HL LIVE
HL commentary as it happens
Tuesday 13th May
Wage growth slows as weakness in jobs market grows
Wages are rising ahead of inflation, so we’re still feeling better off with each passing month. The most recent HL Savings & Resilience Barometer shows the average household now has £196 left at the end of the month, which is why people are able to put aside 5.5% of their income for the future. Meanwhile, employment has risen over the past year, unemployment hasn’t moved over the previous quarter and economic activity has fallen.
However, on a more miserable note, wage rises have continued to slow, and according to the Bank of England, this is just the start. It expects wages to keep slowing more significantly during the rest of the year, with private sector regular pay growth falling from 5.6% to around 3.75%. Pay is typically revisited between April and June, so we will see any potentially lower pay rises filter through at that stage.
This is positive news for the Bank of England, which is hoping that an easing in wage growth will remove the pressure to raise prices, and help keep a lid on inflation. It’s not such great news for anyone trying to pay the bills.
Meanwhile, unemployment has risen over both the quarter and the year, and vacancies have fallen for an impressive 34th month in a row. The number of vacancies looks particularly miserable when compared to the growing number of people looking for work.
Some of this will be the impact of the hike in employers’ taxes in April, as workplaces decided against hiring additional staff in an effort to keep wage bills under control. This is highly unlikely to be the end of the bad news. The Bank of England expects unemployment to rise from around 4.6% now to 5% in two years’ time, before falling back a little.
Brent Crude down a touch to around $64.9 per barrel
Tariff optimism hasn’t been enough to maintain the upward trajectory of Brent Crude oil prices, which are now sitting at around $64.9 per barrel. The loosening supply environment is keeping a lid on momentum, with OPEC+ signalling increased output in May and June and traders evaluating the prospect of lighter sanctions on Iran and Russia.
Sun shines on British retailers with April footfall up 7.2%
UK investors have several data points to digest this morning. The British Retail Consortium’s latest figures showed a 7.2% increase in footfall to shopping venues in April. This was boosted both by the favourable timing of Easter and the sunniest April on record. A more meaningful comparison looked at March and April combined. Here the trend still moved in the right direction but to the much smaller tune of 0.2% which is unlikely to offset the impact of higher wages and employers’ National Insurance contributions on profits.
Investors embrace US/China trade agreement
The FTSE 100 hasn’t quite echoed the enthusiasm seen in US and Asian markets for the partial roll-back of tariffs between trading giants the US and China. Asian markets continued to bask in the glow of a less onerous outlook for international trade, following strong gains on Wall Street, where stocks have now all but eradicated losses seen so far this year. The tech bulls were out in force, sending the Nasdaq composite up 4.3% as companies with Chinese exposure rallied strongly. Chip stocks also breathed a sigh of relief, and in aggregate, the magnificent seven gained over $800bn in value, the biggest move in over a month. Conversely, the safe haven of gold gave up 3%.
But with tariff cuts only agreed between Beijing and Washington for 90 days, there’s still scope for further shocks over that time frame. Currently, US stock futures suggest traders may take some profits when markets open. US consumer prices are a key read out later today, with core prices expected to have risen 2.8% in the twelve months to the end of April. If it comes in weaker than expected that may boost hopes that the Fed can resume cutting lending rates.
Monday 12th May
US and China agree sharp tariff reductions
The pause button has once again been pressed on the most onerous tariffs threatening the world economy. The move by the US and China to sharply reduce tariffs has been welcomed with open arms by investors. US futures indicate a big incoming wave of optimism as the big powers demonstrate a desire for compromise. The S&P 500 looks set to open 2.8% higher as the worst-case scenario of feared tariff effects recedes. European bourses are on the front foot, but enthusiasm has been curbed by the element of uncertainty. Although the CAC 40 has risen sharply, and the DAX is up 1%, the Frankfurt based index is off earlier highs. The European Union is still in the queue when it comes to striking a trade deal. Although there are hopes that just like the UK and China, a sharp de-escalation will be achieved, it is far from conclusive.
