Market report: Footsie falls and gold shines as inflationary risks rise
Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘’The slide continues for the Footsie, in what’s been a disappointing week, with the positive sentiment proving elusive. Uncertainty abounds about the knock-on effects of Trump’s tariffs for multinationals listed in London. Although the more cautious stance from the Federal Reserve didn’t blow Wall Street off course, with the S&P 500 breaking out to a record level, there is set to be more wariness creeping in today. Investors are mulling the impact of interest rates staying higher for longer, given that policymakers expect US trade policy to push up the price of consumer goods. However, although a big pause in rate cuts is expected, the general trajectory for interest rates this year is expected to be on a downwards path. In the UK investors are also pricing in two to three more interest rate cuts this year, despite the surprise jump in inflation to 3%. Inflation currently has the jitters, but the struggling economy is expected to eventually put a dampener on prices.
Gold is glittering as a safe haven as traders mull the inflationary risks of US tariffs and geo-political risks. The precious metal is riding high at record levels amid concerns about Trump’s trade and foreign policy stances. Tensions remain high around talks over Ukraine after the US President referred to President Zelensky as a dictator. The US message that Europe should do more itself to counter military threats, is adding to concerns about a fracturing of solid defence relations.
The exclusion of Ukraine from talks and expectations any negotiations will take longer has led to some volatility in Brent Crude. Prices have headed above $76 a barrel after falling back. Downwards pressure had been building following indications of a build-up of oil stocks in the United States. But ongoing military action in Ukraine and a drone strike on a pipeline in Kazakhstan has added to supplies concerns.
There’s set to be fresh impetus at the heart of the UK government to try and stem the exodus of firms from London and create more of an investment culture in Britain. There’s been a flood of firms leaving, seeking to shine brighter with higher valuations in the bright lights of New York. Glencore has risen in early trade, but it’s not made up for yesterday’s sharp loss. Shares are down 40% since the high reached two years ago. Although lower commodity prices are part of the equation it’s prompted the giant to consider leaving London and attract more investors elsewhere. The Financial Conduct Authority has already relaxed some listing rules to encourage more firms to float. However, established firms who had banked on London appear to be losing patience with the lower trading volumes and shallower capital pools to draw on. Harnessing the untapped power of retail investors won’t be the only answer but should be part of the solution. Offering individual investors more chances to get involved in new listings would be a good first step. It’s also vital to build confidence in investing which is why the advice guidance boundary review will be transformational – as people will be able to be guided to take the right amount of risk and move long term savings into investment.
Shares in Lloyds bank rose 3% in early trade as investors shrugged off the hefty sum set aside to cover potential compensation costs for motor finance commission arrangements. But investors looked past this provision to spy some robust results. With more here’s my colleague Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“Lloyds has capped off a strong year with a clouded fourth-quarter result, setting aside a hefty £700m provision for potential charges related to the ongoing motor finance saga. While you could argue the provision is overly cautious, Lloyds holds the largest exposure of any major UK bank, and the outcome remains uncertain. Despite this, the stock is up over 40% in the past year, reflecting a solid banking outlook and robust performance. Beneath the surface, Lloyds is delivering strong results. Excluding the motor finance charge, fourth-quarter figures exceeded expectations, thanks to borrowers performing better than anticipated. Remarkably, Lloyds has managed to improve its loan quality over the course of the year, defying fears that borrowers would buckle under the pressure of persistent inflation.
Markets have done well to look beyond the noise and recognize the impressive underlying performance. There’s more than meets the eye in this year-end story and having returned around 10% of its current market cap to investors over 2024, there’s been plenty to cheer.”