Fed & markets see different futures

Macro & Overnight

Fed rate decision was in line with expectations, but Jay Powell was a very different person in the press conference to the one six months ago in Jackson Hole. He was far more dovish. He could have taken the opportunity to again scold financial market participants for their recently rediscovered animal spirits but said that a disinflationary process is underway and that his base case was a jobs-friendly soft landing. While he reiterated that rates would remain high for the rest of this year, he did not rule out the market assessment that they could start to fall. The Fed’s decision-making would remain “data dependent”.

The market doesn’t accept Powell’s view. It sees economic danger ahead. Investors now consider the risk of recession and deflation to exceed the risk of inflation. Jay Powell either sees it differently or feels he cannot yet concede to this potential future. We know he is determined to see this through.

For now, all markets care about is seeing the top of the rate cycle, which is close. Cue the market rerun of 2021, with Meta and Peleton up over 20%, NASDAQ registering solid gains, and declining bond yields. The $ weakened, and risk assets such as precious metals and Bitcoin rallied.

My fear of the return of the dollar wrecking ball from yesterday looks wide of the mark, for now at least.

In Asia, the cancellation of the Adani share offer dominated headlines.

UK Company News

Dianomi, the digital advertising company, updated that its performance is in line with guidance from December. It entered 2023 with a strong pipeline of publishers looking to join or extend and expand their presence on Dianomi’s contextual platform. However, it warned that publishers’ advertising businesses are having a difficult start to the year, albeit Q2 budgets are looking more positive. The company is ensuring that its cost base is appropriate for an unpredictable trading environment.

Hotel Chocolat has a new CFO joining in May. 

JTC, the professional services business, saw double-digit revenue growth above its medium-term guidance range of 8% – 10%. It sees profits coming in at the top end of the range of market expectations.

NCC, the cyber security and resilience services, reported H1 results where revenue grew +10.2% while gross margin decreased, as guided. However, it is signalling more right-sizing is required. It has experienced lengthening sales cycles. Its FY23 operating profit will be c.10% lower than previously thought. Additionally, the company is investing further to implement the next chapter of its strategy.  

Renishaw, the precision engineer, reported record revenue for H1, 7% above last year. It has a strong balance sheet with net cash of £211.5m. It expects an improvement in semiconductor and electronics markets, supporting confidence in medium-term growth. However, customers reducing stock levels due to improved supply chains has led to lower profits. Renishaw has a strong order book and sees full-year revenue from £690m to £730m. And profit before tax is expected to be £140m to £165m.

Safestyle, the replacement window provider, expects trading conditions to remain reasonably challenging in the short term, given the wider consumer environment. However, it reports that its order book is marginally higher than at the same time last year. 

Prognosticator