💻 Microsoft's growing and shrinking

What’s going on here?

Microsoft is preparing for another round of layoffs, despite its stock price flirting with all-time highs, according to news out on Tuesday.

What does this mean?

Rewind to the start of the year, and job cuts were the flavor of the month, with big firms caught like rabbits in the headlights of the 2022 tech stocks collapse. Fast forward six months, though, and it’s as if we’ve stepped into a parallel universe. Microsoft’s shares have rallied almost 40% this year, painting a rosy picture of the tech giant’s health. But beneath the surface, the company is trimming its workforce, a move that might seem counterintuitive at first glance. But here’s the thing: this latest round of job cuts could be a sign of a new era for Big Tech – the age of layoffs and lift-off, characterized by growth without extravagance.

Why should I care?

Zooming out: Steady as she grows.

Microsoft just closed the books on what’s shaping up to be its slowest revenue growth in six years. But don’t be too quick to judge: analysts think that the company should still manage to grow its revenue by 7%, and that’s outright impressive if you weigh it against the tumultuous year we’ve just had. And with a dash of AI magic, those experts reckon the software giant will pick up the pace over the next couple of years too – with 11% and 13% growth expected.

For markets: BrAIce yourself.

As we gear up for another earnings season, all eyes will be on the AI elite, including Microsoft and Nvidia, whose results days are marked for July 27th and August 23rd. These dates could be game-changers for the market – either fueling even more AI euphoria or seriously dampening the sector’s triumphalism. And here’s a number to etch into your brain: a stone-cold $11 billion – Nvidia’s jaw-dropping revenue guidance for their much-awaited second quarter.

What’s going on here?

Fresh data out on Tuesday showed that British wages are swelling faster than anyone expected.

What does this mean?

While the rest of Europe and the US are witnessing a welcome chill in price hikes this summer, the UK is caught in what cricketing Brits might call “a sticky wicket”. See, the country’s unable to shake the inflation monkey clinging to its back – and record wage growth of 7.3% in the three months to May isn’t exactly helping. Those higher wages prompted the head honcho of the Bank of England (BoE) to take to the stage at an event in the City of London, urging financiers to show a little restraint when it comes to pay. But let’s not kid ourselves: they’re not a crowd known for their frugality, and so far, the BoE’s pleas seem to be falling on deaf ears.

Why should I care?

The bigger picture: The Phillips fillip.

There are some comforting signs buried in the data release, mind you. Unemployment unexpectedly ticked up to 4% in the three months to April, and job vacancies kept on sliding – and that could be a game-changer in the battle against inflation. See, it boils down to what’s called “the Phillips curve” – a model suggesting that inflation should drop when unemployment climbs. If that theory holds water, then this rise in unemployment could become the hero in the ongoing inflation saga.

For markets: The BoE’s playing Jenga.

UK rate-setters are in a bind. They know higher rates can tame inflation, but each hike is a gamble – risking the stability of the pension fund industry, banks, or even the entire economy. And with UK rates already at 5% and wages still heating up, it’s looking like rates may need to climb even higher. So hold onto your hats this August, when the BoE’s set to meet for yet another high-stakes interest rate debate.