When it comes to the latest market moves, investment professionals have been sharing their analysis with Wealth DFM as follows:
Lindsay James, investment strategist at Quilter Investors is thinking about the direction of interest rates and when we might start to see a change commenting:
“Markets have made a fairly cautious start to this week, with strong macroeconomic data in the US leading to an investor re-think about the paths of rates from here. They are not only considering what rates will do over the next 18 months but in the medium to long term too, with the 10-year treasury yield up nearly 30bps in the past two trading days. This is partly reflective of comments from Fed members signalling they are in no hurry to cut rates despite more favourable inflation figures, but also due to the raft of strong economic data we have seen in recent days. This includes not only a blow-out jobs report on Friday, but also a better-than-expected reading from the ISM services index on Monday, coinciding with Deutsche Bank capitulating on its expectations for a recession in 2024 with just 0.3% GDP growth over the year, to now forecasting it will be avoided and the economy will see real GDP growth of 1.9% in the same period. This is a stark a difference and a clear demonstration of how the pandemic turned the economic cycle on its head.
“With the recent stock market rally in the fourth quarter of last year having largely come on the back of signs that rates would soon fall, it doesn’t seem unreasonable that the first quarter of this year could see some of these gains slip a little, even if ultimately of course it is far better for all that the recession is dodged and rates take a little longer to return to neutral.
“Chinese markets have somewhat the opposite problem currently, with a dearth of economic good news matched by government institutions talking up the likelihood of stimulus. This is already on the back of much government intervention in the market to help stem the tide with curbs on short selling and ‘encouragement’ of investment institutions to step in more meaningfully. China’s malaise is getting government attention at the highest level. This has prompted markets to rally this morning, but significant policy action will be required to revive a market that has declined nearly 30% in the past 12 months.”
In her morning update,Susannah Streeter, head of money and markets, Hargreaves Lansdown, drills down into BP and also shares analysis on international markets, economies and global commodities saying:
‘The priorities of BP’s new CEO Murray Auchincloss have been made clear. Although on appointment he pledged that BP’s strategy to transition from an international oil company to an integrated energy company was unchanged, the big share buy-back announcement shows the immediate focus is on boosting the share price and returning value to shareholders. BP also said that shareholders would get a further $3.5 billion in buybacks in the months to come, and more in 2025.
This strategy is being pursued even though BP reported a sharp drop in underlying annual profit from $27.7 billion to $13.8 billion as oil and gas prices were lower and refining profit margins also weakened.
However, the company continues to generate highly impressive cash flows so there will be disappointment that BP is not using this strength to go farther and faster with its green transition. The emerging focus on cleaner forms of energy, are highly capital intensive but the dial is not being moved on capital expenditure guidance for 2024 of around $16bn and it looks likely to stay at a similar level till at least 2030. The focus is now going to be trained on simplifying the business, providing stability for investors, with what Auchincloss calls ‘more pragmatism’.
BP’s results gave lift to the London market, with Shell’s shares also rising more than 1% in early trade amid BP’s forecast of higher global demand for crude going forward. Retailers including the grocers have also gained ground, with the latest Barclaycard data showing that even though consumer card spending grew just 3.1% in January, supermarkets bucked that trend, recording growth of 5.2%, more than double the rate in December. As storms swirled and Christmas festivities subsided, people shunned eating out and hunkered down at home, ordering takeaways to watch favourite streamed series. The trend appears to have given a boost to Deliveroo’s share price, which also rose in early trade. High street stalwarts Next and Marks and Spencer have also been buoyed by the report which indicated that consumer confidence had reached the highest in more than two years. But it’s been increasingly tough for restaurants, with card spending dropping month on month by 11.6%.
Wary sentiment from central bankers, cautious about stubborn inflation, may hold back gains again on Wall Street. Australia’s Reserve Bank kept rates on hold at 4.35%, but the board warned it could not rule out further monetary tightening. It comes after Fed Chair Jerome Powell also shot down expectations of an early Spring rate cut, comments which have turned investors more watchful, with recent exuberance fizzling away this week. With the US economy bounding along, as evidenced by the latest services sector growth snapshot, policymakers still want to keep a tighter rein on demand, so high borrowing costs are likely to linger for longer.
Hong Kong’s Hang Seng surged 4% amid signs that a drip feed of stimulus measures by authorities appear to be working. From this week the People’s Bank of China has been allowing banks to hold smaller cash reserves, a strategy aimed at injecting around $140 billion into the banking system . It’s also allowed a widening of uses for commercial property lending to help support beleaguered real estate firms. Investors are still hanging out for more stimulus action, but there are signs a little more confidence may be ebbing back into the financial markets.
Gaza ceasefire talks are in sharp focus, helping oil steady around $78 dollars a barrel. There are hopes that if a truce is agreed, it would have a calming influence across the region. However, it’s still unclear how long it would last, and whether tensions with Iran-backed groups would dissipate, with Houthi rebel attacks in the Red Sea still causing huge disruption to the global shipping industry.
There was no glitch in the sales pitch for Nintendo this Christmas as Switch sales soared helping it lift its profit outlook. A festive surge of enthusiasm for the console was bigger than estimates, and Nintendo is now expected to shift 15.5 million devices, up from 15 million as forecast for the year ending March. The Switch may be ageing, but with the right hits to draw in the crowds, it’s clear there is still life in the 8-year old device. Like Mattel before it, a movie boost is helping draw fresh fans to the brand, with the Super Mario Bros. Movie helping to super-charge sales. The Super Mario Bros halo effect won’t last forever without a significant upgrade and the expectation that Switch 2 will be released later this year.’’
