Weekly Market Update- Week Ending 06/01/2023

As investors returned to their desks following the Christmas break, it was the same themes which dominated minds.

Worries over slowing economic growth, combined with an environment where central banks continue to raise interest rates, were balanced with the optimism surrounding the reopening of China and how this might boost global growth in the year ahead. In a short trading week, investment markets were mixed, with UK stocks largely being supported while US equities saw weakness as tech/growth stocks continued to come under pressure.

Sentiment towards UK retail stocks improved on Thursday, as high street giant Next reported that Christmas sales were better than expected. The company lifted its profit guidance for the year, and the whole sector benefited with investors hopeful the same trend will be seen from other retailers. Shares in Next closed the day some 7% higher on the news.

The oil price fell this week over concerns that global demand will slow in the coming months as economies come under pressure. Having reached a high of around $130 in March 2022, Brent oil now trades at roughly $78 a barrel, which is slightly lower than it was this time last year before Russia’s invasion of Ukraine.

Gas prices have followed a similar trend in recent weeks as the mild European winter has significantly reduced fears that there wouldn’t be enough supply following Russia’s move to cut off shipments. The price of Dutch TTF, considered the benchmark gas contract, fell to around €64 per megawatt hour, having peaked at €342 in August. Looking at the last five years, prior to concerns over an invasion of Ukraine, the same contract traded between a range of €5-€28. The continued fall in oil & gas prices should be deflationary in the months ahead and could mean that central banks won’t have to work so hard to bring inflation down.

John Naylor, Chartered FCSI – Head of Investment Committee