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EQUITIES CONTINUE TO CLIMB HIGHER AS INVESTORS AWAIT THE START OF THE RATE CUTTING CYCLE
Data Sourced from FE Analytics, and Bloomberg Finance LP
EQUITIES CONTINUE TO CLIMB HIGHER AS INVESTORS AWAIT THE START OF THE RATE CUTTING CYCLE
This week, there has been an increase in attention towards Chancellor Jeremy Hunt, as he is expected to announce his Spring Budget in two weeks’ time. In the previous Autumn budget, the main focus was on businesses. However, with the general election approaching, it is anticipated that Hunt will prioritize individuals in an effort to boost his party’s political appeal.Reports this week have suggested Hunt is drawing up plans for a new scheme that would allow first-time buyers to purchase a home with only a 1% deposit, with the government acting as a loan backer. The scheme is part of the Conservative Party’s efforts to appeal to younger voters and homeowners, who have been increasingly priced out of the housing market. The party faces competition from Labour, which has promised to be “the party of home ownership”.POOR DATA CONFUSES THE POLICY PATH
Chair of the US Federal Reserve, Jerome Powell, had suggested that The Fed will announce three quarter-point interest rate cuts this year. In the UK, Bank of
England governor Andrew Bailey has not offered specific guidance, which might be for good reason. The ONS’ Labour Force Survey (LFS) provides the BoE with key stats such as the rate of unemployment, which can influence interest rate decisions. This week it has been deemed “dodgy” due to a significant decline in the response rate.Originally designed to operate on a 55% response rate, the LFS has been affected by pandemic-related issues and the development of a new survey, which has seen the response rate fall to an all-time low of 12.7%. This has raised questions about the reliability of the data. Nonetheless, Bailey reassured the markets that he sees encouraging signs of inflationary price pressures easing and that the expectation of rate cuts this year is not unreasonable.ELEVATED BORROWING COSTS SUPPORT RECORD PROFITS
Prolonging interest rate cuts will be welcomed by banks, with many reporting record profits due to high borrowing costs. Santander announced an annual profit of €11bn and plans to channel these record profits back to investors through a 50% boost to dividends and a €1.5bn share buyback. UniCredit have committed to return its entire 2023 profit of €8.6bn to investors in dividends and buybacks, while Deutsche Bank is tripling its dividend and also buying back more shares.Digital UK bank Monzo doubled revenue last year driven by higher rates on deposits and said they expect to hit their first annual profit in the coming months. This comes as the ‘fintech’ bank is looking to raise £350mn in a new round of funding. HSBC have faced mixed fortunes, despite also recording record annual profits of £24bn. Their share price plunged 8% on Wednesday on the announcement as the UK bank was hit with a $3bn charge on the value of its stake in a Chinese bank, causing them to miss analysts’ profit expectations.CHINESE CONSUMERS SPEND AS NIKKEI 225 ECLIPSES ALL-TIME HIGH
China’s stock market has resumed trading in a positive fashion following the eight-day Chinese Lunar New Year holiday period. Chinese consumers increased their spending during this period, reaching $87.9bn, which marked a 7.7% increase compared to pre-pandemic levels and a 47.3% jump from last year. The number of domestic trips also increased by 34% from 2023. Strong data through this period can indicate good levels of consumer confidence in the economy. Investors pressing into European luxury stocks are looking to profit from increased Chinese consumer spending without exposure to the structural risks of China. The Stoxx Luxury 10 index has risen 9.3% this year.The Nikkei 225 – Japan’s main stock market – closed 2.2% higher on Tuesday, taking it past the previous record of 38,915.87 which was set 34 years ago. Thursday’s rally was supported by a number of computer chip-related shares receiving a boost following Nvidia’s report of a 265% increase in quarterly revenues thanks to the artificial intelligence excitement.For more information regarding our weekly market reports, we encourage you to give us a call on 01732 746188 or send us an email at enquiries@foxgroveassociates.co.uk.
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