflation and a cooling labour market may provide some relief for the Fed to pull the trigger gently seems rationale, based on the delayed effects of new tariffs and expansive fiscal measures delivered. While inflation is not the main concern the employment situation will weigh heavily on Fed Chair, Powell. The recent jobs numbers were low, however, the revisions to the payroll numbers in the year to March this year means that nearly a million less jobs were created than originally thought.

With optimism surrounding the interest rate cut, along with some notable corporate news, saw stock markets continue to climb. The NASDAQ, S&P500 and Dow Jones indices all posted new record highs, flying in the face of historical seasonal September weakness.

Optimism in the technology and Artificial Intelligence sector persisted. Oracle, perhaps most familiar to fans of F1 who emblazon the wing of Max Verstappen’s car, posted their results. The results may well have put them on pole, but it was the bullish forward guidance that gave them their grand prix moment. The company expects revenue from its cloud services to boom to $18 billion, as the company has signed 37 agreements for its data centres. The firms CEO Larry Ellison temporarily unseated Elon Musk as the world's richest man.

Oracle’s shares continued upwards. President Trump announced that U.S. and China trade negotiators had reached an agreement involving the popular social media app TikTok. Oracle is widely expected to play a pivotal role in any such deal, given its expertise in secure data management and cloud infrastructure. Investors have interpreted these developments as a signal that Oracle could be positioned to benefit not only from lucrative business partnerships, but also from broader trends in global technology regulation.

Paramount Skydance, backed by the Ellison fortune, is preparing a cash bid for Warner Brothers Discovery. The merger would bring together Warner Brothers biggest brands like Harry Potter, Game of Thrones and Paramount’s Mission Impossible and Top Gun. With neither side making any further comment, don’t expect news of a Harry Potter, Top Gun cross over any time soon. The deal will however combine their streaming services in an ever-competitive market taking on the Netflix giant.

Initial Public Offerings (IPO) have also stirred much excitement, and companies are flocking to the US. Klarna. The ‘buy now pay later’ company, floated its shares on the US market with an oversubscription of twenty times. This underscores confidence and the deep pockets of the US market.

Moving to the UK the picture looks rather gloomy. The latest economic stats showed zero growth for July. The UK economy grew 0.7% for the first quarter but only 0.3% for the second quarter. The downward trend will be of concern as the Government aims to deliver its budget in November. Other major data releases this week is UK inflation that is forecast to rise 3.8% year-on-year in August. Any shock in the data could influence expectations for future rate changes although no change is expected tomorrow by the Bank of England.

The European Central Bank left interest rates unchanged and made only slight adjustments to its economic forecasts. This was all widely expected and leaves little excitement in the eurozone’s monetary policy for now, as investors await clearer signals. It is likely to be shaped by political developments, most notably in France. President Macron now must pick the fifth Prime Minister (PM) in two years. The incoming PM will have to tackle head on the countries ever growing deficit, Bonne Chance!

(Cover Image Source: Joshua Woroniecki)