A mixed week for equity markets as sentiment swung back and forth almost daily. Investors are trying to interpret the Federal Reserve’s (Fed) next move as it continues to tighten monetary policy in the coming months to combat inflation.
Minutes from their latest meeting were released on Wednesday, which showed that policymakers agreed that half a percentage point increase in June and July would be appropriate. This provided some comfort, as there was fear that having been behind the curve, the Fed may have felt it necessary to increase interest rates at an even greater pace.
On Thursday, we saw Chancellor Rishi Sunak standing at the dispatch box announcing £15bn of new measures aimed at helping with the soaring cost of living. The package will see all households receive a £400 discount on their energy bill, with further support for pensioners, low-income households, and the disabled.
The packages announced will be partly funded by a £5bn windfall tax on energy companies. In order for this new levy to not discourage investment, the Chancellor announced a 90% relief for firms that invest in oil and gas extraction in the UK. Although it wouldn’t be publicly acknowledged, it is likely the oil major bosses breathed a sigh of relief as details of the tax were announced. It is certainly less onerous than many within opposing parties had demanded.
The relief was reflected in the share prices on Thursday, which saw BP gain 2% and Shell up nearly 1.5% to reach a new year high. Despite the new tax, with oil at $115 a barrel, the plan remains to use profits generated to pay down debt, increase investment in the energy transition, and continue to pay a rising dividend.
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John Naylor, Chartered FCSI – Head of Investment Committee