Market Commentary 1st February 2022 from Charlie Hancock

The FTSE 100 was aided by gains for heavily weighted stocks, including consumer staples giant Unilever (+3.03%) and oil majors Shell (+4.77%) and BP (+0.84%). Housebuilders suffered another torrid week, with analysts downgrading their ratings as they attempt to price in the potential costs of replacing unsafe cladding. Persimmon declined by 7.38%, whilst Barratt Developments moved 10.20% lower.

Retail sales data for the UK indicated that the Omicron wave dented consumer confidence, with January sales weaker than usual. Retailers reported that stock levels were too low, with supply chain issues continuing to impact sales as a result.

Initial readings for January’s composite Eurozone Purchasing Managers’ Index (PMI) indicated that business activity expanded at the slowest pace for nearly a year. The services sector was the main detractor, with renewed coronavirus restrictions hampering leisure and hospitality businesses. The reading for the manufacturing sector improved, with some indication that supply bottlenecks are easing.

Data for economic growth painted a mixed picture for Eurozone nations during the final quarter of 2021, with German Gross Domestic Product (GDP) contracting by 0.7%. France saw their economy expand by 0.7% and Spain experienced growth of 2.0%.

Investors continued to pay close attention to the outlook for Federal Reserve policy, with the central bank keeping interest rates on hold following their policy meeting during the week. The Fed Chair, Jerome Powell, hinted that the central bank may hike more than three times this year in his post meeting speech, whilst also stating that they are discussing plans to sell some of the assets acquired via their quantitative easing programme.

Economic data released during the week showed that GDP grew at a relatively strong pace during the final quarter of 2021. The annualised growth rate of 6.9% was ahead of expectations and confirmed that the economy expanded by 5.7% during 2021.

Microsoft and Apple both reported strong earnings results, which contributed to sentiment on technology stocks improving towards the end of the week. Apple reported record revenues despite supply chain issues hindering availability for some of their products.

Issues in the property sector continued to impact sentiment for Chinese risk assets. Evergrande appeared to dent investor confidence after failing to provide any details for their restructuring plan during a conference call. Some of the group’s creditors began to seize land from the heavily indebted developer during the week.

PMI readings for Japan were mixed, with the services sector seeing activity deteriorate due to coronavirus related restrictions and the manufacturing sector experiencing an improvement in business conditions. The Bank of Japan (BoJ) reiterated their intention to keep highly supportive monetary policy in place, with the bank’s governor stating that he expects this to lead to an improvement in corporate profits and economic growth.

Anticipation for a hawkish Federal Reserve and better than expected economic growth data appeared to drive yields higher initially, before data showing a deterioration in consumer confidence contributed to yields declining as the week ended.

GBP / EUR – Current 1.2017 Previous 1.1946

The Pound declined by 1.13% against the US Dollar, whilst rising by 0.59% against the Euro. The Dollar rallied against most major currencies during the week.