Author — Martin Young, CEO of Farringdon Asset Management

Global Macro Review

US Markets

• The Federal Reserve left the fed funds target range steady at 5.25%-5.50% for a 7th consecutive meeting in June 2024, in line with forecasts.
• Policymakers do not expect it will be appropriate to reduce rates until they gained greater confidence that inflation is moving sustainably toward 2%
• Nvidia Corp. becomes the largest company in the world, over taking Apple Inc & Microsoft Corp.
• Currently Nvidia Corp. is the most expensive stock in the S&P 500 Index, with its shares trading for roughly 23 times the company’s projected sales over the next 12 months.
• Based on current estimates, Nvidia is projected to deliver profit of $14.7 billion on sales of $28.4 billion in the current quarter, up 137% and 111%, respectively, from the same period a year ago.
• On the other hand, Microsoft’s sales are expected to rise 15% with Apple projections sitting around 3%.
• Farringdon view on Nvidia is the company would need to produce more chips to increase its sales which will face limitation on how many software chips it can produce. On major factor would be electricity.
• Currently, the momentum on Nvidia stock is driving up stock price rapidly. However, prices will adjust back to its valuation once momentum slows down.

Chinese Markets

• Chinese regulators gave approval to a debt-laden city in the country’s east to get funding support from banks, as they move to help more localities after making progress recently in bailouts.
• The banks were instructed earlier this month to provide additional help to local government financing vehicles in Weifang in Shandong province, according to people familiar with the matter.
• The banks were asked to provide support including loan refinancing.
• The move shows how the central government is expanding steps to manage debt risks, after initial successes in bailing out key regions like Tianjin.
• Bloomberg reported in April that the Chinese government planned to expand its bailout pilot to more indebted cities from an initial list of 12 provinces and municipalities.

UK Markets

• Bank of England holds interest rates steady at 5.25% which has been held at since August 2023.
• A cut is likely to occur in August 2024 when the monetary policy report is published, and the Bank holds its press conference
• UK conservatives are on track for biggest ever loss. They may end up as 3^rd
• Farringdon view is that it is very difficult for UK to cut their own interest rates until America starts to cut rates.
• If UK rates were to be cut before US, the sterling will start to sink in relative to the dollar.
• As the UK is dependent on imports from US, this will result in increased inflation.

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