Fed warns on tougher rate hikes and B&Q owner Kingfisher hammers out a big profits jump

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, comments on the latest market moves: 

‘’Caught between a rock and a hard place, the Federal Reserve sees little option but to try and chip away inflation with even bigger interest rate hikes this year, if price pressures keep mounting. And there are very few signs of much relief given that the only way has been up for the price of oil in recent days. Brent Crude trekked upwards to over $118 dollars a barrel in early trade, before losing a little ground, and that was off the back of yesterday’s 7% rally.

A Russian crude embargo remains in the sights of a growing number of European leaders, at a time when Russian production is already expected to be dented due to slumping demand for the country’s exports around the world. China’s reluctance to prolong mass lockdowns is also seeing downward pressure on prices evaporating. The FTSE 100 has opened marginally higher, as uncertainty reigns about the conflict in Ukraine and the effect on commodity prices.

Anxiety at how far and how fast the Fed will go hasn’t turned into a full blown tantrum on the bond markets for now, but US treasuries slid in value and yields spiked, an indication that worries are mounting. The benchmark treasury yield hit 2.3%, its highest since May 2019.

Germany is still resisting a ban on Russian energy imports but it’s furiously trying to shore up its energy security by fast forwarding the construction of two liquefied natural gas terminals, as part of a long-term deal with Qatar, and examining the potential of a hydrogen pipeline from Norway. That’s helped keep European natural gas futures at a three-week low, but these initiatives will still take significant time, so wholesale gas prices are set to stay highly sensitive to geopolitical developments.

Even before the devastating events unfolded in Ukraine, piling further pressure on commodity prices, pent up demand for goods constrained in supply due to Covid snarl ups in production and at ports, was sending prices higher. Retailers have had to show a dab hand at dealing with supply chain issues throughout the crisis, and B&Q and Screwfix owner Kingfisher has demonstrated skilful resilience here, which should bode well for its ability to cope with these fresh inflationary pressures. It’s knocked out a 9.7% sales increase across trade and retail outlets and channels with the average basket value up compared to last year and 2019. Hammering out a 21% increase in pre-tax profit is impressive given the headache of goods shortages which have beset the sector. But it’s managed to maintain stock availability across all markets, fulfilling high demand for DIY. It seems that the race to find more space in our homes for locked-down living has continued, as consumers look for longer term solutions to new hybrid ways of working. For now, even big ticket items like new kitchens and bathrooms are in high demand, with the showroom order book for B&Q and French chain Castorama up 72% compared to last year. But the company has flagged heightened uncertainty ahead and there is a risk that, while lockdown savings dwindle away as household bills shoot up, customers may become a lot more conservative with their makeover budgets in the months to come.’’