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Market Report: FTSE cautiously optimistic but confidence in UK growth falls

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Sophie Lund-Yates
  • FTSE100 cautiously optimistic as we head into busy results season
  • Oil price continues to shrink on global recession fears
  • Chinese stocks face further downwards pressure
  • Confidence in UK economic growth falls 15% compared to last month

Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown:

“The FTSE 100 ended last week 1.6% higher on a five-day basis, marking a spark of optimism as UK companies prepare to release a deluge of results to the market this week. The UK’s major banks are in the line-up and are going to be under particular scrutiny, not only because the UK market is so heavily weighted towards the sector, but because the financial giants can shed light on the changing attitudes of consumers. Credit levels will be of particular importance, as the cost-of-living squeeze continues and paying monthly bills is still much more difficult for many than it was a few short months ago. Mortgage lending data will also be a helpful bellwether in trying to assess the housing market’s next move – this will of course be a much bigger question for domestic-facing institutions like Lloyds and NatWest.

Brent crude futures have fallen to around $102 per barrel, the fourth consecutive decline. Fears of a global economic slowdown and the repercussions for energy demand are behind the slide, with these anxieties outweighing previously prevalent concerns over supply constraints. The US Federal Reserve is expected to deliver another 75 basis point rate hike this week, which has accelerated concerns that perhaps too much heat will be taken out the economy, too quickly. As the battle to bring inflation back in line continues, the oil price will remain highly sensitive.

The Shanghai Composite is down 0.7%, while the Shenzhen Component has lost 0.9%, with a now well-known narrative playing out in the region. Investors are fleeing from more highly valued growth stocks as a property crisis, unsupportive policy backdrop and recurring lockdowns all weigh on sentiment. The path to market prosperity looks murky from this juncture, with improvements unlikely to be seen until all three of these very pressing issues are cleared up. Making that happen is no small ask, particularly surrounding government policy, where reversals or amendments are less likely to make an appearance.

According to the latest HL Investor Confidence Survey, confidence in UK economic growth has fallen 15% compared to last month. This is indicative of the multiple issues surrounding the UK’s next economic steps, with added political turmoil doing little to quell nerves. Top of mind is of course inflation and the diverging ways in which this can be dealt with. An over-zealous hand could see UK productivity falter further, but a soft approach could see inflation get its own way for longer. Together with broader recessionary fears being kicked up, it’s disheartening, but by no means surprising, to hear people are struggling to see a clear road ahead.”

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