Podcast Summary
Expected inflation and retail sales data to impact Fed's March meeting: February CPI inflation predicted to rise 0.4% m-o-m, driven by gasoline prices. Retail sales projected to grow 0.8% m-o-m, largely due to gasoline sales. These figures could influence the Federal Reserve's actions at its March meeting.
Key inflation data and retail sales figures for February are expected to be released in the coming week, which could impact the Federal Reserve's actions at its March meeting. Stuart Paul, US economist with Bloomberg Economics, predicts a 0.4% month-on-month increase in headline CPI inflation, driven primarily by rising gasoline prices. However, when accounting for factors like used cars and a narrower control group that excludes autos, gasoline, building materials, and food services, the growth rate is more modest. Retail sales are also projected to grow by 0.8% month on month, largely due to gasoline sales. Despite these inflationary pressures, some retailers are still experiencing growth, but it remains to be seen how they fare compared to the challenging sales environment in January.
Retail sales growing, but some retailers cutting headcount: Retail sales are up, but some retailers are reducing headcount, indicating potential economic slowdown. Inflation is decreasing and the Fed may lower interest rates later this year.
The economic landscape is showing signs of improvement, with retail sales showing impressive growth, particularly for big box retailers and general merchandisers. However, it's important to note that this growth comes as some retailers are implementing headcount reductions, which could be a sign of anticipating a slowdown in spending. Inflation is also on the decline, with the headline inflation rate expected to reach around 2.5% year over year by the end of 2024. The Fed is not in a rush to lower interest rates yet, but they may do so later this year once inflation is under control. The next Fed meeting is expected to provide more clarity on the pace of quantitative tightening and the Fed's overall policy stance. In the tech sector, investors will be closely watching the earnings reports of Oracle and Adobe, with particular interest in Oracle's cloud business and Adobe's AI product, Firefly.
Adobe's AI initiatives and competition in the creative space: Adobe is developing AI capabilities and securing agreements with content creators to compete in the rapidly changing market, while facing pressure from AI-powered competitors like OpenAI.
Adobe's strength lies in its dominance of the creative space with products like Photoshop and its document cloud business with PDF. However, the company is facing pressure from AI-powered competitors like OpenAI, which can generate text into images or video, raising concerns about copyright and privacy. Adobe is responding by developing its AI capabilities and securing agreements with content creators. In the upcoming earnings call, investors will be looking for updates on Adobe's AI initiatives and its ability to compete in a rapidly changing market. Another company to watch is Oracle, which has two main businesses: software and infrastructure. Investors will be closely monitoring Oracle's cloud infrastructure numbers, as the demand for infrastructure to run large language models continues to grow. Despite strong demand, Oracle's cloud infrastructure growth rate was disappointing last quarter, and the company has assured investors that there is no problem with demand. Overall, the tech sector is facing disruption from AI and cloud infrastructure, and companies like Adobe and Oracle will need to adapt to stay competitive.
Businesses face capacity constraints in spending on AI despite stabilization of IT spending downturn: Despite challenges in real estate and IT spending, optimism remains for the future growth of AI technology
While businesses are continuing to spend on AI technology, capacity constraints may limit their growth in other areas. The IT spending downturn of the past two years has stabilized, but there's still not a significant acceleration. The real estate sector is facing challenges as well, with high interest rates affecting both commercial and residential markets. The commercial property market is seeing cracks that are spreading to the financial world, while homebuyers grapple with higher borrowing costs and a shortage of housing. Despite these challenges, there's optimism for the future of AI technology, with key players set to discuss its next phase at the Bloomberg Tech conference.
UK Housing Market: Opportunities and Challenges for Investors: Despite wage growth and low unemployment, UK house prices may see slight drops due to uncertainty. Investors can build affordable homes and benefit from regulations like Solvency 2. High mortgage rates remain a challenge for individuals.
While the UK housing market is experiencing positive signs such as wage growth, low unemployment, and consecutive growth in house prices, there is still uncertainty and potential for a slight drop in prices. From an investor's perspective, there are opportunities in building more affordable homes in the UK, and regulations like Solvency 2 are enabling more capital to be deployed. However, high mortgage rates remain a challenge for individuals. The MIPIM Real Estate Conference in Cannes is focusing on these and other issues in the real estate sector, which is known for its slow-moving nature and the long-term emergence of issues related to over indebtedness.
European real estate market in distress, but potential for recovery: Despite economic instability causing a narrow bid-ask spread and decreased transaction volumes, potential interest rate cuts and availability of less costly debt may lead to a real estate market recovery, with investors seeking bargains in distressed assets and insolvencies driving transactions.
