- China drops more travel restrictions boosting sentiment among investors.
- FTSE 100 opens higher following rises in Asia and on Wall Street.
- Brent crude creeps up again amid expectations of higher demand.
- US jobs report buoys hopes that Federal Reserve may soon drop its aggressive stance.
- Hopes rise about the prospects for breakthrough on UK public sector strikes.
- Fresh energy bill support won’t fully insulate UK firms from fresh price shocks.
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China Reopens Borders
The dismantling of more barriers to entry into China has seen more trickles of optimism seep into financial markets. The lifting of quarantine requirements for incoming travellers with now only a negative PCR test needed, will come as a sharp relief for the Chinese business community.
Domestic travel will also get a significant boost with the issuing of visas for Hong Kong and Macau resuming. Hopes are high that this will give consumers a big jolt of confidence, and help power China’s recovery from the pandemic, particularly once waves of infections subside.
Expectations of higher demand for energy in China and hopes that there may be a softer landing for the US economy from the ravages of interest rate rises, have boosted the price of oil, with Brent Crude up more than 2%, trading above $80 a barrel.
The Fed May Drop It's Aggressive Stance
Expectations have risen that aggressive moves by the Federal Reserve are finally bruising the resilient labour market and wounding a wage spiral. The closely watched monthly jobs report showed average earnings were slowing, data which traders have clung onto as evidence that the central bank might not have to ramp up rates so high and leave them there as long.
Although jobs growth is still resilient, the rate is also slowing, boosting hopes that demand and supply in the labour market may be returning to a better equilibrium. This pushed up the S&P 500 strongly on Friday, and is set to help buoy stocks today.
However, policymakers are still likely to stay cautious, fearful that if they drop their guard, inflation may still come back to bite. Investors will be watching closely for fresh indications about just how the fight is going from the latest snapshot on US consumer prices due out on Thursday.
There was a cautious but positive start to the FTSE 100 in early trade, with commodity giants rising strongly, boosted by better sentiment about China’s outlook, but investors still mindful of the challenging months ahead and the problems facing the UK economy.
The UK government has adopted a slightly more conciliatory tone with striking public sector workers, promising individual talks with unions, but there is clearly a huge chasm to cross, while the disruption dents UK output.
Caution Remains Amid Cost-Of-Living Crisis
Worries about bill fright among businesses should subside a little with fresh support for energy costs being committed by the UK government, but there is still concern they won’t be fully insulated.
The scheme will offer a discount on wholesale prices, not cap bills, which will mean companies will be more exposed to fluctuations in the energy market, but it should be less onerous for the taxpayer. Wholesale gas costs, which usually set electricity prices too, have subsided dramatically since the painful peaks earlier this year.
This will be a relief but there will still be concerns that firms could be hit by future spikes in volatility in the energy market. Investors are still mindful about the onerous effects of the cost-of-living crisis, which is a long way from over, according to the HL Savings & Resilience Barometer released today.
Although there are now glimpses of light at the end of the long tunnel, it’s still a painful journey for consumers and companies.
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
