- FTSE 100 opens flat.
- UK inflation jumps, two rate cuts still on the cards for 2025.
- S&P 500, Nasdaq, and gold reach all-time highs.
- HSBC tops estimates on strong wealth management.
- Oil continues to edge higher.
- BAE marches ahead.
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“UK markets have opened flat this morning, with the FTSE 100 barely moving at the open, as investors digest the latest set of inflation figures. UK inflation jumped from 2.5% to 3.0% in January, with some calling for a climb to 3.5% later this year – not the smooth landing markets were hoping for. Despite this hotter-than-expected print, markets are still banking on two rate cuts from the Bank of England this year, with the odds of those cuts barely budging after today’s hot print. Policymakers where already expecting higher energy prices and a jump in airfares, and there wasn’t anything unexpected to add into the mix, but the rise was sharper than hoped and adds to the risk that rate cuts come under pressure later in the year.
The US stock market soared to new heights, with the S&P500 and Nasdaq hitting record levels as investors embraced risk with open arms. The US/Russia peace talks in Riyadh sparked some hope for Ukraine, giving a boost to the market, while gold shined bright, hovering around its all-time high. Despite lingering concerns like inflation and geopolitical tensions, investors are focusing on the positives, choosing to lean into the good and look past the bad. Adding to the bullish sentiment, the breadth of performance over 2025 has been impressively positive, with Meta the only Magnificent 7 name in the top 50 S&P 500 growth stocks – a good sign for continued strength ahead.
HSBC delivered a 9% beat on the profit line, driven by booming wealth management and non-interest income, while focusing on streamlining its operations with $3 billion in cost savings on the cards. There was a slight disappointment in impairments, which are higher than expected, signalling a potential shift from HSBC’s historically market-leading credit quality – a trend worth keeping an eye on. Guidance for the new year is ahead of expectations, but much of the positive outlook was already priced in given the improved US rate environment and expected cost management efforts, which explains why shares are only a touch higher in early trading.
Oil prices are on the rise, with brent crude just about tipping over $76 per barrel as tensions over supply disruptions and harsh weather drive concerns. A drone strike in Russia has cut Kazakhstan’s crude flow, and cold weather could disrupt US oil production, making traders nervous about potential shortages. But despite these supply worries, easing geopolitical tensions and talks between the US and Russia have kept the price from skyrocketing further.”
Aarin Chiekrie, equity analyst, Hargreaves Lansdown:
“BAE Systems reported double-digit sales and profit growth in 2024. Performance across all its divisions improved and benefits from the acquisition of Ball Aerospace in February of last year are starting to feed through. Streamlining overlapping areas between the new and old operations is helping to cut costs and improve profitability.
The UK’s largest defence company manufactures heavy-duty military equipment like fighter jets, aircraft and submarines. Despite being based in the UK, around half of its sales come from the US, making it the group’s most important region. On an absolute basis, US military spending trumps any other country in the world, so having large exposure to this market is proving very beneficial.
The order backlog swelled to a record £77.8bn, highlighting the demand for BAE’s products amidst the current geopolitical uncertainty. These orders are typically spread over many years, giving the group great revenue visibility in the near-to-medium term. Free cash flow guidance for the current year looks a little soft. But softening the blow, the three-year free cash flow guidance has been upgraded, implying that investments today are set to reap higher rewards. If investors are patient, they look set to benefit from BAE’s long-term growth strategy
