Markets shaken by rate cut comment and oil hitting $90 a barrel, nervousness ahead of US jobs data and Shell sees slowdown in integrated gas division

“Storm clouds circled equity markets as investors started to fret about when interest rates would be cut given heightened inflationary pressures from oil hitting $90 a barrel and negative comments from a key figure,” says Russ Mould, Investment Director at AJ Bell.

“Minneapolis Federal Reserve Bank president Neel Kashkari questioned if the US central bank needed to cut rates at all this year if we continued to see sticky inflation. Investors don’t want to hear such comments but they aren’t blind to what’s going on. The economy is proving to be resilient; the jobs market has pockets of weakness but it’s not gone into freefall; and oil prices are going up which pushes up the costs of goods and services. On paper, the argument in favour of holding rates is growing by the day even though investors would dearly love to see cut after cut to relieve the financial pressures on consumers and businesses.

“Should the Fed decide to sit on its hands and do nothing, there remains a big risk that the US stock market could experience a wobble. It’s enjoyed quite a run since last October and a shift in the narrative could cause investors to lock in some of those gains.

“Jobs data later today will provide a clearer picture for how the Fed might be thinking. It will be looking for a Goldilocks scenario where the temperature has to be just right on non-farm payrolls and unemployment figures. If the jobs data is too hot it could spook markets as the Fed might feel under pressure to keep rates as they are. Too cold and it will see the market fret about a hard landing for the economy.

“Wall Street was not in a good mood last night and that negativity spread to Europe on Friday. The FTSE 100 fell 1% to 7,893 with 97 out of 100 companies in the red. The only ones in positive territory were Centrica, BAE Systems and Shell

“Halifax echoed recent comments from Nationwide that the UK housing market is subdued. Prices have fallen for the first time in six months as high interest rates have made mortgages unaffordable for a lot of people. The big question is whether this is a short or long-term issue.

“It’s hard not to ignore wage growth which is benefitting people’s finances and some of the housebuilders have suggested that consumer confidence is improving. There are certainly some green shoots, but property prices may not race ahead until interest rates come down, which implies we could be in a holding pattern for now.”

Shell

“Shell has teased its quarterly results ahead of time and despite a recent surge in commodity prices there isn’t a huge amount to draw people in for the main event.

“The company’s crucial integrated gas division is flagged to have delivered a strong performance in the first quarter but one which falls short of an exceptional final quarter of last year.

“On the flipside, production and LNG volume guidance for this part of the business has been upped and the company’s refining and chemicals arm enjoyed a better three months than it did in the last part of 2023.

“The latest update is a reminder of how many moving parts there are in Shell’s business. While this brings added complexity it also allows for some diversification which is useful given its exposure to volatile oil and gas prices.

“Chief executive Wael Sawan is keen to play catch-up with Shell’s US rivals which are afforded more generous valuations by the market and has insisted that while the company still remains committed to its net-zero ambitions, investments have to pay their way. The flagged losses in its renewables arm feel significant in this context.

“The company’s leading position in gas may end up making a greater contribution to the transition in the short term as a lower emitting alternative to oil and coal.”

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