Caution in the Air Ahead of Big Tech Earnings as Inflation Continues to Cause Pain

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  • FTSE 100 opens lower, taking a cue from a downbeat session in Asia, with ABF the top faller.
  • UK government borrowing is slightly lower than expected, indicating some tax cut space.
  • Travis Perkins results show how demand for renovations has fallen as interest rates are hiked.
  • Brent crude hovers above $82 a barrel as traders assess prospects for the US economy.

Caution Ahead Of Big Tech Earnings

Caution is in the air ahead of the earnings from big tech rolling in, and the latest snapshot of US consumer confidence.  Investors are assessing the extent to which nervousness about what may lie ahead for economies is holding back marketing budgets and delaying purchases by shoppers.

The FTSE 100 has taken a more downbeat cue from trading in Asia and has opened lower with mining stocks under pressure, as concerns swirl about lower demand for commodities.

Primark owner Associated British Foods plc (LON:ABF) is the biggest faller on the FTSE 100 as the insidious nature of inflation rears its head, with rising costs eating into margins, despite some healthy sales figures.

UK’s Potential Tax Cuts

With the UK economy stagnating just as the tax burden increases and household bills rise for millions of people, the ongoing cost-of-living squeeze is set to weigh heavily on discretionary spending.

Another sliver of space has emerged in the governments budgets to potentially cut taxes or increase spending, with total borrowing last year, £13.2bn lower than predictions made by the Office for Budget Responsibility.

The creeping nature of the freeze in tax thresholds has been pushing more people into higher bands, refilling coffers much more quickly, so receipts in March ticked up £1.6 billion higher than last year.

But the cost of reducing the pain of punishing energy bills for companies and consumers left the government with the fourth highest borrowing figure since records began of £139.2bn, 5.5% of GDP. There may be a bit more wriggle room but the government is still in a tight spot, given its pledge to bring down debt as a share of GDP.

Travis Perkins Earnings

Although construction appeared to be the brighter spot in overall economic output in February, rising by 2.4%, Travis Perkins plc (LON:TPK) results have shone a light onto increasing challenges in the building trade.

Builders may have been busy on a backlog of repairs due to bad weather in January, but in terms of volumes sold for work on older homes and new build properties, weakness seeped in. It’s little surprise homeowners are becoming more cautious about spending on big new projects, especially as materials costs were still rising by around 9% in the first quarter.

Although cracks are appearing in the real estate market, Travis Perkins does have the public sector, commercial and industrial sector to lean on, where demand is proving more resilient. With the housing market already dipping and interest rates set to rise again (which is set to limit further house moves) demand for renovations isn’t likely to see a resurgence any time soon.

Oil Prices Wavering

After edging back upwards late yesterday, oil prices are wavering again as expectations of lower demand for energy resurface, particularly in the US, the world’s largest economy. Brent crude, the benchmark, is trading just above $82 dollars a barrel.

For now, forecast of higher demand in China is keeping prices from dipping further, but keen eyes are trained on any fresh data indicating a recession is emerging in the United States.

Article by Susannah Streeter, head of money and markets, Hargreaves Lansdown