Glass half full attitude spreading among corporates and rays of hope
Market report: Glass half full attitude spreading among corporates and rays of hope for Royal Mail emerge
- Cautious optimism ripples on financial markets, masking ongoing worries about interest rates.
- Confidence in UK economic growth edges up to highest level since Ukraine invasion according to HL survey.
- Deloitte CFO survey shows finance chiefs are more confident about future than 3 months ago.
- Relief for IDS shareholders as Royal Mail and CWU achieve breakthrough in strike talks.
- Oil hovers around $86 a barrel amid expectations of higher Chinese demand.
Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘’Cautious optimism is the Monday motivation mantra, as stronger US corporate news and signs of consumer resilience help to mask ongoing worries about the knock-on effect of higher interest rates. Although Wall Street closed lower on Friday, stocks in Asia eked out gains and European indices are set to edge up again. But worries about how many rate hikes could still be the sights of the Fed are still bubbling away in the face of growing consumer confidence and higher inflation expectations and could erupt back up to the surface.
Confidence in UK economic growth has edged up again, by almost 3%, to the highest level since early February last year, before the invasion of Ukraine. The pulse was taken for the HL Investor Confidence Index, a monthly check in on investor sentiment. Rising expectations that the UK could dodge a recession this year, combined with the fall of energy prices from last year’s painful highs and signs that inflation is on the way down are spreading a bit more optimism. The glass half full attitude is reflected in the Deloitte survey of chief financial officers, with a quarter more CFOs saying they felt better about the future than worse, a sharp improvement in sentiment compared to three months ago, when around a seventh more felt the opposite. But firms are still clearly on the defensive and are still battening down the hatches rather than setting sail on a quest for growth, given that many CFOs say cash preservation is a priority. Although so far credit conditions haven’t showed signs of tightening according to the survey, despite the banking scare, business leaders are still taking a defensive stance. This wariness won’t help at a time when the UK is in desperate need of a boost in investment to help emerge from stagnation. It’s really only AI which appears to have the investment pulling power, with big companies clearly nervous about dropping behind the pack when it comes to beefing up machine learning and other artificial intelligence applications.
Overall investor confidence dipped in April, likely to reflect worries about the repercussions of the banking scare, and how far a tightening of lending could propel the US economy into recession. The survey was carried out between 3-11 April, and showed that confidence had fallen by 7% compared to March, a reading taken before the collapse of Credit Suisse. Warnings from the Fed that a mild recession is likely to be on the cards are set to keep investors alert to any signs of economic weakening ahead.
International Distributions Services shareholders are finally glimpsing a ray of good news with the Communication Workers Union and Royal Mail management now having an agreement in principle aimed at ending the long-running strike. The walk-outs have put the group into a precarious position in terms of liquidity. It’s delayed the group’s attempt to re-size operations in the face of falling letter and parcel volumes and has meant the group will only have limited breathing room when it comes to its loan agreements. The breakthrough will be a huge relief, but still needs to pass hurdles of approval by the union’s executives and the members. Even once the heavy bag of industrial strife has been offloaded, the group faces a long road back to profitability.
Brent crude is holding onto last week’s gains, hovering above $86 a barrel as the effect of the production cut announcement from OPEC+ continues to linger amid expectations of higher demand this year. China’s appetite for oil is expected to grow as the recovery from the pandemic lockdowns continues at a clip. Already Chinese crude oil imports soared to the highest level since 2020 in March, a jump of almost a quarter compared to last year, with refiners ramping up activity forecasting a further rebound for the economy.’’