Market report: Inflation in focus, oil dips back, ban on bonuses for water bosses
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The FTSE 100 looks set to ease into positive territory at the start of the week, but there’s a bit of a lack of direction with many Asian exchanges having closed for holidays. There is likely to be a fair amount of treading water going on as investors wait for fresh clues about the trajectory of inflation and the implications for interest rate policy. There’s a roll call of central bankers lining up to speak, as the latest consumer price snapshots on both sides of the Atlantic are due to be published mid-week and investors assess just how quickly the UK jobs market is slowing down.
Labour market and inflation in focus for the UK
Bank of England governor Andrew Bailey will talk at Loughborough University in the East Midlands later. He’s expected to again stress the need to take time to scrutinise the data before making any rash moves on rate cuts. UK labour market data due out on Tuesday will be closely watched given that inflation busting pay growth is still a nagging worry for policymakers, who are concerned that it risks igniting a fire under prices again.
CPI data out on Wednesday is set to show that inflation’s bumpy ride downwards is continuing, and a slight uptick in the headline rate could be on the cards, partly due to the rise in the energy price cap in January. Inflation is likely to drop this spring, but it risks bouncing back shortly afterwards, which is why patience will be needed before a rate cut is likely. However, a glimmer of good news for the inflationary fight has shone out from an employer’s survey, which has given hope that there may be more pay restraint going forward. The Chartered Institute of Personnel Development revealed that private employers are planning smaller uplifts to employees’ wages over the next year, with a 4% increase now expected, rather than 5% as previously forecast, while expectations are even lower, at 3% in the public sector. However, one in five employers say they still expect to have significant problems filling vacancies over the next 12 months, and the CIPD highlights that offering flexibility for childcare could help attract candidates.
Wall Street records despite central bankers’ caution
Stocks on Wall Street are largely expected to cling onto gains made last week, as the S&P 500 surged past the psychologically important 5,000 mark, on a wave of optimism about rate cuts, positive earnings and AI enthusiasm, but some uncertainty is set to creep in. Markets have retreated from bets of an early Spring rate cut in the United States, pencilling in a smaller overall cut by the end of the year, but they are still way ahead of the Fed’s current projections. CPI data is expected to show that inflation dropped back at the start of the year, but price pressures are still expected to remain sticky, and are set to keep the headline rate above target. There’s still a yawning gap between the moves policymakers reckon they’ll have to take, given the economy is proving so resilient, and the market expectations. Sentiment may move again following speeches by Fed policymakers Neel Kashkari, Mary Daly and Ralph Bostic this week, with investors highly attuned for fresh calls for caution.
Oil prices dip amid hopes of de-escalation of Middle East conflict
Brent crude has retreated a little, as hopes have resurfaced of a pause of attacks in the Middle East, after the Israeli military confirmed strikes had taken place in Southern Gaza but said they have now concluded. This has helped push down oil prices slightly, as concerns about supply constraints in the region eased a little. It had been feared that a full blown assault on Rafah could be catastrophic and could cause wider escalation. However, a truce remains elusive, and attacks by Houthi rebels in the Red Sea haven’t been fully thwarted. Expectations of higher oil production in the US have also contributed to a dip in prices, and with bets rising that higher interest rates may linger for longer, this could be a drag on demand, as it’s likely to lead to slower economic growth, and lower energy requirements.
Water bosses’ bonuses scrapped
The expected ban on bonuses for water company bosses for poor performance may go some way to help calm the public outrage about serious sewage discharges across the UK, but the details are yet to be laid out and the restrictions aren’t likely to be in place any time soon. Ofwat will run a consultation on the proposals later this year, so it’s still unclear which executives or board members would be affected. Water companies plan to increase customer bills by an average of £156 a year to pay for vital upgrades to the creaking system and prevent further sewage outflows. So, while households carry the can for repairs, it does seem incredulous that the payment of awards to bosses of firms convicted of pollution or serious management failings continues to be allowed. It’s understandable that there are calls for the regulator to move much more quickly given that consumers are footing the bill for what’s seen as long-term mismanagement.”