00:00 Speaker A
Markets are all but certain that the Fed will lower rates when it meets this week after cooler than expected inflation data came out on Friday. Remember that CPI number was delayed because of the ongoing government shutdown. Well, joining me now to discuss this is Anna McDonald, investment manager at Aubrey Capital Management. Anna, thanks so much for joining us on Market Sunrise. So, the Fed rates cut of 25 basis points seems a nailed on certainty. Uh do you agree?
00:36 Anna McDonald
I absolutely do. Um the market has fully priced in a 25 basis point cut and I think 99% of economists are also expecting it. Um, September’s delayed number uh for CPI as you said, was published on Friday. Um, and what it really showed was that core goods prices aren’t rising as quickly anymore and core services and rents are also falling. So, for example, prices for shelter rose 0.2%, uh, in September against a 0.4% rise in August. Now, the Fed doesn’t want to surprise markets, that gets it nowhere. Um, so I think, yep, 25 basis point and even maybe we see attention turning already to the December number. Um the markets think there’s going to be another 25 basis points cut. Um and you mentioned the government shutdown, obviously, data collection during October and November will be tricky if the government shutdown persists. So that’s going to make the inflation numbers a bit harder to read.
01:46 Speaker A
Now, the Treasury Secretary, Scott Besson, as well as updating us on trade negotiations, said that the list of candidates to replace Fed Chair Jerome Powell was down to five. Do you think the threat of Fed independence still exists?
02:05 Anna McDonald
Um well, the fact that the Treasury Secretary is even talking about it shows that a political appointee talking about uh who’s going to replace uh Chair Powell, um has got more of a political bent than it perhaps would have done in the past. Um, it’s not all plain sailing for them to to to appoint, you know, whoever they want and try and influence the Fed too much. They tried to fire Lisa um Cook, Fed Governor Lisa Cook, uh, um, recently, but um, the the courts blocked that. They said, um, that they hadn’t sufficient cause to remove her from from the Fed. So, it’s not plain sailing and even if you did want to change the makeup of the Fed over time, not just because the just uh changing the governor doesn’t actually change how the majority, you know, he’s just one vote on the Federal Reserve Committee. So, you need to change more governors and um, that means that it’s it’s quite tricky to do. They they have terms lasting 14 years. And also you’ve got to think about the the market response. The market would not like to think about the Fed uh not maintaining its independence, not maintaining its mandate for just being uh focused on keeping inflation stable and the job market stable.
03:36 Speaker A
And Anna, obviously, it’s a massive week for big tech earnings. What do investors really need to watch?
03:45 Anna McDonald
Um, I think you already mentioned it, the big story is AI. Um, what we think when we’re looking ahead is that Microsoft and Alphabet are likely to see the biggest rise in AI related demand. Um, and AWS, which is Amazon’s uh services provider, cloud services provider, it’s still the largest player, but it’s, you know, the law of large numbers, it’s growing more slowly. Um, meta doesn’t have a cloud business, so it’s AI exposure comes mostly through advertising and infrastructure spending. I can take these one by one if you like. I think that for Microsoft, the Open AI partnership remains a significant advantage. Yes, Open AI has signed deals with Oracle, Broadcom, Nvidia, AMD, but these all directly benefit Microsoft’s Azure business. Azure grew 39% last quarter and which is pretty phenomenal. So, you know, we can really start to see well continue to see um strength in that business. Um, for Alphabet, again, we’ve got the Google Cloud
05:07 Speaker A
And Anna, overall, you’re pretty positive on what you’ll we’ll hear from the the these five companies and?
05:13 Anna McDonald
Yeah, absolutely. I mean, we’ve got Google Cloud, we expect them to be um very fast growing. They’re the smallest provider, really fast growing and it’s now even selling some of its own chips uh externally, which, you know, could put some pressure on Nvia.
05:32 Speaker A
Anna McDonald from Aubrey Capital Management. Many thanks for your time this morning.
