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HL commentary as it happens
Friday 6th February
FTSE opens down this morning
The FTSE 100 opened marginally down this morning, but there was little in the way of big UK stock news to nudge it in either direction. As expected, the Bank of England (BoE) held interest rates firm at 3.75% on Thursday. But the 5-4 vote split was much narrower than markets had expected, given forecasts the day prior to the announcement implied a 95% chance of rates staying flat. The BoE stated that inflation risks have diminished and that inflation is now expected to fall close to its 2% target by April and to remain around this level thereafter. There’s now a nearly 50% chance of rates being cut by 0.25 percentage points in March, if more evidence of a cooling labour market emerges. HL’s house view is for two cuts this year – though this is data dependent. The improved probability of further rate cuts, plus speculation around Kier Starmer's longevity at number 10, are putting pressure on Sterling this morning.
Thursday 5th February
Bank of England has left interest rates on hold at 3.75%
As expected, the Bank of England Monetary Policy Committee has voted to hold rates at 3.75%. The voting split is revealing – the Committee voted by a majority of 5 to 4 to maintain Bank Rate at 3.75%. Four members voted to reduce base rate to 3.5%, which gives indication of forward guidance. With inflation at 3.4%, there is still some way to get it back to the 2% target, and higher rates are a key control for the Bank, but this vote split suggests that the first cut of the year may come as soon as March if economic data weakens. Our house view is that the Committee cuts two times this year – data dependent. The Office of Budget Responsibility (OBR) expects inflation to finish this year at 2.5% and, coupled with growth expectations for the UK, which – while downgraded by the OBR to 1.4% – is positive for the year ahead, negating the need for drastic cuts.
Today’s hold was much anticipated by the market, and as such we have seen limited movement in both equity and bond markets. The pound fell ahead of the announcement, but this was likely linked to domestic political uncertainty rather than monetary policy. Gilt yields have been in a rising trend since lows hit in mid-January and broadly linked to US Treasury yield increases, following the announcement of Kevin Warsh as the Trump’s nominee to take over as Federal Reserve Chair. His voting record suggests that he will take a hawkish approach to rates once appointed. Inflation continues to moderate, but US policies risk overstimulating an already growing economy and this could cause government bond contagion in the UK. Zooming out, the 10-year gilt yield remains very much in the middle of its range over the last 12 months. So, while the rise has been near 10bps since the start of this week, it doesn’t leave yields in an unusual position relative to recent history
Brent Crude down 2% ahead of US-Iranian talks
Brent Crude is down 2% to around $68 a barrel. Prices continue to track the volatile political mood between Washington and Tehran, with the latest confirmation by Iranian officials of talks in Oman tomorrow, helping to ease risk premiums for now. Over-supply concerns, dollar strength and forecasts of relief from the polar vortex that’s engulfed much of the eastern seaboard could see further near-term pressure on prices.
US stock futures down after bruising session for tech shares
US stock futures suggest little movement when Wall Street re-opens. Chip stocks were broadly down yesterday and speculators also upped the pressure on software companies. The prospect of AI tools allowing enterprises to effortlessly build their own bespoke analytical tools will be weighing on developers’ minds. But it’s still a huge leap of faith to back away from tried-and-tested providers of business-critical applications. Just like last year’s Deep Seek moment, this is unlikely to be a storm that sinks all ships.
FTSE drifts ahead of BoE and ECB rate decisions
The FTSE has opened down this morning. Central bank policy and commentary could provide some direction later on, with rate decisions due from both the Bank of England (BoE) and European Central Bank (ECB). There are no changes expected to be announced in either London or Frankfurt. The ECB’s followed a steeper easing slope with rates now stable at 2.0% since June last year. With yesterday’s Eurozone inflation figure of 1.7% coming in way below target, there may be some growing calls for a further drop in borrowing rates. That could go some way towards halting the Euro’s ascendancy against the dollar, providing some much-needed relief for exporters.
Recent BoE votes have been far more tense than the relative unity seen by European rate setters. Once again, today’s vote split will provide vital clues around the likely direction of travel. A surprise uptick in December’s inflation to 3.4% was a timely reminder of the tightrope being walked by UK policymakers. With unemployment of 5.1% at the highest level since April 2021, both equity investors and job seekers will be hoping for more than just one quarter-point cut this year. But with inflation not yet slain, that’s far from a done deal.
