Market Prognosis

A concise summary of the major macro events of the past 24 hours, and selected UK company-specific news.

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March 7, 2024

ECB & BoE must wait for Jay to say when

Macro

There are many headlines about the UK budget. Yet, given the fiscal constraints and the proximity of an unwinnable election, it would always be more about setting traps for the other side than long-term optimal policymaking. The introduction of the British ISA is a welcome but modest concession to UK-listed equities.

However, in reality, it is a cynical ploy to nudge UK retail investors to buy unwanted UK government-owned banking assets, for whom most owning shares in NatWest is inappropriate. (Please consult your financial adviser for details).

The OBR has nudged up UK growth prospects for ’24 and ’25 and confirmed that inflation rates would fall more quickly in the coming months than previously thought.

More significantly for financial markets was what Jay Powell said in Congress yesterday about the outlook for US inflation and rate reductions. With job openings data running high and the economy running hot, the FOMC is in no mood to cut and run. Powell said they expect it will only be appropriate to reduce the target range once there is greater confidence inflation is moving sustainably toward 2%.

The dilemma for the BoE and the ECB is whether they would cut rates without a lead from the Fed cutting first. It would be brave, if not foolish, to take this action despite the variance in growth prospects and the necessity in Europe for some relief from recessionary pressure.

In FX markets, the Japanese Yen has reversed and strengthened on the renewed belief that the BoJ will look to normalise rates in the coming weeks. Any rapid repatriation of Yen-based investors looking for yield in overseas markets could destabilise developed world interest rate markets.

The gold price has continued to move into new all-time highs, always a signal that investors are looking for safety. It spiked previously on the default of Silicon Valley Bank, the Ukraine invasion, and the onset of COVID lockdowns. This spike is harder to explain. Potential reasons include CRE loan losses in US regional banks risking a rerun of last year’s crisis, BRIC nation central banks diversifying away from dollar assets, and concern about the increase in US and other sovereign bond issuance.

UK Companies

Nationwide has agreed a £2.9bn cash offer for Virgin Money, providing a further cash injection to UK equity owners.  

Coats, the thread supplierexpects to make good progress in 2024, underpinned by modest revenue growth, with a weighting to the second half.

Darktrace marginally increased its expectations for FY 2024 revenue and, more significantly, its margin guidance. However, this increased profitability is not reflected in its cash flow guidance due to one-off adjustment factors. 

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Any prices quoted in our research are as at the previous day’s close.