27 February 2024
Market News
Recent statements from Bank of England ("BOE") officials indicate a reluctance to ease their inflation-fighting stance, despite confirming a technical recession late last year. Chief economist, Huw Pill, emphasised the need for several more months of data before being convinced that inflation would fall and remain at the BOE’s 2% target. Monetary Policy Committee members, Megan Greene and Catherine Mann, acknowledged some easing in wage pressures but highlighted the ongoing tightness in the labour market. Governor Andrew Bailey, steering focus toward positive forward-looking data, such as purchasing managers’ indexes and sentiment indicators, remains cautious about easing. Former BOE chief economist, Andy Haldane, once hawkish, now warns of deepening the UK recession if interest rate cuts are not implemented soon.
In response, Bailey clarified that inflation doesn't need to hit the BOE’s target before rate cuts are considered. However, he cautioned against interpreting this as an endorsement of market predictions. Economists surveyed by Reuters lean towards a rate cut in the third quarter of 2024, with 66% supporting this view. The year-end outlook anticipates a base rate of 4.75%.
The surge in UK real wages is seen as a potential driver for economic recovery. Economists anticipate a 2.6% increase in real wages this year, with positive contributions from private sector earnings and a 5.1% increase in the National Living Wage. Deloitte's chief economist, Ian Stewart, sees favourable conditions with a downward trajectory for inflation, positive real earnings and falling mortgage rates, potentially resulting in a 0.3% expansion in the first quarter gross domestic product figures.
Despite these positive signs, the EY Item Club expects UK business investment to remain subdued in 2024, attributing it to high interest rates deterring corporates from borrowing. Business lending is forecasted to increase by only 0.8% this year, reflecting restrictive borrowing costs and sluggish domestic growth. Financial services trade body, TheCityUK, advocates for policies to boost London's appeal for initial public offerings, highlighting the need for regulatory flexibility, tax incentives and a supportive ecosystem.
Rightmove data reveals the first annual rise in UK property prices since August, signalling a potential recovery in the housing market. The average asking prices on its portal increased 0.1% year-on-year in February, with a 0.9% monthly increase, aligning with the 10-year average. However, the fall in UK mortgage rates appears to have halted, with several high street lenders increasing the cost of home loans in recent weeks. This change reflects a slowing trend towards more competitive offers as the prospect of an imminent BOE rate cut fades. Homeowners refinancing their mortgages this year are bracing for a significant jump in payments, with rates higher than they were two years ago. BOE analysis suggests households due to refinance over the next two years could see a 39% increase in monthly payments.
Rio Tinto, the global mining group, announced its end of year results last week, which saw its share price close the week approximately 5.8% lower. The company announced a 19% decline in net profits to $10.1 billion, compared to $12.4 billion in the previous year. This decline in earnings was largely due to lower prices for commodities, notably aluminium. The company also announced a 15% decline in its free cash flow to $7.7 billion, compared to $9 billion in the previous year. This left a negative sentiment among investors, resulting in the share price decline.
HSBC Holdings saw its share price close the week approximately 6.5% lower after the company announced its end of year results. The company reported profit before tax of $30.4 billion, lower than analyst expectations of $34.1 billion, with a notable decline in its fourth quarter results where profit before tax was $1 billion, a decline of $4.1 billion when compared to last year. This was largely due to the recognition of an impairment charge in the period of $3 billion relating to an investment in HSBC’s associate, Bank of Communications.
Mondi, the UK based packaging and paper company, announced its latest company results last week, which saw the company’s share price end the week approximately 3.7% higher. The company reported strong cash generation with cash generated from operations increasing to €1.3 billion, slightly higher than last year’s figure. Mondi appears to have maintained a strong order book, which has continued supporting its price increase initiatives and has therefore been a strong contributor to its strong cash generation. Overall, the market appeared to view these results positively, contributing to the buoyed share price performance.
Market Commentary prepared by Walker Crips Investment Management Limited.
This publication is intended to be Walker Crips Investment Management's own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price or income of any non-sterling denominated investment. Nothing in this document constitutes advice to undertake a transaction, and if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips. Walker Crips Investment Management Limited is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange. Registered office: Old Change House, 128 Queen Victoria Street, London, EC4V 4BJ. Registered in England and Wales number 4774117.
Important Note
No news or research content is a recommendation to deal. It is important to remember that the value of investments and the income from them can go down as well as up, so you could get back less than you invest. If you have any doubts about the suitability of any investment for your circumstances, you should contact your financial advisor.
