Proactive Investors -
- FTSE 100 up 30 points
- Energy prices to be hiked again
- Consumer confidence remains at high
Oil ticks up on rate cut expectations
Oil gained ground on Friday as anticipation grew that Jerome Powell could allude to Federal Reserve base rate cuts in a speech at Jackson Hole later in the day.
Come midday, Brent Crude was up 1% at US 78.02 a barrel for the day, while West Texas Intermediate had climbed by 1.1% at US$73.87.
This follows declines throughout the week, with expectations over a Federal Reserve rate creeping back into focus on Friday ahead of Powell’s speech.
Markets are pricing in 95 basis points of cuts from the US central bank over the remainder of the year, starting in September.
Powell’s speech is set to be closely watched therefore, as investors await any hints over how steep the first cut could be.
Attention turns to Jackson Hole and Fed chair's speech
Federal Reserve chair Jerome Powell was front and centre of attention on Friday as he prepared to deliver a key speech at the Jackson Hole Symposium.
Given widespread anticipation for the US central bank to begin cutting interest rates over the coming months, any clues on the depths of these were awaited.
Swissquote Bank Ipek Ozkardeskaya noted the “absence of a severe economic slowdown” meant Powell would likely hint towards gradual cuts.
“This is at least what the data suggests and what other Fed members nudge toward as well,” she said.
Markets were anticipating 95 basis points worth of cuts over the remainder of 2024 ahead of the speech.
This would include the first at the Fed’s next meeting in September, with a steeper 50 basis point cut expected at least once.
Food shops slashed by 7.5% last year as cost pressures gripped
Official data on Friday showed households slashed spending on food shops by 7.5% over the course of 2023 as cost pressures gripped the nation.
According to the Office for National Statistics, spending rose on a nominal basis but fell in real terms when accounting for inflation.
This meant households made their biggest cutbacks on food shops over the year, the ONS said.
This was through “either consuming less, or where applicable buying lower quality items”.
Overall average weekly spending among households climbed to £567.70, by 7% or £38.90.
However, in real terms this fell by 4%, equating to £21.10 less each week.
This is after consumer price inflation sat as high as 10.4% in February 2023, following a peak of 11.1% in the previous October, before steadily declining.
The ONS added fuel and power remained the highest areas of spending for households.
Proportions of household spending on food and transport returned to pre-pandemic levels, the data also showed, while this remained below 2019 trends for restaurants and hotels.
Melrose plummets on UBS downgrade
Melrose Industries (LON:MRON) fell over 6% on Friday to top the FTSE 100's fallers after facing a double downgrade from UBS analysts.
The defence firm’s rating was slashed from a ‘buy’ to a ‘sell’ by UBS, while Melrose’s share price target was wound down from 770p to 400p.
UBS said this was due to the company’s revenue and risk-sharing partnership (RRSP) portfolio being significantly overvalued.
This sees the company share in aftermarket profits with the likes of airlines and other companies following engine sales.
According the UBS, the portfolio is worth £2.8 billion and less than half the £5.7 billion value cited by the company’s management.
Melrose fell 6.1% to 479.97p on the downgrade, dragging defence peers BAE Systems (LON:BAES) and Rolls-Royce Holdings PLC (LON:RR) down 0.7% and 0.2% respectively.
Direct Line slips on solvency ‘miscalculation’
Direct Line (LON:DLGD) fell over 2% on Friday morning after admitting to an error in its solvency calculation.
The FTSE 250-listed insurer said on Friday that a “miscalculation” had been identified “within the group's audited solvency II own funds for the year ended 2023”.
“Correcting for the miscalculation, the solvency capital ratio (post-dividend) at year-end 2023 was 188%, which was above the group's risk appetite range of 140% to 180%.”
Direct line had reported the figure at 197% for 2023 initially, meaning it was more solvent than previously stated.
It added the correction did not affect its International Financial Reporting Standards figures.
Shares fell 2.1% to 185.10p.
Four in 10 still face non-essential spending cuts - KPMG
Some four in 10 consumers are still being forced to cut back on non-essential spending due to inflated living costs, according to KPMG.
The accountant noted many were still struggling despite inflation having subsided recently, ahead of a confirmed increase in energy prices by 10% from October.
“Rising energy prices will be a huge concern for the many households who are not on fixed deals just as we enter the winter months,” KPMG energy vice chair Simon Virley commented.
“Average dual fuel bills remain well above the levels prior to Russia’s invasion of Ukraine and the fact that prices remain slightly below the levels of last winter will be of little comfort.”
Cornwall Insight analyst Craig Lowrey noted the October rise was likely to only be the first as the consultancy forecasts another increase in January.
“Unfortunately, a volatile wholesale market, and a country heavily reliant on imported energy has created a perfect storm for fluctuating household bills.”
Charity National Energy Action warned separately that October’s increase in bills would force an additional 400,000 homes into fuel poverty this winter, taking the total to over 6 million as the rise coincides with a government cut to winter fuel support.