Daily Digest: Friday 1st March
USA
The US indexes kicked off March on a strong note, driven by a combination of wider optimism regarding a slowdown in inflation and continued earnings outperformance across the tech sector. The Nasdaq 100 ($NDX) closed at its highest ever level, having traded up 1.43% to $18,302.91. The S&P 500 ($SPX) also managed to break the $5,100 level, recording its highest ever close at $5,137.08. The Dow ($INDU) has a slightly slower session, rising 0.23% as prices consolidate following last weeks all-time highs.
Friday was marked by the release of manufacturing PMI index data, starting with Chinese PMI figures overnight, followed by EU PMI data this afternoon, and concluding with US data. The Manufacturing PMI, or Purchasing Managers Index is an indicator of industrial performance influenced by factors such as current order volume, employment levels, and inventories. In the context of manufacturing, PMI figures above 50 indicate an expansion of industrial output, while a PMI below 50 signals a contraction in output. Upside PMI shocks, where data exceeds analyst predictions, have a positive effect on the economy, stimulating output and GDP growth. Negative PMI shocks on the other hand signal economic contractions, as output declines, this often causes a decline in both investment and consumer confidence, as business performance is reduced.
US Manufacturing PMI figures came in at 47.8 with forecasts 1.7 percentage points out at 49.5. The figure also marked a decline in PMI from the January level of 49.1, lower figures were attributed to market volatility, rising prices, and order delivery dates in the second half of the year. At face value a contraction in US manufacturing output should put a strain on markets, while the US dollar took a small tumble, equity market momentum swung the opposite way during the session following key tech sector earnings calls.
AI focussed investors have once again demonstrated their buying power following Dell’s earnings report, signalling that AI-driven momentum is far from faltering. Dell’s ($DELL) EPS and revenues came in higher than expected with shares jumping 31.53% during trading. Off the back of this, Nvidia ($NVDA) managed to break and hold at the $800 level for the first time, reaching its highest close at $822.79. Nvidia’s 4% share price increase during the session meant it closed out Friday with a 2 trillion dollar market capitalisation. AMD ($AMD) shares also benefited, rising to new all time highs of $202.72, before falling back to $202.64 at the close. This most recent rise in both volume and value across the sector has reinforced investor confidence in both the AI and Tech spaces, but many on the side lines have begun to question the sustainability of continued stock increases and corporate earnings shocks, with comparisons being drawn to both the .com bubble of the late 90s, and financial crash of 2008.
While P/E ratios and valuation multiples have been directly compared to past events, current economic conditions are far from ideal or comparable. The cost of borrowing across developed nations remain high as central banks target inflationary pressures, and leverage levels within US markets remains relatively low when compared to previous periods. These factors suggest that even though current activity and conditions have been described as a tech driven ‘AI Bubble’, there may not necessarily be a direct repeat of historical market downturns in the near term.
Europe
European markets eased into Friday’s session, buoyed by strengthened confidence following yesterday’s US inflation figures. The FTSE 100 (FTSE) rose 0.69% to 7,682.5, this change was driven in part by strong performances across the financial services and banking sector such as Standard Chartered (£STAN), NatWest (£NWG), and Barclays (£BARC), which climbed 3.48%, 3.22%, and 3.08% respectively.
Although Nationwide House Price data was released this morning, it failed to significantly influence the direction of trading activity, with many traders regarding the figures as mere economic noise. The release indicated a 0.7% increase in house prices between January and February. Possible economic inferences that could be drawn from this are that demand within the property sector remains high, which should have a positive trickle down effect on wider economic growth.
UK markets should remain fairly calm until Wednesday, when Chancellor Jeremy Hunt is set to present the Spring Budget.
Central European index activity rested on the release of EU Flash CPI estimates, year-on-year figures for February came in at 2.6%, 0.1 percentage points higher than expectations but 0.2 percentage points lower than the January year-on-year readings, signalling that the ECB may have a stronger hold on inflation across the Eurozone. The ECB remains cautious on rate cuts, but better-than-expected data prints should help hasten the process, with traders expecting cuts into the second half of 2024.
The STOXX 600 (€STOXX) rose 0.6% on the day closing at €497.58, after breaking all time highs earlier in the session. Germany’s Dax (€GDAXI) also managed to break all-time highs reaching €17,816.52 earlier in the session, it lost some ground through the afternoon closing up 0.32%. Despite failing to break last weeks all-time highs, the CAC(€FCHI) closed up 0.09% on the day, with the index now priced at €7,934.17. All three indexes seem to be riding generally more positive economic outlooks, alongside the tech focussed AI boom which has seen valuations records broken internationally as demand remains high.
Rest of the World
The Nikkei 225 (¥N225) turned heads on Friday, rebounding from a poor week of trading to break new all-time highs, peaking at ¥39,990. The index closed the session up 1.9% at ¥39,910, just off the intraday highs. Investors reaffirmed their positive sentiment toward both Japanese equities and the wider economy, as the charge toward ¥40,000 continues.
Meanwhile, the Japanese Yen continued its decline against the US dollar into Friday, with rates reaching ¥150.497 by 7am. As mentioned yesterday this depreciation of the Yen has significant implications for foreign or overseas investors, as Japanese assets become relatively cheaper for US investors. This, in turn, has the potential to attract additional investment into Japanese markets, contributing to the more positive equity market outlook.
Chinese Manufacturing PMI data released this morning with figures coming in at 49.1%, 0.1 percentage point lower than analyst expectations. As noted above, a PMI figure of below 50 indicates a contraction in industrial output, the wider economic effect of which is dependent on the portion of GDP driven by sector activity. During 2022, around 28% of China’s GDP was driven by industrial output, therefore at face value one may believe market performance should slow as key industrial output contracts. However, through Friday the Shanghai Composite Index (¥SSE), the Chinese benchmark actually closed 0.39% up at ¥3,027, as traders bet on policymaker intervention to re stimulate industrial growth across China.
Cryptocurrencies
Momentum across the crypto space slowed through Friday, as investors cool off after a strong week of gains. Bitcoin traded up 1.49% while Ethereum was trading around 3% higher than Thursday at $3,446.
Blackrock’s Bitcoin tracking ETF ($IBIT) closed out a strong week of gains, up 22.62% since Monday. The success of Bitcoin ETF’s has important industry wide implications, including signalling to investors that Wall Street investors are open to diversifying into the crypto asset space.
Commodities
Crude prices peaked at $80 per barrel on Friday, as traders anticipate the outcome of the next OPEC+ production meetings, with an announcement expected in the coming week. If OPEC+ maintain their current production cuts it is likely that crude prices will remain high, as geopolitical tensions worsen across both the Middle East and Ukraine.
Despite increasingly positive inflation outlooks across Europe and the US, Gold traded higher throughout Friday, priced at $2.093.5 up 1.88% at 9pm (GMT).
What to watch into Next Week
Escalations in both the Middle East & Ukraine
Tokyo CPI (Y/Y)
Sources:
https://uk.finance.yahoo.com/world-indices/
https://uk.finance.yahoo.com/commodities
https://www.londonstockexchange.com/indices/ftse-100
https://www.binance.com/en-GB/price/bitcoin
https://www.binance.com/en-GB/price/ethereum
https://qontigo.com/index/sxxp/
https://data.worldbank.org/indicator/NV.IND.MANF.ZS?locations=CN
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