Market report: Warmer start to the week for FTSE 100
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “It’s a warmer to start to the week for the FTSE 100 and European indices, with stocks largely gaining ground. Even the sprinkle of cold scepticism about the prospects for interest rate cuts isn’t acting as much of a dampener to the red-hot enthusiasm, which helped Wall Street gain fresh new highs on Friday. The Nikkei also scaled fresh heights, as the positive vibes spilled over into the tech sector, with the Japanese index appearing to suck in investor appetite for Asian shares, amid a continued aversion towards China.
The FTSE 100 is largely sitting on the sidelines of the tech rally, given the lack of star names in the index. However, retail stocks have started on the front foot, as speculation has swirled about the potential for tax cuts in the UK Budget in March. It seems to have inspired a bit of confidence that respite is on the way for the retail sector. It’ll be a difficult trade off however, given that more money in consumers’ pockets is aimed at boosting demand for goods and services, just at the time when the Bank of England is trying to trample down inflation, which is still double the target. Nevertheless, there seems to be a little uplift in appetite for a raft of high street and luxury names, which have suffered due to concerns about aspirational shoppers tightening their belts.
There is still worry about the knock-on effects of this period of super-high interest rates on firms across the UK economy. The latest insolvency snapshot from Begbies Traynor shows that almost 50,000 businesses are in critical financial distress, up 26% from the previous quarter. The number of firms going bust had already reached the highest level since the Great Financial Crisis last year. A big chunk of those firms sending up alarm signals are expected to collapse over the next year, adding to expectations that a recession in the UK is imminent.
Chinese authorities have opted to sit on their hands, rather than try to provide any fresh stimulus to help repair the creaking economy. The People’s Bank of China kept its key loan rate unchanged, which was expected, but is still mildly disappointing, given the fragile property sector’s influence on consumer sentiment and dulled confidence in the region. However, the inaction hasn’t knocked the share prices of mining stocks, given it was largely forecast. Oil prices have dipped back a little, as supply concerns have eased following the re-start to production at Libya’s largest oil field, al-Sharara, following three weeks of political protest. The easing off in prices, with Brent Crude, hovering around $78 a barrel, hasn’t knocked the share prices of energy giants, with investors seemingly more interested in the smooth security of supply.
Investors are looking ahead to the decisions by a raft of central banks this week on interest rates from the ECB, Bank of Japan and the Bank of Canada. European policymakers have already been trying to rein in expectations that rate cuts will come this year, and the tone at the meeting on Thursday is expected to stay hawkish.”
