Hargreaves Lansdown: Caution about global economy and another private equity swoop in London

by | Apr 24, 2023

Hargreaves Lansdown

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says:

‘’A forecast deterioration in the health of the global economy is weighing on minds, pushing equities lower as investors mull the impact of further punishing rate hikes.

Oil prices have slid further back, largely erasing gains made since OPEC+ announced production cuts, with Brent crude dipping closer to $80 a barrel. The FTSE 100 has opened lower, with BP and Shell and miner Anglo American and Antofagasta among the fallers, as investors assess the prospect that demand for energy and metals will wane if economies contract.

There will be fresh worries swirling this morning about yet more takeovers of London-listed companies. Medica, the teleradiology provider, is the latest to be snapped up by a private equity firm. It’s agreed a £269 million deal with IK partners, at more than a 32% premium to its closing share price on Friday. With the swoop on UK targets by overseas buyers continuing unabated, it’s fresh evidence that UK assets are considered to be cheap, weighed down by the impact of Brexit, the weaker pound, and the stagnating UK economy. We could even see an upswing of activity  as the year progresses. Even though another rate hike is expected from the Bank of England in May, with inflation to fall back more sharply in the second half of the year, there is an end in sight to higher borrowing costs, which could propel more deals.

Trading is likely to stay cautious ahead of a raft of big tech results out this week, and the snapshot of US output with first quarter GDP numbers out on Thursday. The picture is expected to show that the world’s largest economy is showing signs of stalling, and that’s before the lag effect of the most recent rate hike takes effect, and the repercussions of the banking scare have shown up. With more interest rate rises forecast, and a contraction in lending expected, the worry is that the world’s largest economy will start shrinking, having knock-on effects on demand for goods around the globe.

There will be keen eyes trained on the big beasts of Silicon Valley this week, as Microsoft, Meta, Amazon and Alphabet update the market, beginning with the Google owner on Tuesday. Already the harsher economic climate is expected to show up in Alphabet’s results, with advertising revenue forecast to fall back by around 1.7%, as marketing budgets are squeezed amid the uncertainty. With investors staying super-cautious any miss on forecasts won’t be treated kindly.

April’s consumer confidence update from the Conference board on Tuesday will be closely watched for any signs of weakness. Sentiment about their expected financial situation did improve a little in March, edging higher than February, but if there are hints that pessimism is creeping back in, it’s likely to exacerbate worries about a recession rolling in. On the London market, big banks are reporting later in the week, with investors eager to see to what extent market volatility will affect Barclays investment business. For NatWest, which is more of a UK economic bellwether, the focus will be on net interest margins which are likely to have significantly boosted its profits. Banks have benefited from high interest rates which have bolstered their net income margins, but as stormier weather approaches and the need to attract more deposits rises, those net income margins face a squeeze.’’

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