Wednesday 4th February
US President Donald Trump's plans to accrue critical minerals helped niche mining stocks
Yesterday’s news that US President Donald Trump plans to invest $12bn accruing critical minerals helped niche mining stocks – with many up double digits in trading. The President is keen to break the US dependence on China for critical minerals, a key factor in recent trade negotiations. China dominates critical minerals supply chains, not just across Asia, but Africa and South America too – buying up mines, trading routes and manufacturing over many years. It is estimated that China has more than 90% of the refining capabilities for critical minerals – placing it in a position of power for any nation or company looking to produce chips, electric vehicles, aid the energy transition, build high tech military equipment – the list goes on.
Mixed start for FTSE 100
It’s a mixed start for the FTSE 100 – a hangover from tech stock worries causing market wobbles yesterday. Markets seemed concerned that rather than increase profitability, AI growth will force the commoditisation of services, squeezing margins. The NASDAQ fell 1.43% as a result on Tuesday, and the S&P 500 was down 0.84%. This negativity has continued into today’s trading for tech sectors across Asia and Europe.
Tuesday 3rd February
The oil price has fallen on news that the US is in talks with Iran in a bid to ease tensions in the Middle East
News that the US is in talks with Iran has also benefited stocks – in anticipation that US support will be able to bring an end to Iran’s war with Israel. The oil price has fallen as a result.
Donald Trump has announced plans to cut India trade tariffs from 50% to 18%, buoying stock markets
Asia markets have been driven higher by positive news of a deal between US President, Donald Trump, and Indian Prime Minister, Narendra Modi. Trump announced plans on social media that he would be cutting India trade tariffs from 50% to 18%, buoying stock markets. The 50% tariff was an aggregate of 25% base tariffs plus an additional punitive measure as India had been buying oil from Russia.
Gold has rebounded to start the week, as speculators look to take advantage of last week’s slump
Gold rose more than 4% yesterday as speculators look to take advantage of last week’s slump. It has been a rollercoaster start to the year for both gold and silver, with gold rising near 30% to $5,500 on 29th January driven by concerns about global geopolitics, US Fed independence and President Donald Trump’s endorsement of the weak dollar. Following the rumours that rate hawk, Kevin Warsh, had received the Presidential nomination to be the next Federal Reserve Chair, the US dollar rose in value, sparking a considerable sell off in gold. The market is reading Warsh’s nomination as a sign of rate stability – and potentially a higher for longer stance, based on his voting record. We consider his recent rhetoric to be more informing. He has spoken publicly against current levels, saying that rates should be lower, which is more in tune with Trump’s beliefs, hence the nomination.
FTSE 100 nudges up in early trade
The FTSE 100 is in positive territory this morning, led by rises across the mining sector. This market report is at risk of becoming a gold bug’s blog as, once again, the precious metal dominates investment flows.
Monday 2nd February
Iran de-escalation releases pressure on oil prices.
Brent Crude prices are down over 5% to around $65.6 per barrel after the White House and Tehran made positive noises about diplomacy. But the US Navy continues to maintain a high presence in the Middle-East, so the potential for tensions, and oil prices to ratchet up again remains a possibility.
US stock futures weak as inflation fear returns.
Futures for all the major US indices are pointing downwards this morning. Friday’s non-farm payroll print is the key economic data point to focus on after the tail end of last week revealed a month-on-month increase in producer prices of 0.5%, higher than forecast and the biggest increase in five months. Forecasters are expecting the addition of 70,000 hires, an acceleration from 50,000. A significantly higher number has the potential to dampen expectations of further rate cuts by the Fed and take the steam out of equity markets.
Rate decisions ahead in UK, EU and down under.
It's a big week for central bank meetings, with the Reserve Bank of Australia first up and expected to buck the prevailing trend with a rate rise to 3.85% following higher than expected inflation and strong employment data. Closer to home markets aren’t expecting any change to lending costs at the European Central Bank (now at 2.0%) or the Bank of England (3.75%). But with UK unemployment at a four-year high of 5.1%, jobseekers will be hoping that Andrew Bailey’s comments will set the scene for further reductions in the base rate.
Metal prices continue to fall
Mining stocks are likely to feel the heat as metal prices scramble to find a floor. Oil prices are also trending the wrong way for investors in commodity-focused companies. The silver bubble well and truly popped on Friday after lenders upped their margin calls to speculators. That followed Donald Trump’s nomination of Kevin Warsh, one of the more hawkish contenders in the race, for the top job at the Federal Reserve bank.
There’s no sign of a silver lining this morning either, with another double-digit decline showing on traders’ screens. Gold is following a similar but far less pronounced pattern. In industrial metals, Copper has also seen a flight of speculative funds, although here, the long-term demand runway combined with limited new production set to come on stream should provide some support.