Daily Digest: Wednesday 6th March
USA
Wednesday marked a stronger session in US markets as Fed Chair Powell testified at the Capitol. The S&P 500 ($SPX) rose 0.51% back above $5,100, the Nasdaq 100 ($NDX) rose 0.67% to $18,017.57, while the Dow ($INDU) trailed slightly behind in terms of respective gains at 0.2% going into Thursday priced at $38,661.
Chairman Powell’s first day of testimony sent mixed signals to those that didn’t know what to listen for, with the prevailing narrative being somewhat dovish. The main monetary policy message being that data currently aligns with the possibility of rate cuts this year, with the FED still targeting a soft landing. However, there was no indication of when cuts will begin, or the number of cuts expected before 2025. Powell also reiterated the message that the FED will not rush to cut rates, with the Monetary Policy Committee requiring a higher level of confidence before making informed rate cycle decisions. This remains in line with June rate cut expectations. Chairman Powell will continue his testimony on Thursday.
Nikki Haley has dropped out of the US Presidential race, leaving Trump in line to take the Republican nomination. Haley only managed to secure a single state Primary win during Super Tuesday, falling behind Trump in the 14 others. On the Democrat side, Biden won all state primaries, with the two sizing up for a November election rematch. As mentioned before, this result is far from unexpected.
Tesla ($TSLA) remains in the headlines this week due to a decrease in China exports and disruptions at a European gigafactory. Shares continued their declines through Wednesday, falling a further 2.3% to $176.54. This marks a third session of declines, with shares having fallen 13.53% in the last five days. Problems have persisted, with reports suggesting that Tesla’s German gigafactory is unlikely to continue operations this week following an incident on Tuesday that caused power outages. Additionally, CEO Elon Musk has openly engaged in a legal battle with generative AI company OpenAI, the founders of ChatGPT accusing Sam Altman and the board of altering the firm’s direction to a for-profit entity. This legal battle is likely to draw the attention of CEO Musk away from Tesla’s short-term issues.
Europe
The FTSE 100 (FTSE) rose off the back of Today’s budget release, rising 0.43% to 7,679.31. Positive sentiment also spread across Europe with the STOXX 600 closing up 0.39%, the DAX (€GDAXI) up 0.39% and the CAC (€FCHI) up 0.28%, as uncertainty over the direction of the UK economy ends. Traders will now be awaiting tomorrows ECB interest rate decision, it is widely expected that President Lagarde will hold interest rates at their current level, with the ECB typically lagging behind the UK and US when altering the rate cycle.
The UK chancellor Jeremy Hunt delivered the Spring Budget at 12:30pm, likely the last budget announcement before a general election. ‘Lower taxes means higher growth’ was the general undertone of the budget, after opening with a great deal of self endorsement for the current governments action on inflation, having reduced rates from 11% to 4%. Playground politics aside the main points were as follows:
The repayment plans on budgeting loans, offering small interest free borrowing to those on universal credit has been extended. This means that borrowers now have 24 months to repay, rather than 12. Additionally, there have been adjustments to the Debt Relief Order Scheme.
The current 5p cut on fuel duties is to be extended for a further 12 months, while alcohol duties will also remain frozen. This should directly impact the UK’s headline inflation figures, causing a net reduction with consumers remaining somewhat shielded from rising costs.
In terms of the fiscal outlook, government debt remains a focus of this cabinet, with successful reductions having taken place since 2022. The Chancellor announced a step up in service spending, increasing the defence budget where possible, and providing the NHS with an additional £6bn in funding. Hunt’s goal for the NHS is to use this funding to maximise service efficiency, incorporating new AI and data systems across the UK healthcare sector, this should provide opportunities for UK based tech, biotech, and pharma companies to pick up new and innovative contracts.
Growth figures presented a positive outlook with 0.8% increase in GDP projected for 2024. This has been driven by the stabilisation of inflation, alongside a higher level of business confidence. The UK is also positioning for an increase in external business investment, which currently accounts for around 10.6% of GDP. Accommodating such growth should drive job markets, infrastructure development, and ultimately contribute to the overall growth of the UK economy.
