Theres good news and theres other news
Earnings season is producing a mixed bag. Banks have done well; anything consumer-influenced, not so much. Semiconductor chips for anything AI-related have been flying out the door. In contrast, ASML announced sales well below market expectations yesterday, reflecting the weaker demand for semiconductor chips that go into things like cars and industrial machinery. Reaffirming the weakness of the consumer, even what is considered the most resilient end of the consumer market, luxury goods are struggling as LVMH, the high-end handbag maker and designer for the great and good, reported a decline in revenue from a year ago, missing analysts’ consensus estimates.
The trading business boosted Goldman Sachs’s earnings. Chief executive David Solomon described the backdrop of the US economy as “ resilient,” adding that they have seen some softness in consumer behaviour. All in all, it was not a great day for Main Street or Wall Street, as the S&P 500 fell almost 1%. Stocks in the US have been remarkably resilient this month as yields have risen. Should the earnings season fail to live up to expectations, this will add further headwinds. The Vix fear index rose to a one-month high, and the dollar remained in demand. As there was a general demand for defensive assets, the gold price rose, climbing back to highs seen a few weeks ago.
As the country awaits what Ms Reeves plans to do at the end of the month, rumours and speculation, not to mention probably the odd leak, continue to make it to the front pages of the British press. The latest suggests it would appear pretty sure that companies will have to pay higher National Insurance in some way. Individuals will pay more in capital gains tax, even though Starmer did sort of rule out that CGT will go as high as 39%, but, in my words, not his, don’t rule out it getting pretty close. Interestingly, the IMF feel duty-bound to interfere in our economic policy; they were quick to criticise Lizz Truss and now appear to be offering advice on a budget not yet revealed.
This morning, we had a raft of UK inflation data, and the one that will be making the most front pages will be the headline rate, which fell to 1.7%, well below the 2.2% of last month and below expectations of 1.9%. The core rate fell more than expected as well to 3.2%. Across the board, prices fell more than expected. On the one hand, that will be seen as good news as it will give the Bank of England all the ammunition it needs to cut rates at their next meeting; some may even go for 50 basis points. On the other hand, it may offer a salutary insight into the current strength or otherwise of the UK economy as we all await what Ms Reeves has up her sleeve. I would expect further weakness in the pound on this news.