February 2024 Investment & Economic Update

Our latest monthly investment update for February 2024 examines how the global investment markets, economy, and commodities are performing.

The FTSE 100 index of leading UK company shares closed at the end of January at 7,630.57, down 102.67 points or 1.33% during the month.

January Ends on Low Note

European stock markets mostly fell on the last day of January, with investors waiting for the latest decision on interest rates from the US Federal Reserve.

The Stoxx Europe 600 stayed the same, the FTSE 100 went down by 0.5%, the DAX decreased by 0.4%, and the CAC 40 dropped by 0.3%.

Shares in oil companies varied as the price of Brent crude oil decreased by 2.3% to $80.57 a barrel. The Dow Jones Industrial Average slightly fell by 0.1%.

UK Business Confidence Soars

New data reveals that UK businesses have started the year on a high note, with a significant increase in confidence, reaching its highest point in nearly two years this January.

The Lloyds business barometer, which evaluates business confidence by looking at their trading outlook and optimism about the economy, indicates that overall confidence has climbed to 44% — a rise of nine points from the month before.

This jump is the largest monthly increase since August and marks the highest confidence level since February 2022, during the UK’s recovery from the Covid-19 pandemic. Moreover, it represents the most robust beginning to a year since January 2016.

Tax Cuts Face Hurdles

Prime Minister Rishi Sunak may face challenges in reducing taxes before the next election due to recent comments from the International Monetary Fund (IMF) emphasising the need for investment in public services.

A spokesperson for the IMF said: “Preserving high-quality public services, and undertaking critical public investments to boost growth and achieve the net zero targets, will imply higher spending needs over the medium term than are currently reflected in the government’s budget plans.”

Chancellor Jeremy Hunt has indicated that there might be less room for tax reductions in the upcoming March Budget compared to last autumn.

Speaking to the BBC, the Chancellor expressed his desire to “lighten the tax burden” as a means to stimulate economic growth. However, he emphasised the importance of doing so in a “responsible” manner.

Energy Prices Impact Earnings

Oil and gas giant Shell has reported a decrease in its annual profits due to falling energy prices last year.

The profits for 2023 stood at $28.2 billion (£22.3 billion), a drop from $39.9 billion in 2022, the highest earnings in the company’s 115-year history.

Energy companies experienced record profits following the surge in oil and gas prices caused by Russia’s invasion of Ukraine, which led to fears of supply disruptions. Although household bills have decreased since 2022, they remain significantly high.

The rise in gas and electricity prices, along with petrol and diesel, began after the end of Covid lockdowns. Prices skyrocketed in March 2022 following the start of the war in Ukraine due to concerns about supply shortages.

Brent crude oil prices peaked at nearly $128 a barrel after the invasion but have since dropped to around $80. Gas prices have also decreased from their peak levels.

Judge Cancels Musk’s Pay

Elon Musk has announced that Tesla will immediately proceed with a vote among its shareholders to consider relocating the company’s legal base from Delaware to Texas. This decision follows a Delaware judge’s annulment of Musk’s $55.8 billion (£44 billion) compensation package from Tesla.

Reacting to the court’s decision, Musk advised against incorporating companies in Delaware through a social media post, stating: “Never incorporate your company in the state of Delaware.”

Delaware is popular among major corporations like Amazon for its lenient tax policies. However, this week, Judge Kathaleen McCormick criticised Tesla’s directors for their handling of Musk’s pay package in 2018, suggesting they were overly influenced by Musk’s “superstar appeal” and failed to adequately brief shareholders.

She described the agreement as “unfathomable” and ordered its cancellation. The pay package in question was the largest in US corporate history at the time, contributing to Musk becoming the wealthiest individual globally.

Housing Market Brightens

The UK housing market’s prospects are looking brighter, with the strongest price growth in a year reported by Nationwide.

Their index showed a notable 0.7% increase in the average house price in January compared to the previous month. This marks a significant recovery from December, when prices fell by 1.8%.

In January, the average house price in the UK was £257,656, slightly down by 0.2% compared to the same month last year.

Robert Gardner, Nationwide’s chief economist, said: “While a rapid rebound in activity or house prices in 2024 appears unlikely, the outlook is looking a little more positive.”

Farmers Protest at EU Parliament

Farmers expressed their frustration outside the European Parliament on Thursday by throwing eggs and stones, lighting fires near the building, and setting off fireworks. They were protesting to urge European Union leaders, meeting nearby for a summit, to offer more support with taxes and escalating costs.

The protesters attempted to dismantle the barriers in front of the parliament but were repelled by police using water hoses and tear gas.

These demonstrations are part of wider protests across Europe as the European Parliament elections approach in June. The far right, which has been gaining support among farmers, is expected to make significant advances in these elections.

“You know what’s happening: European elections are coming and politicians are super nervous and also the European Commission. And I think that this is the best moment that together all the European farmers go to the street,” said Jose Maria Castilla, a farmer representing the Spanish farmers’ union Asaja.

No Change to Interest Rates

The Federal Reserve decided to keep interest rates unchanged for the fourth consecutive meeting, indicating a willingness to lower them in the future. However, Fed Chair Jerome Powell tempered expectations for a rate cut as soon as March.

The Federal Reserve’s Federal Open Market Committee clarified that it is not hurrying to cut rates. In a statement made on Wednesday, the committee mentioned that it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation” is under control.

The Bank of England also held interest rates - at 5.25% - in its first interest rate decision of 2024. As with the Fed, it’s the fourth meeting in a row the central bank has decided to keep rates the same.

The bank said it will keep interest rates high for long enough to get inflation back to the 2% target.

Warnings of Higher Food Prices

The UK is implementing Brexit-related border controls next week, ignoring economists’ warnings that these measures could lead to higher food prices.

Delayed plans to introduce documentation for businesses in the European Union exporting animal and plant products to the UK will be enacted starting 31st January, according to a Cabinet Office spokesperson.

The government will require health certificates for medium- and high-risk food items, including live animals, hatching eggs, milk, cheese, meat, and fish. Physical inspections are set to begin in April.

Market Data

£1 buys $1.2632 or €1.1689. Gold is $2,037.55 an ounce, and UK natural gas futures are 72.30p/therm, down from 79.95p/therm at the start of January. The UK 10-year gilt yield is 3.793%, up from 3.539% at the start of January.

Kellands will continue to keep you updated on market developments on a regular basis. However, if you have any questions or need some financial advice in the meantime, please do not hesitate to get in touch.

 

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