• FOMC signals slower rate rises ahead, fuelling rally in equities
• Oil prices ease, as COVID retains its tight grip on China
• Dollar on the wane as sterling recovery continues
• B&Q boosted by consumers looking to curb energy usage
Derren Nathan, Head of Equity Research, Hargreaves Lansdown:
“A rally in equities has been fuelled by hopes super-sized rate hikes are in the rear view mirror. Yesterday’s minutes from the November meeting of the Federal Open Market Committee signalled that tighter monetary policy is starting to bite. The FOMC was unanimous in its decision over the latest 0.75 percentage point hike. But there was also a signal that the pace of rate increases could slow in the coming months, as the committee looks to pause for breath to allow economic indicators to catch up with the more restrictive stance. Inflation is still proving stubborn, with data received over the period indicating higher than expected core inflation for consumers. Where rates ultimately peak will be heavily dependent on the route that inflation takes. But the minutes suggested the committee see a US recession as a real possibility, perhaps underpinning the rationale for a less rapid rise in rates. Whilst the labour market remains tight by historic standards, US Jobless Claims data out yesterday hit their highest levels since August with 240,000 claimants looking for support last week.
Following the fed minutes, and ahead of the Thanksgiving break, US stocks enjoyed a rally with the S&P 500 index closing up 0.6% and the NASDAQ Composite Index 1%, building on strong gains from the previous day. In London, the FTSE 100 registered a small gain closing at 7,465.24. That’s an increase of 6.4% over the last month.
There were widespread falls in the US dollar following the publication of the minutes. This could provide a boost for US multinationals. We have seen many large US companies reporting currency headwinds in recent earnings releases and any easing of this pressure would provide some welcome relief. The outlook for the UK economy remains tough with PMI data showing the fastest drop in new orders since 2021, but the figures were not as bad as forecast. This could explain relative sterling strength and that’s not just against the dollar. At nearly $1.21 to the pound, Sterling has hit its highest level against the dollar since Liz Truss began her short stint as Prime Minister, but we also saw a strengthening against the Euro. The pound in your pocket will now get you EUR 1.16.
Brent Crude has been on the slide, down about $5 on a one week view and is hovering at around $85. This has in part been attributed to worries about demand from China where daily COVID cases of 28,000 are close to their record highs.
As household bills mount, the desire to make energy savings has been a resilient force for B&Q owner Kingfisher. Sales of energy saving devices helped boost revenues for the third quarter with full year guidance kept largely intact. DIY habits are continuing although we appear to be switching from ‘changing rooms’ style makeovers to stopping draughts and insulating lofts. This would tally with Chancellor Jeremy Hunt’s advice today for the public to take responsibility for their energy bills and consider how to cut their consumption.
It’s particularly encouraging that trading for Kingfisher has been robust during the first few weeks of the fourth quarter, with like-for-like sales compared to three years ago up 16.2% and up 2.8% compared to last year. Despite concerns about headwinds from a slowing housing market, pipelines appear to be robust for trade customers as well, with sales at stores open for more than a year up 1.9% over the quarter and Screwfix gaining more market share in the UK. “
