Powell calms market fears on jobs numbers, FTSE 100 hits new record and Barratt cuts dividend

“Overnight the Federal Reserve chair Jerome Powell had just the soothing message the market was looking for,” says AJ Bell Investment Director Russ Mould.

“Concerns that last Friday’s bumper jobs report would see the Fed react to what it perceived as an overheating labour market were eased, with Powell’s relatively relaxed response possibly reflecting the seasonal anomalies which often affect the January numbers.

“Whether Powell will remain so relaxed if the next set of payroll figures are similarly elevated is open to question and investors will be keeping a close eye on next week’s US inflation figures for January. If there is any sign of a renewed uptick in prices, then the market would likely respond very negatively.

“For now, the positive sentiment has allowed the FTSE 100 to reach new sunny uplands, hitting a fresh all-time high. Now the milestone has been achieved though there may be a bit of an inquest into why it has taken the FTSE 100 so long when many of its global counterparts were making records years ago.”

Barratt Developments

“A slight improvement in the housing market in January has reassured shareholders in Barratt Developments but the company’s decision to cut its dividend suggests it is reacting to new realities.

“Announcing dividend cover for the full year will, as planned, drop to two times earnings implies a substantial drop off in second half earnings when you consider the reduced half-year dividend of 10.2p was covered 3.7 times by earnings.

“The decision to scale back the dividend is also a bit of an ominous marker for the rest of the housebuilding space.

“The company is continuing with buybacks, in a show of some confidence, but its foundations are getting creakier – lots of metrics are pointing in the wrong direction.

“One important area which has improved is the number of reservations per outlet, which in January bounced back somewhat from December lows, though still down markedly year-on-year.

“This reflects an easing of mortgage rates amid fresh competition between lenders and with many people expecting rates to peak in the UK soon, Barratt and its housebuilder peers will be crossing their fingers this trend continues.

“One thing is for certain, after years of having things their own way, with substantial state support for the sector, rock-bottom rates and soaring house prices, the backdrop for these companies is now a lot more complicated.”

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