Hello and welcome to the latest Astute Market Overview. Since our last update, many key markets ticked up. It has been a particularly strong period for the UK, with the FTSE 100 hitting an all-time high and continuing to climb, following many years as an unloved market.

Let’s start with one of the biggest drivers of performance, which was, again, the shifting expectations for interest rates due to an abundance of US data released over the period.

The Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures Price index (PCE), ticked up to 2.7%, slightly ahead of expectations, adding to the argument that interest rates in the US should remain higher for longer, and taking the wind out of the sails of an immediate interest rate cut expectation. In fact, markets had priced in the possibility that the next move in interest rates in the US could be up, not down!

The US central bank decision makers, the Federal Open Market Committee (FOMC), met last week, and dispelled the myth that recent data called for an interest rate increase, given that current levels of interest rates in the US (and in the UK too) are restrictive. This means that the central bank doesn’t necessarily need to turn the screw even more to inflict pain. Furthermore, the central bank has a dual mandate, meaning that they shouldn’t just doggedly pursue the target level of 2% inflation above all else – the Fed want to facilitate full employment in the economy, something they risk by hiking rates further. At the meeting, the Fed held interest rates. Given that investment markets were concerned that rates could increase, following the meeting markets climbed.

Whilst markets rise and fall on each bit of news, and we pay close attention, we work hard to drown out the noise and ask ourselves what all of this means for our long-term outlook: we are still likely to see interest rate cuts in the US this year, with the European Central Bank and Bank of England potentially cutting sooner.

You may be considering that, given we are in the UK, why do we talk about interest rate cuts in the US so often? The dollar has such a large impact globally, that if the Bank of England were to cut rates first, they could risk a weakening of sterling. I discussed why interest rates and exchange rates matter with Chief Investment Officer of Astute Investment Management, Dr Scott Osborne in our latest Q1 2024 Video Commentary.

And finally, in some stock specific news, a UK based start-up, Wayve Technologies Ltd, secured over $1billion in investment to develop artificial intelligence for self-driving vehicles. The technology start-up will enable vehicles to “navigate situations that do not follow strict patterns or rules, such as unexpected actions by drivers, pedestrians, or environmental elements.” Whilst the investment has been led by Softbank, it also includes contributions from Nvidia and Microsoft. This is a great vote of confidence for business in the UK and has been celebrated by Prime Minister Rishi Sunak.

We hope you have enjoyed this video – if you have any questions, please don’t hesitate to contact your financial planner.

See you next time.