Hargreaves Lansdown’s Streeter comments as FTSE 100 hits new high

by | Feb 8, 2023

FTSE 100 has hit a new high, as UK forecast to avoid recession and Equinor posts record profits.

Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown, comments on the FTSE 100 report:

“The tide of optimism washing over the London market is being pushed higher with the latest economic assessment judging that the UK could avoid a recession. The FTSE 100 has opened with another spring in its step, hitting a new high in early trade.

“The forecast from the National Institute of Economic and Social Research is more bullish than the Bank of England and the International Monetary Fund, suggesting that the economy will suffer a period of stagnation rather than back-to-back quarters of contraction. GDP data has already surprised on the upside and consumers and companies have largely been more resilient than expected.

“However, for millions of lower-income households, the chill on their finances will be very real in the months to come, even if the economy escapes a technical recession. With the average middle-income household set to see their personal disposable income fall by 13% over the next financial year, this does not bode well for companies highly reliant on discretionary spending.

“Piles of lockdown savings are being eroded, and consumers will be making some very tricky choices ahead, about where to spend available cash with some signs that budgets are being ringfenced for holidays and socialising, rather than buying stuff.

“The think tank is also flagging the continued risk that Britain’s productivity will stay sluggish ahead. Companies have been battening down the hatches and being more cautious in their spend as interest rates are hiked, but if underinvestment continues, it’s set to keep the UK on a low growth trajectory. Nevertheless, as worries ease as inflation inches downwards around the world, it’s keeping the globally focused index firmly on the front foot.

Disinflationary forces rippling through the US economy gave investors reason to cheer, but warnings from the Federal Reserve that the path ahead is still uncertain are setting the tone for a warier reaction on Wall Street in the session ahead. It was clear from Jerome Powell’s speech that policymakers at the US central bank were taken aback by the strength of the jobs market, despite the ramping up of rates.

“The Fed is on its toes, waiting for any other data shocks before it can judge that it’s getting the upper hand in its inflation fight. It’s little wonder Mr Powell urged patience, indicating the process of lowering the price spiral was only just getting started and could last at least into next year. The Fed is not alone in worrying that inflation is still far too high. The Reserve Bank of India lifted its key rate by 0.25% as expected and hinted more tightening was ahead.

Equinor is the latest global energy giant to report a record adjusted operating profit for 2022, totalling $74.9 billion. Soaring gas prices saw money pour in as it turned on the taps to fill the void left as Russia’s pipes dried up. With Europe facing an energy crisis following the invasion of Ukraine, it became the region’s largest supplier of natural gas, with output rising 8% from its Norwegian fields, as it raced to replace Russian supplies. It benefited from a surge in volumes just as prices rocketed upwards. Fourth quarter results beat expectations and adjusted operating profit came in more than double previous estimates. 

This represents a double bumper payday for the Norwegian government. Not only is Equinor majority state-owned, it will also pay a record $49.9 billion in taxes due to the high rate of tax on oil companies in Norway, as the combined marginal tax rate is set at 78%.  European gas prices weakened considerably in the fourth quarter but it’s still forecasting $20 billion cash flow from operations annually until 2030.

“It’s committing to continuing to invest in its oil and gas project portfolio to ensure long-term energy security but it’s also been laying the groundwork to be a renewable energy giant and has already forged a reputation as an offshore wind leader. It’s developing the world’s largest offshore floating wind farm, Dogger Bank off the North East coast of England, which will be capable of powering 6 million homes with production due to start later this year.”

Find out more about Hargreaves Lansdown.

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