FTSE 100 Falls, Rolls Royce Surges, NVIDIA Fires Up Appetite

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  • FTSE 100 follows Wall Street into the red as central bankers warn inflation fight not over
  • Nvidia powers up a plan to sell AI services directly to companies.
  • Rolls Royce beats expectations and new CEO launches a strategic plan for higher returns
  • Oil price hovers around $80 as worries about effect of slowing global demand rise.
  • Investors set to stay sensitive to geo-political risks ahead of Ukraine invasion anniversary

Investors are finding it hard to shake off the funk that’s descended over the prospect of interest rates going higher and hanging around for longer. There were few crumbs of comfort from the closely watched minutes of the US Federal Open Markets Committee, with the determination of policymakers to stay tough on inflation clear.

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The data so far might signal that the hot prices are beginning to be tamed, but it is not yet enough reassurance that the spiral is going to come down fast enough to target without more aggressive tightening, albeit at a slower place. The resilience of the US economy is right now considered to be disadvantage, with rate hikes so far proving to be just glancing blows in certain sectors.

FTSE 100 Falls

Investors are worrying that with the monetary screws tightening, the broader US economy will face a big squeeze which will be harder to recover from. With the era of cheap money over, there’s less inexpensive fuel for growth and the worry is that businesses and consumers will curtail spending and investment.

The fresh concerns knocked the initial rally on Wall Street off course with stocks ending in the red, sparked choppy trading sessions in Asia and a lower open for the FTSE 100.

Rolls Royce Surges

Rolls-Royce Holdings PLC (LON:RR) has added thrust to its pandemic recovery, defying expectations with at 57% rise in underlying operating profit, which was much steeper than expected. Finally, the company has nosed through the turbulence of disruptions to travel, with the civil aerospace division turning in a much better performance.

Investors have cheered the turnaround and welcomed the strategic plan from the new CEO Tufan Erginbilgic who seems determined to fire up returns over the long-term.

There is recognition that there is far more work to be done to see the company set off on a smoother journey ahead, and caution that this metamorphosis will not happen in a hurry. The work in knocking the company into a more efficient shape is only just getting going.

While Erginbilgic has indicated all parts of the business still have potential, the restructuring plan announced is likely to see changes made to the global footprint, some divisions scaled back, and investment re-routed into other operations.

Its power systems business boasts of a record order book and with demand for more sustainable solutions increasing, this smaller part of the business has much bigger potential. The company will be helped in the meantime by the re-opening in China, with its core business of manufacturing and maintaining jet engines set to be boosted by renewed popularity of longer haul routes.

But while aviation's made a comeback, it could be the first to feel the sting of a prolonged economic downturn.

Nvidia Fires Up Appetite

NVIDIA Corporation (NASDAQ:NVDA) has whetted investors’ appetite with a new business model of selling AI services directly to governments and companies. Shares jumped in after-market trading as hopes soared that this would cement the company’s position as one of the winners of the generative AI revolution.

As one of the architects behind ChatGPT its seen activity around its AI offer go through the roof in the last couple of months. It’s now offering its services like access to supercomputers, via big cloud platforms like Microsoft Azure, Google GCP and Oracle Cloud Infrastructure.

NVIDIA is showing that it’s far from a one-trick pony chip manufacturer and instead right at the cutting edge of pioneering industries. By opening up a new funnel of sales, it is likely over time to more than offset a decline in revenue from selling processing units to the gaming industry.


Oil Prices Fall

In anticipation of weaker demand in the global economy, as fresh rate hikes are expected the oil price has dipped back towards $80 a barrel. Crude stockpiles in the US have been climbing since mid-December and the latest data from the American Petroleum Institute showed they jumped by 9.9 million barrels last week, far more than expected, which is being taken as another indicator of slowing demand.

A floor is still being kept on prices due to the war in Ukraine with supply risks still looming as the US plans a tightening of sanctions. Although Russia is pivoting its output towards China, delivery infrastructure is limited, so that will keep a lid on the level of volumes sent to the East.

As the grim anniversary of the invasion of Ukraine looms, and tensions high between Russia and the US the threat of escalation won’t be far from investors’ minds. An energy shock may have been averted in Europe, but prices are set to stay volatile and fresh geo-political fracture is likely to set off more turbulence.’’

Article by Susannah Streeter, head of money and markets, Hargreaves Lansdown