Fed and Big Tech take center stage on Wall Street

00:00 Speaker A

After cooler-than-expected inflation data came out on Friday, markets are almost certain the Fed will cut interest rates at its meeting this week. Note that the CPI figure has been delayed due to the ongoing government shutdown. Joining me now to discuss this topic is Anna McDonald, chief investment officer at Aubrey Capital Management. Anna, thank you so much for joining us at Market Sunrise. Therefore, the Fed’s 25 basis point interest rate cut is considered certain. Do you agree?

00:36 Anna McDonald

It definitely is. The market has fully priced in a 25 basis point cut, and I think 99% of economists expect that as well. Um, the delayed figure for September’s CPI was released on Friday, as you said. In fact, this showed that prices of basic goods were no longer rising as fast as before, and basic services and rents were also falling. For example, housing prices increased by 0.2% in September, compared to a 0.4% increase in August. The Fed no longer wants to surprise the markets, which is going nowhere. I think, yes, 25 basis points and maybe even we’re already seeing attention turning to the December number. Markets think there will be another 25 basis point cut. Um and you mentioned the government shutdown, if the government shutdown continues it will be difficult to collect data in October and November. This will make reading inflation figures a little more difficult.

01:46 Speaker A

In addition to updating us on trade negotiations, Treasury Secretary Scott Besson said the list of candidates to replace Fed Chairman Jerome Powell has been narrowed to five. Do you think the threat to the Fed’s independence still exists?

02:05 Anna McDonald

The fact that the Treasury Secretary even mentioned this suggests that a political appointee talking about who will replace Chairman Powell is more politically inclined than he might have been in the past. It’s not easy for them to appoint whoever they want and try to influence the Fed too much. They recently tried to fire Lisa um Cook, Fed Governor Lisa Cook, but the courts blocked that. They said they didn’t have enough reason to remove him from the Fed. So, it’s not a simple way to go, and even if you want to change the makeup of the Fed over time, not just because changing the governor doesn’t actually change what the majority is like, you know, it’s just one vote on the Federal Reserve Committee. So you have to change more governors and that means it’s quite difficult. They have a term lasting 14 years. You should also consider the market reaction. The market does not want to consider that the Fed does not maintain its independence, its mandate to focus solely on keeping inflation stable and the job market stable.

03:36 Speaker A

And Anna, obviously it’s a big week for big tech gains. What do investors really need to watch?

03:45 Anna McDonald

I think you mentioned this before, the real story is artificial intelligence. Looking ahead, we think Microsoft and Alphabet will see the biggest increase in AI-related demand. Amazon’s service provider, AWS, the cloud services provider, is still the biggest player, but you know, the law of large numbers, it’s growing slower. Meta doesn’t have a cloud business, so exposure to AI comes mostly through advertising and infrastructure spending. I can go over these one by one if you want. I think the Open AI partnership remains a significant advantage for Microsoft. Yes, Open AI has signed deals with Oracle, Broadcom, Nvidia, and AMD, but they all directly benefit Microsoft’s Azure business. Azure grew 39% last quarter, which is pretty phenomenal. So, you know, we can really start to see that we can continue to see our strength in this business. We have Google Cloud again for Alphabet

05:07 Speaker A

Anna overall you’re pretty positive about what we’re going to hear from these five companies and?

05:13 Anna McDonald

Yes definitely. I mean, we have Google Cloud and we expect them to grow very quickly. They’re the smallest providers, they’re growing really fast, and they’re even selling some of their own chips outside now, which could put some pressure on Nvia.

05:32 Speaker A

Anna McDonald of Aubrey Capital Management. Thanks so much for your time this morning.