Calm after the storm for markets as Ukraine fears ease, BHP and Glencore unveil big returns for shareholders

“Today marks something of a calm after the storm, as the FTSE 100 recovered some ground lost yesterday – when the market saw its biggest losses of 2022 to date,” says AJ Bell Financial Analyst Danni Hewson.

“The moves higher reflect some modest easing of tensions at the Ukrainian border, with Russian troops apparently returning to base for the time being. Oil prices retreated and shares across Europe were higher as investors breathed a sigh of relief.

“It remains a highly tense and uncertain situation though and the US and UK appear to still be warning of an imminent invasion which would likely create even more pronounced volatility in the markets.

“After all, it is very difficult for investors to price in a war, with considerable unpredictably about the outcomes if we arrive at a situation of armed conflict.

“The latest reminder of cost of living pressures in the UK won’t be lifting the spirits of consumer-facing businesses, with jobs market data showing living standards fell at the fastest pace in nearly eight years in December.”

Mining Sector

“Mining heavyweights Glencore and BHP don’t seem too worried about inflation. Soaring commodity prices are helping them to rack up big profits and dole out rewards to shareholders like an indulgent grandparent handing out sweets to a favourite grandchild.

“The record first half dividend declared by BHP and the $4 billion capital return unveiled by Glencore reflects their confidence in the future direction of metals and minerals markets.

“The two businesses might have more than a results day in common if speculation is any guide, with BHP linked in recent months with a tilt for Glencore as it takes advantage of its simplified structure to pursue major acquisitions.

“Whether Glencore’s continuing interest in coal would act as a poison pill to any deal though is an open question. BHP has turned away from the polluting fossil fuel, even selling one of its coal assets to Glencore in 2021.

“Activist investor Bluebell Capital has charted a plan for a Glencore coal spin-off, suggesting what might be a quite a neat dual share class solution, but so far the company seems highly resistant and dismissive of any such move, arguing instead they should be a responsible steward for these assets and run them down gradually over time.

“Glencore has also suffered with governance issues in the past but by setting aside $1.5 billion to cover the resolution of bribery and corruption investigations in the UK, US and Brazil. The company is taking short-term pain in order to clear some long-term clouds which would otherwise hang over the business.”

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