The focus in the UK this week was on the March Budget, which was dubbed the “The Budget for Long Term Growth”. After much heckling and jeering the Chancellor announced his plans to boost the economy, while attempting to close the gaps in the polls with the Labour Party. We saw the arrival of a new British ISA, a measure introduced to encourage more people to invest in UK equities. This measure has been in the pipeline for some months, although it has faced push back from various groups. Jeremy Hunt’s decision to push ahead with the British ISA is hoped to help “grow our economy, reward investors and support British businesses”.
There were other major announcements, such as National insurance (NI) being cut by an additional 2%, the earnings threshold for child benefit increased to £60,000, the windfall tax on oil and gas companies extended to 2029 and the higher rate of capital gains tax on residential property reduced from 28% to 24%. Overall, there were no major surprises in the Budget, and markets seemed fairly pleased with the outcome, with both UK equities and UK government bonds rallying on Wednesday.
This week we saw our latest example of mergers and acquisitions (M&A) in the UK as Nationwide agreed to purchase Virgin Money in a £2.9 billion deal. Just last month Barclays bank purchased the banking operations of supermarket Tesco for £600m. Many banks currently trade on low valuations, despite increasing profits recently and having strong balance sheets, as such the trend for M&A could continue going forward. The same is true for the whole UK market, where there has been a recent pick up in M&A activity, largely driven by foreign buyers picking off cheap UK assets. While this provides a short-term boost for investors, over the long-term it could damage the UK market as companies are picked off.
The European Central Bank (ECB) met for their second meeting of the year on Thursday and as expected they held the base rate firm at 4.5%. Investor expectations for the first-rate cut has now been pushed back to June as ECB President, Christine Lagarde, mentioned cuts were not discussed this meeting but the “dialling back of our restrictive stance” will begin in following meetings. Incoming data releases will be pivotal towards the rate decision as inflation falls towards the 2% target, while the ECB will also evaluate Q1 wage data before making their move. We have previously written that it is likely the ECB will not cut before the US Fed make their first move, for fear of devaluing their currency, however, the data may force the ECB’s hand to act sooner rather than later.
US Non-farm payroll data was announced this afternoon with 275,000 jobs being added to the economy in February despite the market expectation of 200,000 jobs. This shows the continued resilience in the labour market, highlighting the strength of the US economy. The US Fed will consider all data points before deciding to cut interest rates later this year.
Apple have had a tough start to the year. They have just been hit with a €1.8bn EU antitrust fine and now they face another dilemma as iPhone sales in China have fallen 24% (year-on-year) over the first six weeks of 2024. China contributes just under a fifth of total sales for Apple. Huawei are China’s leading tech giants in smartphones, and they have seen sales rise by 64% over the same period. Apple are one of the “Magnificent Seven” stocks that contributed to the extraordinary US market performance in 2023, however it appears that their bubble may have burst.
Super Tuesday is a term commonly known in the US as the beginning of the race for the White House during an election year. Voters in 15 states chose their candidate to run for Presidency and the expected winners were no surprise as Joe Biden and Donald Trump emerged as front runners. Republican Nikki Haley did her best but came short in convincing the party that it was time to dump Trump.
It was a largely positive week for equity and bond markets. After a stellar end to 2023, UK assets had started the year on the back foot but have begun to erase earlier falls. One asset class that has regained its shine has been gold, which is approaching all-time highs once again.
Nathan Amaning, Investment Analyst
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