In terms of personal finance, savings, and investments, the Chancellor announced a set of ISA (Individual Savings Account) reforms. This included the introduction of the British ISA, aimed at encouraging tax-free investments in British businesses. The British ISA adds an additional £5,000 to the regular £20,000 annual limit. If used, this additional amount must be invested in UK equities, thereby encouraging domestic growth while improving the cost and availability of equity capital market finance for small and start-up corporations.
As most analysts and political commentators alike had expected, the Chancellor continued to target the ‘dual’ tax that UK workers face on their earnings by cutting National Insurance contributions a further 2p from April, lowering the rate from 10% to 8%. Additionally, on the theme of taxes, and a particular point of contention throughout Rishi Sunak’s time in government has been the non-dom tax status, which today was abolished. The Chancellor favouring a reformed and updated residency based system. These changes allow individuals to reside in the UK for four years before being eligible to pay UK taxes, after this grace period, they will be expected to pay the same tax rates as UK residents. Early figures suggest this should account for £2.7bn in savings, contributing to the cost of increased fiscal spending promises and child benefit changes.
There were no real shocks the Chancellor’s Spring budget, as the government seems to be holding off for an election later in the year. Trader reactions to the budget were generally positive, with European indexes, most notably the FTSE 100, closing up as a result. The Chancellor also reinforced his position on inflation and growth, sending positive signals to markets on both fronts. FY24 growth estimates also provided a small upward surprise. Additionally, the Chancellor’s support of the British ISA, UK corporate investment, and more recently, London IPO activity supporting a generally optimistic outlook on UK markets and equities.
Rest of the World
The Nikkei 225 (¥N225) lacked any real form through Wednesday, as it marked its first session decline in three days. This doesn’t seem to be of concern, with prices only pulling back 0.02% or ¥6.85, as traders adjusted their strategies or booked profits following recent index records, leading to a cooling of momentum during the session. The Japanese Yen continued to strengthen against the dollar, sitting at ¥149.708 by 12pm GMT. A stronger Yen may cause foreign investors to become hesitant as Yen denominated assets become relatively more expensive, thus reducing capital inflows, if traders anticipate further currency movements.
The Shanghai Stock Exchange Composite Index (¥SSE) also closed at a loss, falling 0.26% to ¥3,039.93.
Cryptocurrencies
After a period of panic on Tuesday afternoon, investor confidence in Bitcoin was restored as prices stabilised and buy-side momentum continued. Prices fell as far as 16.75% down before rebounding 15% to $67,000. By 9pm GMT, Bitcoin prices had settled around $66,800 just $800 off the 24 hour highs.
Ethereum prices also experienced yesterday’s decline, but to a lesser extent than Bitcoin. Rising through Wednesday morning to new 52-week highs as traders eye the $4,000 level. Once again, by 9pm GMT, ETH had settled around $3,850 marking a 24 hour increase of 12%.
Commodities
Crude traders regained some conviction during Wednesday, pushing prices up 1.24%, to $79.12 per barrel. Crude and other commodity prices remain a point of contention as tensions escalate across the Middle East. Houthi Rebels have ramped up attacks since the weekend, targeting two civilian vessels alongside a US Navy Destroyer. Wednesday’s incident in the Gulf of Aden involved multiple civilian seafarer fatalities. The continuation of attacks has demonstrated that the Yemeni-based rebels remain undeterred by the international coalition efforts to limit violence and protect shipping routes, posing continued and unjustifiable risks to the passage of international trade and commodity supply chains.
Gold managed to continue a strong week of gains, rising a further 0.6% to $2,154.80 per ounce. Gold prices also closed at record highs, despite falling just off their session peaks. Prices have now risen for five consecutive days, despite an increase in ETF outflows and the recent surge in demand for newly listed Bitcoin holding ETFs.
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/
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