00:00 Speaker A
Markets are all but certain that the Fed will cut interest rates when it meets this week, following cooler-than-expected inflation data on Friday. Note that the CPI number has been delayed due to the ongoing government shutdown. Well, Anna McDonald, Chief Investment Officer at Aubrey Capital Management, joins us now to discuss it. Anna, thank you so much for joining us at Market Sunrise. So, a 25 basis point Fed rate cut seems certain. And you agree?
00:36 Anna McDonald
I really do. Um, the market has fully priced in 25 basis points, and I think 99% of economists expect that too. September the delayed CPI number, as you said, was released on Friday. Um, and it actually showed that the prices of basic goods are no longer rising as quickly, and that basic services and rents are also falling. So, for example, shelter prices rose by 0.2% in September and by 0.4% in August. Now the Fed doesn’t want to surprise the markets, it’s not going anywhere. Um, so I think, yes, 25 basis points and even maybe we’re seeing the focus already shift to the December number. Um, the markets are expecting another 25 basis points cut. Um, and you mentioned the government shutdown, obviously data collection in October and November will be difficult if the government shutdown continues. So the inflation number will be a little harder to read.
01:46 Speaker A
Now Treasury Secretary Scott Besson, while also briefing us on trade talks, said the list of candidates to replace Fed Chair Jerome Powell has narrowed to five. Do you think the threat of Fed independence still exists?
02:05 Anna McDonald
Well, the fact that the Treasury Secretary is even talking about it shows that the political appointee talking about who will replace Chairman Powell has more political leanings than perhaps would have been the case. Um, not everything they want to appoint, who they want, and try to influence the Fed too much. They recently tried to fire Lisa um Cook, Fed Governor Lisa Cook, um, but the courts blocked it. They said they didn’t have enough reason to remove her from the Fed. So, it’s not plain sailing, and even if you wanted to change the composition of the Fed over time, it’s not just because just changing the governor makes the majority of the Federal Reserve Committee one vote. So, you need to change more managers, which means that it is quite difficult to do. Their terms last 14 years. You also have to think about the market reaction. The market would not like to think that the Fed UH will not maintain its independence, will not maintain its mandate, just to focus on inflation and labor market stability.
03:36 Speaker A
Obviously, Anna, it’s a huge week for big tech earnings. What do investors really need to look out for?
03:45 Anna McDonald
Um, I think you already mentioned, the big story is AI. Um, looking ahead, we think Microsoft and Alphabet are likely to see the biggest growth in AI-related demand. And AWS, which is Amazon’s UH provider, the cloud provider, is still the biggest player, but, you know, it’s the law of large numbers, it’s growing more slowly. Um, meta isn’t in the cloud business, so AI is mostly achieved through advertising and infrastructure spending. I can take them one at a time if you want. I think Microsoft’s open AI partnership remains a significant advantage. Yes, Open AI has signed contracts with Oracle, Broadcom, Nvidia, AMD, but all directly benefit Microsoft’s Azure business. Azure was up 39% last quarter and that’s pretty phenomenal. So, you know, we can definitely see that we continue to see strength in this business. Um, at Alphabet we have Google Cloud again.
05:07 Speaker A
And Anna, in general, you’re pretty positive about what we’re going to hear from these five companies and?
05:13 Anna McDonald
Yes, absolutely. I mean Google Cloud, we expect them to grow very quickly. They’re the smallest supplier, really growing fast, and now they even outsource some of their chips, which, you know, could put some pressure on Nvia.
05:32 Speaker A
Anna McDonald of Aubrey Capital Management. Thank you very much for your time this morning.