Shell rows back on oil production cuts, Robert Walters in jobs market warning and all eyes on US interest rate decision

“Investors have a checklist of things to worry about, with interest rates, inflation and economic growth front and centre. Today, they get an update on all three,” says Russ Mould, investment director at AJ Bell.

“The UK economy has returned to growth with a 0.2% rise in GDP, showing the country is more resilient than predictions at the start of the year. While in relative terms it is not shooting out the lights, some form of growth is better than nothing given the current uncertain backdrop. However, the news wasn’t enough to trigger a rebound in UK stocks, with the more domestic-focused FTSE 250 index barely moving on the news.

“Later today will be PPI figures from the US, with the ‘Core’ reading expected to show a 0.1% month-on-month increase or a 3% rise year-on-year. This is a measure of wholesale inflation, showing the change in prices paid to producers of goods and services.

“Perhaps most important to equity and bond markets is the Fed’s interest rate decision, also due today. Yesterday’s consumer price inflation figures showed signs of softening in certain areas which implies the Fed might hold rates steady at 5.25%, ending a 15-month hiking campaign, albeit this may only be a temporarily reprieve.

“Inflation is still sticky in places, which means the Fed could potentially raise rates again later in the summer if it feels the economy is not at risk of entering a deep recession.

“International recruitment agency Robert Walters dived 14% after giving a gloomy insight into the state of the jobs market. While it didn’t specify which geographies were weak, it said candidate confidence remained low and companies continued to take longer to hire people.

“Businesses are watching their pennies in the current environment and there has been a growing trend, particularly in the tech and telecoms space, to cut jobs to try and become leaner entities, particularly after circa 18 months of intense cost pressures.

“In this scenario workers are likely to stay put rather than look for a new job, for fear they might join somewhere new and become the ‘last in, first out’ candidate if cutbacks are made later on. That’s bad for recruitment agencies because they thrive when there is a high turnover of people moving jobs.”

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“Is it net zero or adding zeroes to earnings and cash flow for Shell? The new boss at Shell has signalled a shift in the company’s strategic priorities as he announced plans to keep pumping oil at current levels out to 2030. This will underpin a higher dividend – with a notable increase in the proportion of cash flow which will be returned to shareholders.

“The move by Wael Sawan will likely be welcomed by shareholders as it puts Shell more in line with its US peers. He is signalling that renewables and clean energy projects are all well and good but they must pay their own way and if the returns projected are too weak, they won’t make the cut.

“In principle this is good business sense, however, the situation is a little more nuanced. As the effects of climate change become more obvious, political and regulatory pressures will ramp up.

“Already Shell is having to fight a Dutch court ruling ordering the company to cut its emissions. In the short-term, maintaining oil production undoubtedly makes financial sense but doing so exposes the company to new risks too.”

These articles are for information purposes only and are not a personal recommendation or advice.