- FTSE 100 opens lower despite better trade figures from China.
- Brent crude jumps to three-month highs on supply concerns.
- Government borrowing costs head higher, with 10-year gilts nudging 4.9%.
- The pound slips lower against the dollar to levels not seen since October 2023.
- Investors look ahead to key data on UK economy.
- UK government is set to outline it’s AI plan to help boost growth.
- Heathrow reveals 2024 was its busiest year ever, with fresh investment planned.
- Page Group revises profits outlook lower as conditions across Europe become tougher.
Susannah Streeter head of money and markets, Hargreaves Lansdown:
‘’Equity trading on the London market has got off to a subdued start as investors continue to assess the implications of turmoil on the bond markets and the outlook for the global economy. Friday’s jobs figures showed the US economy is more resilient than expected, quashing hopes for multiple interest rate cuts from the Federal Reserve this year. With the dollar strengthening against a basket of currencies it also runs the risk of higher inflation being exported, due to the higher cost of imports, adding to headaches for other central banks. UK government borrowing costs have crept up even higher, with the yield on 10-year gilts nudging 4.9%, a highly unwelcome hurdle, levels not seen since the Great Financial Crisis. With the UK still in the eye of the storm of concern worrying bond markets, it’s set to keep the rumour mill grinding about difficult tax and spending decisions ahead for Keir Starmer’s government.
The dollar is flexing more muscle amid expectations that borrowing costs will stay higher for longer, helping push down the pound to $1.21 levels not seen since October 2023. Sterling has also dipped against the euro to 1.18. It comes amid ongoing concerns about the outlook for the UK economy, with the spectre of stagflation hovering. Wednesday’s CPI data will be closely watched especially given that the reading is set to show consumer prices will veer further away from the Bank of England’s 2% target, making it less likely that policymakers will vote for a cut in February.
The UK government is attempting to wrest the narrative away from painfully high borrowing costs and a plunging pound. It’s going all out on an AI pitch with recommendations to unleash the power of the technology to help public services become more efficient and help boost growth via special development zones. The ambition to create fertile ground for home grown AI firms to flourish is laudable, but won’t be an easy task given that the bright lights of New York beckon for entrepreneurs wanting to raise money on capital markets. There is a huge opportunity here to harness the power of retail investors with other technology listings such as the Raspberry Pi significantly oversubscribed.
Inflation concerns are set to be exacerbated with a jump in oil prices, which is set to filter through to costs at the pumps. Brent crude is trading above $81 dollars a barrel, the highest level in three months. It comes amid renewed concerns amid supplies of crude after the US slammed more sanctions on Russia. These are targeted at vessels and tankers, which is aimed at disrupting trade with Chin and India, leading to expectations of higher demand from suppliers in the Middle East. The robust US labour market data released is also putting upwards pressure on prices, with appetite across America expected to stay strong. The rise in crude prices has given energy giants an uplift in early trade in London with Shell and BP making gains.
Not even better-than-expected trade data from China could lift spirits much for the London market in early trade. Exports rose 10.7% on an annual basis in December, way above the 7.3% jump expected. Imports also reversed course and lifted by 1%. Car sales in China also notched up the third month in a row of growing sales, although the 10.5% rise was lower than November’s growth of 11.7%. The picture is beginning to form of less cautious customers at home and abroad, however with authorities hanging back so far on further fiscal stimulus to stimulate demand through tax and spending, this latest data has not had much punch.
Airline stocks remain under pressure and Heathrow hasn’t managed to fly into the rescue despite posting bumper passenger numbers for 2024. It saw record numbers of people use the West London hub last year. 83.9 million travelled through the terminals helped by pent-up demand for travel. It’s forecasting numbers will still increase in 2025, but the rapid rate of growth is set to slow. With consumer-focused firms, especially in retail, forecasting uncertain times ahead, pessimism appears to be seeping into the travel industry too, with worries that travellers will be more conservative in terms of planning holidays, and businesses potentially scaling back on big trips.
Recruiter, Page Group has revised down its profit outlook this year amid tougher conditions across Europe. Even though the European Central Bank is ahead of the curve on interest rate cuts with more reductions expected, it’s not making firms more optimistic about hiring staff. Companies are becoming more risk-averse about hiring staff and the whole recruitment process is taking much longer which is having a knock-on effect on fees. Temporary positions often see an uplift in demand as permanent roles are put on hold, but that isn’t materialising. With the threat of Trump’s trade tariffs hovering over Europe, and the potential impact of AI on a whole host of jobs still unclear, it’s not surprising that firms are staying cautious about hiring, but with expansion plans on ice, it’s set to hold back growth further in major European economies.’
