Temperature check in financial markets shows mercury rising as recession worries ease

Temperature monitoring in financial markets shows the mercury rising as recession worries ease amid some signs of consumer resilience.

The FTSE 100 opened 1% higher, taking the lead in Asia and Wall Street on Friday.

Although stronger than expected, US retail sales released at the end of the week were partly driven by higher prices rather than buyers’ confidence to pile more into their baskets.

The data helped ease unease over impending recessions.

Supply worries once again overtook concern over weaker demand in oil markets, with Brent Crude rising above $103 a barrel, helping to push stock prices higher energy giants at the start of trading.

There are no signs of an imminent breakthrough in the US administration’s efforts to persuade Gulf states to pump more oil, and there is heightened uncertainty about the impact of a possible price cap on Russian crude as the war in Ukraine prepares for its next offensive.

These factors are conspiring to drive prices higher, even as concerns persist over further spikes in Covid cases in China, with the zero-Covid strategy still threatening to lead to further supply chain hitches and lower demand. oil demand.

With investors looking willing to take on more risk, the safe-haven dollar retreated slightly as the euro gained ground in an attempt to escape parity, trading just above $1.01.

Thursday’s European Central Bank meeting will be closely watched given its lag in the rate hike curve, causing further weakness for the euro.

A 25 basis point rise is expected for the first time in 11 years, and investors will latch onto clues on the future trajectory.

The big difficulty that hangs over the euro zone, and particularly gas-hungry countries like Germany, is that the Nordstream 1 gas pipeline will not reopen as planned on Thursday.

Any hint of this could lead to further weakness in the euro given the detrimental effect that derailed supplies would have on economies.

The pound also edged above $1.19, but still languishes around lows not seen since the early days of the pandemic.

Political uncertainty is brewing in the UK, with increasingly heated debates between candidates for prime minister, exposing divisions within the ruling Conservative party over fiscal policy.

With the cost of living crisis preoccupying the votes, promises of tax cuts are mounting from suitors hoping to upset former Chancellor Rishi Sunak’s chances of gaining the keys to 10 Downing Street.

With UK consumers showing signs of tightening purse strings and becoming more cost-conscious, it’s no surprise that Deliveroo has cut its gross transaction value forecast significantly this year.

Expensive takeaways are likely to be among the first treats to be ditched as households grapple with skyrocketing bills, especially as higher costs trickle down to more expensive menus.

Deliveroo has more than halved its growth forecast to 12% from previous estimates of up to 25%.

Tighter cost control is now front and center for the company as it faces headwinds as marketing budgets need to be brought under control.

Johnson Matthey’s planned makeover to align with the greener car industry is taking shape with plans for an £80million gigafactory at its existing site in Royston, UK, to scale up manufacturing of components from hydrogen fuel cells.

After shedding its skin as a battery materials player, concerns had grown over the company’s lack of direction given that its core business of catalysts has such an obvious shelf life, but the announcement will allay concerns about its future relevance.

Starting a new business is expensive and there’s no guarantee it will succeed, hence the lukewarm share price reaction, but it’s a sign the group is determined to find new paths. of growth.

Haleon has completed its historic spin-off from GSK, listing on the London Stock Exchange today with a share price of 330p.

This values ​​the business at £30.9 billion.

There could be a volatile trading period for the company, especially given the cost inflation that has spread through the consumer goods industry.

But given that its best-selling products, such as Sensodyne toothpaste and Advil and Voltaren painkillers, are household names, the brand power of this new consumer beast should help it cling to the customers, who can instead redeem other products in the shopping carts.

Susannah Streeter

Susannah Streeter, Senior Investment and Market Analyst, Hargreaves Lansdown.