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HL commentary as it happens
Tuesday 21st May
21% of people have stopped saving
We’ve gone into survival mode, after being seized by the siege mentality. A fifth of people have stopped saving or cut back over the past six months. Significant numbers have also stopped or cut pension contributions or stopped buying insurance. As pressures have eased for some people, a minority have started building these things back up. However, we’re at least twice as likely to have cut back as we are to have rebuilt.
In the past few months, the cost-of-living crisis has eased a little for some people. But unfortunately, they’re reluctant to loosen their grip on the siege mentality completely. Just one in 20 people have restarted pension or SIPP contributions in the past six months. Meanwhile, only one in 20 restarted investments in things like stocks and shares ISAs, and fewer than one in ten restarted savings.
Life hasn’t got easier for everyone. The HL Savings & Resilience Barometer found that the proportion of those on the lowest incomes scoring well for financial resilience fell from 3% in 2019 to 2%. However, for many higher earners, things are getting easier. Some 86% of the top fifth of earners scored well for resilience this year – up from 77% in 2019. It means many of them have the opportunity to revisit their longer-term plans and make up for lost time.
FTSE 100 opens down, missing out on tech enthusiasm
Tech has taken its turn again to be the bright spot in global markets, and this has led the NASDAQ composite to close at a record high of 16,794.87.
Given the absence of big tech names on the FTSE 100, it’s no big surprise that the index has opened down 0.4% today back below the 8,400 mark. This comes as oil prices have retreated from recent gains, with Brent Crude heading back towards $83 per barrel, as two of the Fed’s Vice Chairs, Philip Jefferson and Michael Barr, voiced continuing concerns over the direction of US inflation. Gold and copper prices have also retreated a little but that needs to be seen in the context of recent record highs.
Monday 20th May
UK inflation in focus this week, amid speculation about when cuts will come from the Bank of England.
The CPI inflation data due out on Wednesday for the UK is expected to show inflation sharply slowed in April. But even if the longed for 2% target is reached, Bank of England policymakers have stressed that it will need confidence that inflation will consistently stay at or near the target before they start reducing borrowing costs.
They will be mindful that pay growth remains hot, with bonuses in March the highest on record. The concern is that hefty wage bills may be passed on in the form of higher prices for goods and services. Unemployment may have edged up, but inactivity rates have also shifted higher, with the numbers of long-term sick limiting the pools of available labour. This does make the Bank of England decision to cut rates harder, and they’ll want to see more data indicating an easing of pressures, which is why an August rate cut is still, on balance, looking more likely.
Brent Crude hovers above $84 a barrel, creeping up amid speculation about the Saudi King’s health.
Brent Crude prices have been edging up amid the fresh geopolitical uncertainty prompted by the reported deaths of key figures in the Iranian regime, while there are also concerns about the health of King Salman of Saudi Arabia. His son, Crown Prince Mohammed bin Salman, has postponed a visit to Japan, due to his 89-year-old father’s illness, reported to be a lung condition. However, the moves are relatively muted, as traders have an eye on the next OPEC meeting due to begin on 1 June, where members will decide on future production quotas. If an increase isn’t agreed, it could add fresh strength to oil prices. China’s stimulus measures, with authorities going on home buying sprees to shore up the property market, could also help support crude if these policies help stimulate more domestic confidence and shore up demand for energy in the wider economy.
US interest rate cuts are eyed, helping support gold prices.
Nervousness about the direction of geopolitics has pushed gold to fresh record highs, reaching $2,438 per ounce. Demand for the safe-haven asset has surged as investors have been digesting news of the death of Iran’s President Ebrahim Raisi who is believed to have been killed with others including foreign minister Hossein Amir-Abdollahian in a helicopter crash. Demand for the metal has also likely to have been pushed up by renewed speculation that the Federal Reserve will be minded to cut interest rates a couple of times this year.
Recent data is indicating inflation is staying on the right downwards trajectory, and there are other signs of demand being drawn out of the economy, such as retail sales coming in softer. The dollar has edged a little lower, which makes gold slightly cheaper for overseas buyers, and a lower rate environment also reduces the profitability of investing in Treasuries, US government bonds, increasing the allure of gold as the opportunity cost of holding it falls. China has been bulk buying gold as well, which has helped support the higher prices, a trend which doesn’t look set to wane any time soon.
FTSE 100 opens higher as mining stocks and energy giants gain ground.
The defensive nature of the FTSE 100 has come to the fore, with the index rising in early trade amid fresh uncertainty in the Middle East. Mining stocks and energy giants are on the front foot in early trade, while shares in defence contractors have also edged up.
Wednesday 15th May
Taylor Swift tour set to help boost the UK economy by £1 billion
The frenzy among Swifties is expected to bring a boost to the UK economy, with a new report suggesting that the US singing sensation’s Eras tour could boost spend by around £1 billion, according to Barclays. It’s not surprising, given the fight for tickets to see Taylor Swift, that fans look set to spend big around their stadium visits. For many this a ‘once in a lifetime’ occasion. Spend in hotels, restaurants and bars around big venues is set to be boosted, and it’s likely that clothing retailers will see an upswing in business, as fans find the perfect outfit to wear to see their icon. Beyonce has been there, done that, with the Beyonce bounce, blamed for pushing up inflation in Sweden during her tour. But it’s highly unlikely Bank of England policymakers will delay an interest rate cut on Swift inflationary pressures alone.
Fresh skirmishes in the US-China trade wars
The People’s Bank of China has held off from injecting the faltering economy with more stimulus, opting to keep a key one-year lending rate on hold. Concern has also crept back in about the ongoing trade war between the US and China, after the Biden administration imposed new tariffs on Chinese imports. Duties are being ratcheted up across a range of key goods, from electric cars to solar cells, semiconductors, and steel. It’s not a coincidence that this fresh skirmish in the industrial battle between the two nations is showing up ahead of the US Presidential election, with Biden’s team wanting to demonstrate to voters that they are putting American companies first, but these tit for tat moves risk disrupting global trade and weakening overall economic conditions, which is proving unsettling for investors, particularly on Asian markets.
FTSE 100 opens higher shrugging off interest rates concerns
The feel-good factor is still washing through London markets as investors spy interest rate cuts on the horizon, despite signs prices are proving sticky. Although wage growth is staying stubborn in the UK and producer prices came in hotter than expected in the US, investors are staying pretty sanguine. Markets still expecting painful borrowing costs to ease this year, even though cuts are now expected to come later than hoped. The key CPI reading in the United States later will be crucial as far as sentiment is concerned, as it looks set to indicate that patience will be needed, before the Fed will feel comfortable about lowering rates. The risk is that if interest rates linger for a lot longer, it will push the economy into a much tougher position, with weaker growth prospects, which could erase some of the recent gains on markets. Brent crude has edged up slightly, but remains considerably weaker, compared to the highs reached last month, as questions pop up about the demand for energy in the world’s largest economy.