The most immediate relief for American businesses will come from the easing of supply chain snarl ups as some flows of products have been frozen, with goods held on ships or in warehouses. Concerns about the sharply higher cost of imports are also likely to be in retreat. American retailers, which source cheaper products from China or have manufacturing bases in the country, were bracing for onerous charges and a profit squeeze. Although with the tariff pause, prices will still go up, it’s no-where near the frighteningly high levels threatened. The deal is also set to boost business and consumer confidence which should help investment and spending going forward.
Investors are showing renewed appetite for risk and are retreating from safe havens. Gold has dipped by around 3%, falling back to its lowest level in around a month amid the easing of trade tensions. However, the precious metal is still 25% higher since the start of the year, indicating that nervousness remains about the global outlook.
Brent Crude heads near a two-week high
Brent Crude has headed above $66 a barrel as traders assess better prospects and energy demand in key markets, as trade truce emerges - given that the US and China are the world’s top oil consumers. As oil prices reach the highest level in almost two weeks, it's helped propel shares of energy giants higher. Nevertheless, prices appear to be being held back by indications that OPEC+ member countries look set to unwind earlier output cuts and accelerate production next month.
Gold prices fall back more than 1% to $3275 an ounce
As fears about the pain a prolonged trade war could inflict on the global economy subside, investors seem keener to take more risks and are creeping out of safe haven shelters. Gold has hit a one week low, with the precious metal falling again after the positive outcome of the trade talks. Geo-political risk has also eased a little, with the ceasefire between India and Pakistan coming into force, despite reports of violations from both sides.
Stocks rise after fruitful negotiations between the US and China
There’s a swell of confidence at the start of the week. Hopes are high for significant deal between the US and China after fruitful weekend negotiations. The FTSE 100 has a spring in its step in early trade, with European bourses also seeing optimism spread. Progress was made on key sticking points for both countries and talks were extended as trade dominos fell into place. With more details about the outcome expected later, there’s optimism around that the spat between the world’s two largest economies won’t inflict as much damage globally as had been feared.
Trump appears keener to do a deal after a forecast from Goldman Sachs was released detailing that inflation, which he promised to bring down, could double by the end of the year, if fewer, cheaper goods arrive at US ports. US stocks are set for a rebound, after a flat close on Friday, with enthusiasm lifting as worries ease about the potential for stagflation to set in. Some of the optimism could wane, if concrete plan to reduce tariffs don’t emerge, and the ‘deal’ just heralds the start of a series of negotiations. However, the intention from both sides to come to an agreement is clear, and that should help keep up more positive momentum.
Friday 9th May
Brent Crude bounces to around $63 per barrel
Brent Crude prices have latched on to the potential for further trade deals, but pressures remain on the supply side as OPEC+ nations target increased production. Speculation is also building around a US-Iranian deal setting out rules for Tehran’s nuclear development activities which could see some oil sanctions lifted. The parties are thought to be convening in Oman this weekend.
As for Russia, the outlook for supply from the world’s third largest producer hinges on progress towards an end to the war with Ukraine. But there are claims that Vladmir Putin’s 3-day ceasefire has already been broken, and US calls for a longer 30-day respite could see further sanctions imposed if fighting continues.
Meanwhile, Keir Starmer is due to unveil the UK’s largest ever sanction package later today at the Joint Expeditionary Force meeting in Oslo. It’s hoped the measures will curtail the activity of Russia’s ‘Shadow Fleet’ of over 100 oil tankers which have made export bans on fossil fuels difficult to enforce.
EU plays hardball on trade
European indices are also in positive territory. But, while hopes are rising of a trade deal between Britain and its largest trading partner the EU, Brussels is taking a tougher stance against the White House as it mulls further tariffs on a raft of US products including planes, cars and bourbon.
Investors eye progress on China trade discussions
US stocks were up slightly on the day and are largely flat in pre-market trading. Asian stocks trended broadly upwards overnight as attention turns to this weekend’s trade talks with China. Donald Trump’s hinted there may be some scope to reduce the 145% border tax on Chinese goods if discussions go well. So far, the measures haven’t done huge damage to China’s economy. Exports from the People’s Republic grew 8.1% in April much higher than the 1.9% expected. But, notably, shipments to the US were down 2.5%. That cuts both ways with imports from America falling 4.7%, reflecting the 125% tariff imposed by Beijing. But US relations with China aren’t quite as friendly as they are with Whitehall and there’s speculation that these negotiations could be more protracted.
