HL LIVE
HL commentary as it happens
Tuesday 10th February
Profit taking across a host of commodity markets
It’s a sea of red for commodities this morning, with gold, copper and oil all softer as investors lock in profits and weigh geopolitical risk against a cooling growth and policy outlook. Brent is hovering near $69 a barrel on US–Iran tensions and uncertainty over India’s Russian crude imports. Gold slipped below $5,030 on profit-taking ahead of key US data, and copper eased as Chinese demand slows into the Lunar New Year, underscoring volatile near-term momentum despite longer-term structural support.
Monday 9th February
Oil prices plummet as Saudi Arabia cuts Asian export prices
Brent crude prices are down around 1% to about $67.2 per barrel, extending weekend losses seen after Saudi Arabia dropped its selling prices on oil exports to Asia for the fourth month in a row. That’s shifted traders’ attention away from tensions between Tehran and Washington, back to concerns about an oversupplied oil market, despite fresh sanctions on Iranian tankers following talks on Iran’s nuclear future in Oman on Friday.
US CPI inflation in focus
Markets will be keeping a close eye on US CPI inflation due at the end of the week. January’s annualised price increases are expected to fall from 2.7% to 2.5% but that’s been aided by falling oil prices. Core inflation is expected to remain steady at 2.6% and unless that starts to nudge down, we may not see another rate cut during the final months of Jerome Powell’s reign at the Fed, even if the labour market tightens further. Unemployment figures are also due this week and are forecast to remain steady at 4.4%.
US stock futures flat
US stock futures are little moved today after US stocks ended the week just about flat, but it was far from an even outcome, with concerns about ballooning capex on AI, and threats to traditional operating models dragging on tech stocks.
Nikkei briefly breaches 57,000 after Takaichi claims a landslide
Japan’s electorate braved blizzard conditions to give Prime Minister Sanae Takaichi’s Liberal Democratic Party more than a two-thirds majority in the Land of the Rising Sun’s powerful lower chamber. Her spend big and tax low approach has gone down well with stock markets, with the Nikkei crossing the 57,000 barrier for the first time before pulling back a little. That puts pressure on productivity and economic growth to do the heavy lifting when it comes to balancing the books. Japanese inflation is nearly at the Bank of Japan’s target level of 2% but there are concerns that too much stimulus could see price increases accelerate again. The interplay between Governor Kazuo Ueda, and the newly emboldened premier will be the key dynamic to monitor, but markets look to be anticipating some pressure on state finances, with both the Yen and prices of government securities under pressure after the result.
New record in sight for FTSE 100
The FTSE 100 shrugged off this weekend’s political turmoil in Whitehall to open up near record highs, as it holds on to the coat tails of a strong Monday for Asian stocks. With precious metals gaining ground again expect a good start for the miners. After last week’s see-saw, silver is up nearly 5% and gold has crept back over the $5,000/oz level as investors prepare for US inflation and jobs data later in the week.
Friday 6th February
FTSE opens down this morning
The FTSE 100 opened marginally down this morning, but there was little in the way of big UK stock news to nudge it in either direction. As expected, the Bank of England (BoE) held interest rates firm at 3.75% on Thursday. But the 5-4 vote split was much narrower than markets had expected, given forecasts the day prior to the announcement implied a 95% chance of rates staying flat. The BoE stated that inflation risks have diminished and that inflation is now expected to fall close to its 2% target by April and to remain around this level thereafter. There’s now a nearly 50% chance of rates being cut by 0.25 percentage points in March, if more evidence of a cooling labour market emerges. HL’s house view is for two cuts this year – though this is data dependent. The improved probability of further rate cuts, plus speculation around Kier Starmer's longevity at number 10, are putting pressure on Sterling this morning.
Thursday 5th February
Bank of England has left interest rates on hold at 3.75%
As expected, the Bank of England Monetary Policy Committee has voted to hold rates at 3.75%. The voting split is revealing – the Committee voted by a majority of 5 to 4 to maintain Bank Rate at 3.75%. Four members voted to reduce base rate to 3.5%, which gives indication of forward guidance. With inflation at 3.4%, there is still some way to get it back to the 2% target, and higher rates are a key control for the Bank, but this vote split suggests that the first cut of the year may come as soon as March if economic data weakens. Our house view is that the Committee cuts two times this year – data dependent. The Office of Budget Responsibility (OBR) expects inflation to finish this year at 2.5% and, coupled with growth expectations for the UK, which – while downgraded by the OBR to 1.4% – is positive for the year ahead, negating the need for drastic cuts.
Today’s hold was much anticipated by the market, and as such we have seen limited movement in both equity and bond markets. The pound fell ahead of the announcement, but this was likely linked to domestic political uncertainty rather than monetary policy. Gilt yields have been in a rising trend since lows hit in mid-January and broadly linked to US Treasury yield increases, following the announcement of Kevin Warsh as the Trump’s nominee to take over as Federal Reserve Chair. His voting record suggests that he will take a hawkish approach to rates once appointed. Inflation continues to moderate, but US policies risk overstimulating an already growing economy and this could cause government bond contagion in the UK. Zooming out, the 10-year gilt yield remains very much in the middle of its range over the last 12 months. So, while the rise has been near 10bps since the start of this week, it doesn’t leave yields in an unusual position relative to recent history
Brent Crude down 2% ahead of US-Iranian talks
Brent Crude is down 2% to around $68 a barrel. Prices continue to track the volatile political mood between Washington and Tehran, with the latest confirmation by Iranian officials of talks in Oman tomorrow, helping to ease risk premiums for now. Over-supply concerns, dollar strength and forecasts of relief from the polar vortex that’s engulfed much of the eastern seaboard could see further near-term pressure on prices.
US stock futures down after bruising session for tech shares
US stock futures suggest little movement when Wall Street re-opens. Chip stocks were broadly down yesterday and speculators also upped the pressure on software companies. The prospect of AI tools allowing enterprises to effortlessly build their own bespoke analytical tools will be weighing on developers’ minds. But it’s still a huge leap of faith to back away from tried-and-tested providers of business-critical applications. Just like last year’s Deep Seek moment, this is unlikely to be a storm that sinks all ships.
FTSE drifts ahead of BoE and ECB rate decisions
The FTSE has opened down this morning. Central bank policy and commentary could provide some direction later on, with rate decisions due from both the Bank of England (BoE) and European Central Bank (ECB). There are no changes expected to be announced in either London or Frankfurt. The ECB’s followed a steeper easing slope with rates now stable at 2.0% since June last year. With yesterday’s Eurozone inflation figure of 1.7% coming in way below target, there may be some growing calls for a further drop in borrowing rates. That could go some way towards halting the Euro’s ascendancy against the dollar, providing some much-needed relief for exporters.
Recent BoE votes have been far more tense than the relative unity seen by European rate setters. Once again, today’s vote split will provide vital clues around the likely direction of travel. A surprise uptick in December’s inflation to 3.4% was a timely reminder of the tightrope being walked by UK policymakers. With unemployment of 5.1% at the highest level since April 2021, both equity investors and job seekers will be hoping for more than just one quarter-point cut this year. But with inflation not yet slain, that’s far from a done deal.