Investment markets were broadly lower over the week as market sentiment remained fragile. Despite continued talks about raising the US debt ceiling, no agreement has yet been reached and, closer-to-home, inflation data in the UK caused concern.
On Wednesday, the Office for National Statistics (ONS) released the latest UK inflation data. On the positive side, the data showed a fall from 10.1% in March to 8.7% in April compared to a year ago. The fall was widely expected but was some distance from the 8.2% predicted by economists. The concern was centred around the jump in core inflation (which strips out volatile food and energy costs) seen over the month from 6.2% to 6.8%. Core inflation now sits at its highest level since 1992.
The new data raises the odds that the Bank of England will once again raise interest rates further when they meet next month and opens the door to the terminal rate increasing more than many had predicted a couple of months ago.
Inflation is still expected to fall in the coming months as lower wholesale energy prices should reduce input costs for many businesses, and households are expected to start benefitting from the lower energy price cap (announced on Thursday) in July. With household budgets under intense pressure from rising borrowing costs and soaring food prices, the reduction in energy bills (estimated at £426 for a typical household) will be welcomed.
Mega-cap technology stocks bucked the general market trend this week with a building excitement around those that might benefit from the advancement of artificial intelligence. Nvidia was the standout performer as the stock price surged some 24% on Thursday. The chipmaker forecast that sales were expected to be 50% higher than previous estimates. Demand for its artificial intelligence processors looks set to soar, and Nvidia looks well-placed to benefit as the technology continues to mature and become integrated within our lives. Nvidia essentially provide the building blocks for the technology and are a good example of how investing in the ‘picks and shovels’ of an industry can be a good approach.
The strategy derives its name from the California Gold Rush that occurred in the 1840s and 1850s. During this period, individuals intending to search for gold had to acquire a pick and a shovel as essential tools in their pursuit of wealth. While there was no guarantee of striking gold, the companies responsible for manufacturing these vital tools benefited from increased revenue, irrespective of their customers’ luck.
John Naylor, Chartered FCSI – Head of Investment Committee