FTSE sentiment rises on UK trade agreement with US
The diplomatic offensive presented conjointly by President Trump and Keir Starmer from Washington and Solihull has ignited a feint spark of optimism in equity markets. The coincidence with VE day commemorations seemed designed to underline the special relationship between the two allies. With details emerging late in the day it wasn’t enough to prevent a down day on the FTSE - but sentiment has picked up this morning with the index set to open higher. There may be some disappointment that the baseline 10% tariffs remain in place but for certain industries the picture on trade restrictions are looking up.
While pharmaceuticals have escaped the US Presidents wrath for now, UK companies in the sector and other knowledge-intensive areas have been promised preferential treatment. As yet, that’s not come at the expense of lifting the 2% Digital Services Tax Britain applied to the likes of YouTube and eBay, but with more talks to come on a separate digital services deal, it’s likely to form part of negotiations.
Thursday 8th May
The Bank of England has cut interest rates to 4.25%
Given that the UK economy is decelerating into a dark tunnel of uncertainty, it comes as little surprise that policymakers have opted for an interest rate cut. Decision makers round the table want to avoid activity grinding to a complete halt. Two members voted for a 50 basis point cut, given the risks ahead, while two voted for a hold, but the majority of five considered a quarter of a percentage point reduction to be the most sensible move for now.
By cutting borrowing costs, they’re hoping to relieve pressure on businesses, stimulate demand in the economy and shine a light towards a recovery. Although the framework of a trade deal with the US is expected to be announced later, which should alleviate some unpredictability for businesses, there is still plenty of uncertainty around about the global effects of trade wars on the UK economy.
Inflation may still be above target, but deflationary forces are at work, which could have worrisome consequences for growth and are likely to act as a dampener on price rises. The mighty service sector has shrunk for the first time in 18 months, as the tariff turmoil knocks business confidence, clients become more risk averse and work orders are reduced.
A recession rather than stubborn inflation is the ogre to avoid right now. The niggling worry of high pay demands looks set to be fading into the background given that hirings have been scaled back by many firms. There is also the chance that an influx of cheaper Chinese-made goods could infiltrate the retail scene and land in virtual baskets. Cut price giants Shein and Temu have increased ad spending in the UK and other parts of Europe, as the US looks like a much more hostile environment. With worries about inflation evaporating and fears about growth rising, it looks like this rate cut could be followed by at least two – and potentially three - more this year.
Oil climbs but still sits at depressed levels
Brent oil climbed back above $61 a barrel on Thursday, helped by a bigger-than-expected drop in U.S. crude stockpiles and hints of a potential supply correction. But despite the rebound, prices are still hovering near multi-year lows, with lingering pressure from weak demand signals, rising gasoline prices, and ongoing U.S.-China trade uncertainty. On top of that, OPEC+ is moving to ramp up production, and the Fed held rates steady while warning that economic uncertainty isn’t going anywhere.
UK interest rates expected to see a cut after US holds firm
There’s a fresh sense of optimism in the air, with the FTSE 100 opening 0.3% higher as markets react to the latest trade news. The US and China may finally be sitting down to talk and, closer to home, there’s expected to be a UK-US agreement announced later today. The auto industry will be paying particular attention, given the current 25% auto tariff is a tough pill to swallow. Aside from trade talks, it’s central bank decisions that are dominating the newsreel this week. While the US Fed held things steady, UK rates are expected to see some action, as the combination of a weaker growth outlook and better than expected inflation offers enough wiggle room to cut.
It wasn’t a huge surprise to see US rates unchanged, but it will come as a blow to President Trump, who has been pushing hard for the Fed to abandon its independence and deliver lower rates for Americans. For markets, a stable and independent Fed is a positive, and comments around the risks of both higher inflation and unemployment didn’t do much to upset the apple cart. US markets ended the day in the green, and futures point to a positive open today as investors choose to focus on the potential US-China meeting this weekend - at this stage, any sign of easing tensions is likely to be welcomed.