Monday market report: Volatility rules with swing of optimism at the start of the week
Susannah Streeter, chief investment strategist, Wealth Club: ‘’Big swings in sentiment are on the up for now, with the FTSE 100 jumping on the optimism bandwagon and swinging higher in early trade. A big rebound on Wall Street on Friday appears to have put pessimism to bed, although a rude awakening still threatens, as concerns continue to bubble about overheated valuations.
Japan’s Nikkei reached fresh records, with a stunning surge as investors cheered the certainty of policy ahead after Prime Minister Takaichi’s Liberal Democratic party secured a two-thirds supermajority in the elections. Election fever has taken hold amid big hopes that her pro-business agenda will help revitalise growth. But the big tax cuts planned risk pushing up inflationary pressures and raise questions about the sustainability of Japan’s debt pile.
Investors have shown a bit more appetite to take risks, with crypto recovering some of its losses. However, these are volatile times, and nervousness is likely to creep back in. The S&P 500 looks set to trade flat, with a recovery rally risking running out of steam. Disruption is rife across the tech industry, and although there has been bargain hunting going on, willingness to keep buying into dips may wane given the uncertain outlook.
Gold has risen back above $5000 as safe haven demand continues and investors take the opportunity to buy in as the dollar weakens again. The precious metal continues to be sought after by central banks, like the People’s Bank of China which increased its purchases yet again in January. The greenback has come under a bit more pressure as the wait-and-see game over what’s ahead for the US economy continues. Delayed jobs data for January is due out on Wednesday and inflation data later in the week will be closely watched to give clues about the future path of interest rates.
NatWest has scooped up wealth manager Evelyn Partners, as part of its strategy to diversify its operations and bolster its wealth management business. Shares had come under pressure last week, after Bank of England policymakers showed more willingness than expected to cut rates this year with a lower base rate set to eat into net interest income. Although structural hedges have limited the effect of the falling base rate, with older low-yield interest rate swaps maturing, replaced with current rates, this tailwind will fade. Finding new revenue streams to bolster revenues is part of the longer-term vision, and with NatWest bringing Evelyn Partners into its stable alongside Coutts, it gives the bank the ability to target a bigger pool of more affluent customers.’’