The real estate market, particularly in Europe, is experiencing significant distress due to economic instability. This has led to a narrowing bid-ask spread and decreased transaction volumes, with the UK seeing the most correction and Germany being at the other end of the spectrum. However, with interest rates peaking and cuts on the way, there's potential for a bounce back in terms of activity. Debt may also be more available and less costly, making it accretive for some buyers. Despite the challenges, there's a sense of optimism that the market will recover, and those with capital to deploy are looking for bargains. However, it's important to note that the market is still in a state of uncertainty, with many investors focusing on distressed assets and insolvencies driving transactions in markets like Germany. Overall, the real estate market is expected to remain quiet in the first half of the year, but conditions are improving and potential sales are being reported.
Changes in real estate market: Flexible work and sustainability: MIPIM 2023 focuses on green, prime office buildings due to investor demand and regulations, while older, less sustainable buildings face challenges.
The real estate market, particularly offices, is facing significant changes due to the shift towards flexible working and the need for sustainability. The event MIPIM will likely feature strong sales pitches from real estate companies looking for investor interest in the second half of the year. However, demand for offices, especially older and less sustainable buildings, is a concern. The good quality, green buildings in prime locations are expected to continue having strong demand due to limited availability. The challenge of making buildings more energy efficient and adhering to new regulations will also be a significant theme at the event. Additionally, politicians and policy makers will be present to attract investors, and sustainability issues will likely influence their decisions. Some regulations, such as the UK's potential ban on renting out offices below an EPC rating of A or B by 2030, could have a major impact on the market.
Housing is a major focus at real estate events due to shortages and shifting investor interest: Investors are shifting capital from retail and office sectors towards housing, driven by a housing crisis and lack of existing stock, but deploying this capital is challenging due to complex regulations and lack of inventory.
Housing has become a significant focus at real estate events like MIPIM, as there's a pressing need for good quality housing across Europe due to shortages in various cities. This trend is driven by both the housing crisis and investors shifting their capital from retail and office sectors towards living spaces, including rental apartments and senior housing. However, deploying this capital is challenging due to the lack of existing stock and complex building regulations. Additionally, the earnings of major tech companies, such as Han Hai Precision Industry (Foxconn), which manufactures iPhones for Apple, are heavily influenced by the performance of their key clients like Apple. With Apple facing a decline in iPhone sales, Foxconn's revenue is also expected to be affected.
Huawei's Mate 60 Pro drives sales in China, impacting Foxconn's earnings: Huawei's new release boosts sales in China, pushing Apple to fourth place and affecting Foxconn's earnings. Taiwanese contract manufacturers, including Foxconn, diversify investments in India and Southeast Asia to reduce China reliance.
The smartphone market in China is undergoing significant shifts, with Huawei's new release, the Mate 60 Pro, leading sales due to patriotic buying, pushing Apple into fourth place. This trend is expected to impact Foxconn's sales during their upcoming earnings call. Foxconn, the top electronics company in Taiwan, is diversifying its investments by expanding manufacturing operations in India and Southeast Asian countries, including Thailand and Vietnam, as part of a larger trend among Taiwanese contract manufacturers to reduce reliance on China. Foxconn is also exploring the electric vehicle market, but its progress in this area is uncertain. Another company to watch is CATL, a battery maker expected to deliver solid fourth-quarter results due to revenue growth and cost control, despite lower battery prices and a slowing Chinese economy.
Leading battery manufacturer CATL thrives amidst competition and challenges: CATL, with a 40% global market share, maintains its top position through financial strength, allowing it to squeeze margins and costs, supplying major automakers, and long-term investments.
CATL, a leading battery manufacturer in China, is managing to thrive amidst intense competition, geopolitical tensions, and industrial overcapacity. Despite falling raw material prices, CATL's robust financial position allows it to become even more price competitive and maintain its top position in the global battery market. With a 40% share of the worldwide battery market, CATL supplies major automakers like Tesla, BMW, Mercedes Benz, and Volkswagen. The concentration among top battery makers, including CATL and BYD, makes it difficult for smaller suppliers to gain ground. CATL's financial strength enables it to squeeze margins and costs, giving it an edge over competitors. Despite challenges, CATL's long-term bets and investments have positioned it well for growth both domestically and abroad, even as it faces reputation concerns and competition from lower-cost markets like China.
CATL's dominance and normalization of EV market driving battery price decrease: CATL's superior products and a normalizing electric vehicle market are contributing to lower battery prices due to easing raw material costs and a more stable supply chain.
CATL, a leading battery manufacturer, is capitalizing on its dominance in the industry by producing better performing and more affordable batteries. The decrease in battery prices can be attributed to the easing of raw material prices due to a decrease in demand and a more stable supply chain. CATL's ability to consistently put out superior products has given them an edge over their competitors. Despite some recent concerns about the electric vehicle market, the supply chain for EVs is being established, and sales are still growing, leading to a normalization of the market. Overall, CATL's dominance and the normalization of the EV market are key factors driving the decrease in battery prices.
