Daily market update: interest rate decisions, US chip restriction changes, Next

“Investors are watching history unfold before their eyes,” says Russ Mould, Investment Director at AJ Bell.

“The Trump administration has already caused turmoil in the business world with the Liberation Day tariff plan. We’re now entering the next phase as countries do deals with the US, and Trump once again changes the rules as he rips up Joe Biden’s playbook.

“At the same time, heightened tensions between India and Pakistan are being watched closely, with investors hoping the situation does not escalate further. All this is happening in a week of important interest rate decisions in the UK and US, meaning investors have a lot of information to digest and that means markets are unlikely to move in a straight line.

“A deal of some kind is expected to be announced today between the UK and the US. It’s hoped that the agreement will lower tariffs imposed on certain UK goods sold into the US, but nothing is certain with Trump until we get the full details.

“A trade deal between the two countries could provide more certainty for UK businesses as to how the future will look, so they can plan accordingly. It might also put the UK in a more favourable light with foreign investors looking to dial down US exposure and wondering where they should reallocate money.”

Interest rate decisions

“Against this backdrop we’ve got the next UK interest rate decision where the Bank of England is widely expected to cut the cost of borrowing. Inflation is expected to go up and consumer and business confidence has been weak of late, creating a backdrop fragile enough for the Bank of England to further ease monetary policy.

“The Federal Reserve yesterday left US rates unchanged but cited ‘uncertainty’ and rising risks to the economy. It sets the tone for a series of potential rate cuts later in the year.

“Financial markets tend to like rate cuts as it makes it cheaper to borrow money, which can encourage consumer and business spending and investment, and boost share prices. The key thing to consider in the current situation is whether rate cuts are happening because of grave concerns about the economy as that situation could make it harder for stocks to rally.”

US chip restriction changes

“Futures prices imply a decent day for Wall Street when the US opens for trading on Thursday. Helping the cause are reports that the Trump administration will end chip export restrictions. Previous US president Joe Biden had imposed restrictions on who could buy America’s most advanced technology, partly as a way to stop China getting its hands on chips that could enhance its military capabilities.

“There is now the view that China seems to be capable of developing its own technological capabilities, so perhaps Trump has taken the view that it’s better to make money by selling US products to China as the country was always going to advance its capabilities one way or another. It could be part of Trump’s bargaining strategy to strike a deal with China. If Trump can say the US has done China a favour by reopening the door to US chips, he might think the US is owed something back by the Asian superpower.”

Next

“Next has always been a master at managing expectations, recognising that as a public company it always pays to under-promise and over-deliver and it has done it once again with the latest update.

“First-quarter trading was ahead of expectations, helped by warmer weather causing people to pull forward purchases of summer clothing.

“Prudently, Next is expecting a pullback in the current quarter and it has left sales guidance for the year as a whole unchanged – although it has nudged profit guidance higher, reflecting just how strong the increase in full-price sales was in the first quarter.

“Investors will be pleased by the broad-based nature of the growth Next has delivered – with store-based, online, third-party and international sales all seeing meaningful growth. The spectacular increase in overseas sales will excite the market on the basis this could provide the next leg of the Next growth story.

“As well as being a good example of how to run a listed business, Next is good at retail too and this latest update reflects these inherent strengths.”

Centrica

“In recent years Centrica’s gas and power arm has helped transform its prospects – delivering lots of cash which helped the company repair its balance sheet and return capital to shareholders.

“However, the boost to energy prices provided by the Russian invasion of Ukraine has now ebbed away and more recently, a warmer than usual spring has hit demand in its retail British Gas business.

“While Centrica is sticking with full-year guidance and current dividend plans, the company does note challenging conditions. It would not be a major surprise if it was forced to cut guidance, particularly given the expected second-half weighting for the current financial year.

“Often this is the equivalent of a football team going 2-0 down and expecting to score three goals after half time – with the first-half shortfall typically not made up.

“Centrica expects heavy losses from its energy storage operations centred around the Rough gas field in the North Sea. It is looking for government support to increase capacity and convert it into a hydrogen-ready facility.

“While the Exchequer hardly has lots of money to throw around, the strategic importance of Rough as a buffer to help cover periods of high energy demand means Centrica may get a sympathetic hearing.”

These articles are for information purposes only and are not a personal recommendation or advice.