Market round-up 10-14 February

Thomas Watts

In a week all about relationships and devotedness, the day before Valentine’s Day saw a breakup in Westminster that shocked both the corridors of power and domestic markets alike, as Sajid Javid ended his brief tenure as Chancellor of the Exchequer.


This week

In a week all about relationships and devotedness, the day before Valentine’s Day saw a breakup in Westminster that shocked both the corridors of power and domestic markets alike, as Sajid Javid ended his brief tenure as Chancellor of the Exchequer. 

Reacting to the Prime Minister’s call to sack his team of aides, the now ex-Chancellor commented that "no self-respecting minister could accept such a condition.” On the announcement that his successor will be 39-year-old Conservative rising star, Rishi Sunak, sterling and gilt yields rallied. Sunak’s former boss managed to keep a relatively tight lid on Conservative spending pledges, refusing to borrow over the long term to fund outlay. However, the new man with the rosy red box may be more inclined to increase spending without offsetting such splurges with tax hikes. Boris Johnson has already pledged £20 billion a year in extra investment in road, rail and other infrastructure. Sunak will only have four weeks to get a new Budget ready, with analysts keen to see just how prudent the strengthened Johnson administration will be. 

Unsurprisingly, on Valentine’s Day roses make all the headlines, this year it seems for RBS especially. They say every rose has a thorn and with the new boss, Alison Rose, setting out a strategy to cut back the size of its loss-making investment bank and rename the entire entity NatWest, the adage certainly rings true. It is hoped that the rebrand will help shift the bank’s image away from the days of profligacy that sparked the 2008 Financial Crisis and its £45 billion taxpayer bailout. The new approach includes plans to halve investment bank NatWest Markets’ risk weighted assets to £20 billion and a string of green targets, such as reducing the bank’s impact on the climate by halving its emissions by 2030. Although results were better than expected, heavy losses from its trading arm and an extremely disappointing dividend announcement caused the stock to plummet 7% in early trading, dragging down the rest of the FTSE 100 with it. 

Broader markets waxed and waned, as they had done in previous weeks, relying on updates from China, as differing reports were released detailing the success of halting the spread of the Coronavirus. Thursday saw the recent stock market rally falter as Chinese officials admitted that 242 people had died in Hubei province, the largest daily toll since the virus emerged in Wuhan during December. More than 14,000 new cases were reported in the province on Thursday, up from 2,015 new cases nationwide the previous day. Investors unsurprisingly sought refuge in save haven assets, with the US Treasury yields lower and the Euro falling to a four-and-a-half-year low against the Swiss Franc. 

The week ahead

After a weekend of Storm Dennis battering the British Isles, the following Monday should feel like the calm after the storm as US markets, the driving force behind recent rallies, close in observance of President’s Day. 

A busier day should arrive in the form of Tuesday with the Office for National Statistics publishing the UK’s Average Earnings Index. The data should make for interesting reading for anyone who is counting the cost of roses and chocolates from Valentine’s Day the previous week. The numbers will represent the three-month moving average compared to the same period a year earlier and act as a leading indicator of consumer inflation as extra pay and extra spending are inextricably linked. 

In a busy week of domestic economic data, Wednesday sees CPI statistics released. Detailing the change in the price of goods and services purchased by consumers, the numbers, coupled with the aforementioned earnings data, should give us a strong idea of consumer confidence and overall spending. Subtracting inflation from the pace of wage increases should help analysts get a feel for how a beleaguered high street should fare in the future as this gives us a truer reflection of just how much disposable income there is in people’s pockets.

The week is rounded off by a flurry of PMI data in both Europe, UK and the United States. With both Services and Manufacturing included, the end of the week should help us gauge just how healthy the global economy is. PMI data is so valued as it has a relatively large sample size of around 650 firms and acts as a leading indicator of economic health - businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into their company's view of the economy.


The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in February 2020.