The Market Call

The Market Call gives a periodic summary of major macro events, market themes and selected UK company-specific news.

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December 14, 2023

Fed to pivot, Santa rally back on & Music Magpie is reinvented

December 14, 2023

Fed to pivot, Santa rally back on & Music Magpie is reinvented


Macro & Overnight

The Federal Reserve kept Fed funds steady at their 22-year high for a third consecutive meeting but indicated 75 bps reductions in 2024 in its so-called “dot plot” projections.

In essence, Jay Powell is saying the quiet part out loud. They have been at least thinking about, thinking about lowering rates. They may even be thinking about lowering rates, but the idea of higher for longer has been scrapped. The door that bond investors have been pushing on for the last few weeks has just been opened, allowing bond yields to tumble and risk assets to rise. This is not the pivot, but enough to incite animal spirits all the same.

However, there is never a free lunch and policy changes have consequences. As the inflation train has left the station, the next arrival will be the fear of deflation and recession. Eventually, it will be a case of “careful what you wish for.”

If the Fed slashed rates by 100 bps next week, risk assets would plummet on fears of the unknown. Central banks can’t afford to lose control or be seen to lose control of the interest rate narrative; governments have a lot of bonds to sell. Overnight sharply rising gold and bitcoin prices suggest this might be a problem for the monetary system.

However, the US 10-year Treasury yield is below 4%, a fall of 100 bps in just eight weeks, and the Santa rally is now back on course.

Today, we get rate decisions from the Bank of England and the ECB. They will follow the Fed’s lead on further pauses. But being closer to recession, the language used will be what is interesting.


UK Company News

Music Magpie has updated that its consumer technology revenues for H2 were up 7.5% over the same H2 period in 2022, with rental subscribers growing by 21%. Its leverage has been reduced and is mitigated by its growing contracted rental revenue and asset base. 

Music Magpie came to the market two years ago with a de-clutter model turbocharged by lockdown. It has reinvented itself as a mobile phone and consumer device recycling business, feeding the stock for an attractive second-hand phone rental business. Success is oblique, and long-term success goes to the most adaptable. One to keep an eye on.  

Prognosticator  

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Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Any prices quoted in our research are as at the previous day’s close. 

This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations.

Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Any prices quoted in our research are as at the previous day’s close.