The US and China are getting close to a deal – again. The stock market has duly obliged to the latest trade ‘news’, hitting a fresh high. More outlandish forecasts for 3,500 on the S&P 500 now look achievable. Cynics may worry that there is no substance to Larry Kudlow’s latest outburst of trade optimism. The spectre of Chinese troops intervening in Hong Kong looms large too. That could knock the S&P 500 and risk assets back.
The economic data was not all that positive last week either. The decline in capacity utilisation was notable: the producer price report was very soft last week too.
Nevertheless, the industrial production data offered some insight into why IT shares are leading the rally in the stock market. The annual growth rate for ‘selected high-technology industries’ accelerated from 4.2% to 5.9%. Output for semi-conductors & related components has climbed to new highs despite the trade spat.
Advanced Micro Devices was one of the biggest winners last week. Tencent has announced that it is using AMD’s EPYC servers for cloud services. AMD servers are 50% more energy efficient and offer efficiency gains of 35%. This is perhaps one (of many) examples illustrating how difficult it has been for President Trump to stop US and Chinese technology companies from working together. And with China powering ahead into 5G, there will be many opportunities for US companies.
