- FTSE 100 opens slightly lower as worries about lower Chinese growth collide with Wall Street optimism.
- Caution may return ahead of Jerome Powell’s testimony to Congress on the US economy
- BP says it’s still committed to green ambitions despite targets change
- James Dyson criticises UK for its tax plans
China’s Growth
Financial markets are set for some choppy trade early this week as investors search for a fresh sense of direction, after Friday’s Wall Street exuberance collides with disappointment over China’s growth ambitions.
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It’s clear that a return to stability is Beijing’s main aim, rather than big expansionary plans, after the painful past few years. The 5% target for growth announced at the National People’s Congress was not as high as had been hoped, particularly given the recent resurgence in factory activity and business confidence, indicating there is reticence towards signing off any blockbuster stimulus plans any time soon.
This will nudge down hopes that China could provide the extra steam to offset declines in other major economies, prompted by efforts to rein in rampant inflation. The exception appears to be for defence which will see budgets increased by more than 7%, but rather than being encouraging this development will be tinged with worries about heightened geopolitical risk.
Fresh worries about global prospects and less ambitious Chinese growth targets have nudged oil prices lower, with Brent crude trading around $85 a barrel, erasing some of last week’s gains.
Broadly though, equity investors have been keeping their glasses half full of optimism. Valuations have crept back up this year, even though a recession could still be knocking on the door of the US economy. The ramping up of bond yields as investors expect higher rates to stick around for much longer have largely failed to drown out the better vibes.
But there could be upset ahead as Jerome Powell, the chair of the Fed, testifies in Congress on Tuesday and Wednesday about the economy. He’s desperate to call time on inflation, but if he once again appears determined to crack it with a hard-line approach, and multiple fresh rate rises, it could rattle markets ahead of the key February US employment report on Friday.
BP's Climate Ambitions
The boss of BP plc (NYSE:BP)’s US business is denying the company is altering its green transition strategy, but it’s clear there is big tinkering afoot. BP’s US boss Dave Lawler said that the overall strategy has not changed, but the company has clearly shifted down a gear, in terms of its medium-term green ambitions, given the target to reduce emissions by 2030 has been cut.
Energy security concerns have prompted other oil majors to refocus on pumping more fossil fuels to offset curbs on Russian crude, but this has been couched as an emergency measure, before more renewables can come online.
The big worry has been that it will shift the timelines . Despite Dave Lawler’s commitment to the overall green vision – the short-term shift is unlikely to sit well with responsible investors and may still pose a risk to BP's longer-term valuation if mainstream investors can't be convinced of its ESG credentials.
Dyson’s Fury
Ahead of the budget, more pressure is being piled on the Chancellor Jeremy Hunt and his tax raising plans by entrepreneur James Dyson. The vacuum cleaning tycoon has sharply criticised the planned increase in corporation tax and the attempt to introduce levies on subsidiaries of multinationals, saying it’s little wonder large companies are taking business elsewhere.
This put the focus on Hunt’s plan for growth unveiled in January which was very short on details of just how his grand plan to boost investment is achievable. Competition for inward investment is heating up with subsidies being dangled by nations across the world.
It is crucial that the gleaming nuggets of potential in innovative industries like renewables, AI and life sciences are nurtured. With the EU and the US introducing big subsidy packages for clean tech, Hunt will need to step up with fresh new incentives to ensure the UK can take competitive advantage of its leading positions in such fields.
Article by Susannah Streeter, head of money and markets, Hargreaves Lansdown
