Quiet pulse of positivity but caution over interest rates set to hold back gains

LONDON (Capital Markets in Africa): ‘’There’s a quiet pulse of positivity on the markets with investors still cautious about the direction of interest rates in the United States, but hopeful that recovery elsewhere will lend a hand to trade. The FTSE 100 is expected to cling on above the psychologically important 8000 level at the open. Volumes are set to be more muted during the sessions in Europe given that Wall Street is closed for the President’s Day holiday, so traders are likely to be searching around for a bit of a sense of direction today, looking ahead to fresh data out this week.  The minutes of the Federal Open Market Committee due out on Wednesday will be closely watched for fresh indications about just how strong those disinflationary winds are blowing. Worries are still hanging around that US inflation will still take significant time to be whipped into a shape which will mean higher rates will have to linger for longer, sentiment which has been supporting the dollar.

For now, it seems optimism about the recovery of demand in China is outweighing worries about a slowing US economy, with stocks on Chinese indices buoyed by the status quo decision to keep rates on hold. This has helped push up the price of crude oil, off the back of expectations that companies in China will be hungry for more energy, particularly as consumer sentiment rebounds. On the supply side, the  threat of fresh sanctions and export controls on the Russian energy and financial sectors are also supporting oil prices, with Brent Crude trading up 0.7%, above $83 a barrel.

The huge sigh of relief that Europe’s energy crisis appears to be over is still a cooling force on gas prices. UK natural gas futures are hovering around 120 pence per therm, levels not seen since early September 2021, while EU prices have edged up a little but still at 17-month lows. With green shoots of spring appearing amid warmer than average temperatures and European storage levels still 65% full, significantly above the 10-year average, the region appears to be out of the energy security danger zone. But energy saving measures and secure new lines of supply will continue to be needed as a cold shock next winter could still prove highly difficult for nations to navigate.

The pound is wavering on the edge of $1.20 as investors assess the direction of Fed policy and also the chances of Britain breaking the deadlock on talks with the EU over trade. The so-called Northern Ireland protocol designed to avoid a hard physical border in Ireland has instead caused friction in the flow of goods between the province and the rest of the UK.  Hopes are rising that a new agreement could be close, which could help pave the way for more stable trading relationship with the EU going forward.’

Susannah Streeter, head of money and markets, Hargreaves Lansdown.