“All it took was the slightest hint of satisfaction by the Fed to make markets rally once again,” says Russ Mould, Investment Director at AJ Bell.
“Jerome Powell’s comment that ‘the risks of achieving our inflation goals are coming into better balance’ was enough to give the market confidence that we’ll soon see rate cuts, with three expected this year. It didn’t matter that yesterday’s decision was to leave rates untouched, the market is focused on what might happen next and any fears that the Fed might become even more stubborn over changing monetary policy appear to have been blown out of the water.
“US equities rallied last night and that positivity extended across Asia and Europe on Thursday. The FTSE 100 jumped 1.1% to 7,825 with gains seen almost across the board. Only six stocks fell in early trading, including some that fall under the ‘defensive’ category such as British American Tobacco. There is a risk-on mood for investors and in this situation, they typically gravitate towards companies with decent earnings growth potential rather than stodgy ones that could trickle along no matter the state of the economy.
“The Bank of England is expected to keep UK rates unchanged at its midday decision today despite yesterday’s figures showing a big drop in the rate of inflation. Central banks will want to see evidence that the decline in the rate of inflation is not a one-off. Therefore, the key focus for markets is the vote split as that could give the best indication as to whether the members of the Monetary Policy Committee are veering more towards a rate cut or not, and hence stir the pot as to when it could actually happen.
“The important factor about today’s equity market rally is that it breathes some new life into the FTSE 100 and pushes it into positive territory year-to-date. The FTSE 250 isn’t quite there yet, but it wouldn’t take much for it to trade above the opening position at the start of January.”
Virgin Money / Nationwide
“Nationwide’s bid interest in Virgin Money is now a recommended offer, with shareholders getting 220p cash per share. After the miserable performance of Virgin Money on the market, shareholders might welcome the chance to get out at a small premium.
“You can never rule out someone else throwing their hat into the ring, but Nationwide is looking fairly comfortable for now with getting its offer over the line.”
Next
“A key tenet of Lord Wolfson’s tenure at the helm of Next has been a bias towards under-promising and over-delivering – a discipline which has served the company well on the stock market over the years.
“It is striking therefore to see Wolfson be so openly positive about the prospects for the year ahead. The company is sticking to its guidance for the year to January 2025 as cost pressures ease, to the extent Next believes it may be able to reduce prices in store, and the clouds begin to part for consumers.
“Not all retail businesses are created equal and the excellent way Next as a business has been positioned helps underpin and lend credibility to its optimistic outlook.
“Next gets the basics of retail right – getting the right products to the right customers in the right place. The company has worked hard to develop its technology and warehouse infrastructure so it is able to handle the challenges of modern retail and has even been able to absorb the impact of shipping disruption without any drama.
“It offers next-day delivery options online and its physical stores provide a useful support role as a hub for web-based sales.
“It is so good at these fundamentals it now offers its services to third parties through its Total Platform. This, plus prudent steps to expand the brand and operation overseas, offer other growth levers which Next can pull.”
Direct Line
“Direct Line has been through a tough period that’s cost the previous CEO their job, investors were denied a dividend, the share price slumped, and its reputation was damaged – all because of a fierce period of rising inflation pushing up costs and unfavourable weather causing a surge in claims, weakening the company’s financial position.
“Direct Line is now on the comeback trail and dividends are back, albeit at a fraction of the level it used to pay.
“New boss Adam Winslow isn’t trying to sweet-talk investors into thinking everything is now fine – he’s being open and honest that the company needs to do more to drive performance. That’s the correct approach to take.
“A new strategy will be announced in July, which gives him four months to look for skeletons in every closet, leave no stone unturned and draw up some innovative ideas in the quest to put Direct Line back on top.”
These articles are for information purposes only and are not a personal recommendation or advice.
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- Thu, 02/05/2024 - 10:55