It was a volatile but broadly positive week for global investment markets.
Investors reacted almost word for word to a speech on Tuesday by Federal Reserve Chairman, Jerome Powell, where he expressed his view on the likely path for inflation and interest rates in the coming months. Investors are always eager to look for clues in his speeches, and after red-hot jobs data last Friday, this was even more so than usual. The US jobs report showed that nonfarm payrolls rose by 517,000 in January, almost three times the number analysts were expecting.
Overall, investors took comfort in his words and the main standout was the introduction of the word ‘disinflation’. Disinflation (not to be confused with deflation) means that prices are still going up but that the pace of the price rises is slowing. “The disinflationary process, the process of getting inflation down, has begun and it’s begun in the goods sector, which is about a quarter of our economy,” Powell said during an event in Washington. “But it has a long way to go. These are the very early stages.”
Not to be outdone by its bigger brother Shell, this week BP also announced record profits for 2022. Profits for the year soared to $27.7 bn, over double the $12.8bn seen in 2021. This beat their previous record in 2008 when tensions in Iran caused oil prices to rocket to $147 a barrel. The company increased the quarterly dividend by 10% and announced plans for a further $2.75bn of share buybacks. Net debt fell for the eleventh successive quarter to reach $21.4bn, having been $30.6bn at the end of 2021. BP’s share price reacted positively to the news and now trades at its highest level since 2019.
BP and Shell combined represent roughly 13% of the FTSE 100, adding in the banks (HSBC, Lloyds, Barclays, Standard Chartered and NatWest) takes up a further 10% of the index. Both sectors look well placed at the moment, with energy stocks enjoying a high oil price and more recently, banks benefitting from the elevated interest rate environment in the form of an improved margin between what they pay out on deposits and the rate borrowers pay on their debt. The performance of these sectors and the weights that they hold have certainly been a significant contributing factor in the index hitting an all-time high this week
John Naylor, Chartered FCSI – Head of Investment Committee