Daily Wrap Up 23 March 2022

23 Mar 2022 04:43 PM

War worries return, sterling slides

A bearish streak has returned to the markets as the ongoing violence in Ukraine is chipping away at sentiment. This morning, the FTSE 100 hit a four-week high, and the S&P 500 futures registered a fresh five-week peak, but the optimism has been replaced by a more cautious attitude. With the way political events are unfolding in Eastern Europe, it doesn’t appear there will be a speedy end to the conflict anytime soon. Even though, stocks are in the red this afternoon, the declines need to be put in context of the rallies seen since the first week of March. For example, on 7 March, the FTSE 100 fell below 6800, and this morning it traded above 7500. In London, the stock market is experiencing a broad-based sell off, as the majority of sectors are down on the day, declines are seen in the following industries: travel, household goods, electricity providers and utilities. The energy and mining sectors are outperforming thanks to the rally in oil and metals.

Sterling is down against most major currencies as the Office for Budgetary Responsibility (OBR) lowered its growth forecast to 3.8%, which was a sharp fall from the previous guidance of 6%. This morning it was confirmed that CPI jumped to a new 30 year high of 6.2%, so a combination of lower growth and rising prices is a suboptimal situation. The OBR anticipates that inflation will reach 7.4% this year.

Rishi Sunak, the Chancellor of the Exchequer, delivered this spring statement, and it made more political headlines that moves in the markets. To ease some of the burden in the jump in the cost of living, the national insurance threshold will be increased by £3,000, which equates to a tax cut for roughly 30 million people. The leisure and hospitality sectors will receive discounts of 50% on their business rates of up to £110,000, despite the news JD Wetherspoon and Mitchells & Butlers shares are down. VAT on energy-saving equipment was scrapped so the government is keen to promote a green policy. The basic income tax rate was lowered to 19% from 20%. Mr Sunak’s initiatives were welcomed but considering the cost-of-living crisis, I suspect the measures are designed to soften the blow to workers standard of living rather than a stimulus.  

Oil is higher again as concerns about supply levels persist. Disruption to the Caspian Pipeline Consortium could curtail supply by 1 million barrels per day. The EIA report showed that US oil stockpiles fell by 2.5 million barrels, and that speaks to high demand.

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