04 March 2021

UK Shares Rally On Sunak’s Budget Plan

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News shaping
the markets today

     

What’s happening: UK shares recorded gains on Wednesday, following the announcement of a budget plan by finance minister Rishi Sunak.

What happened: Financial and homebuilding shares led the gains on Wednesday, with investors cheering upbeat economic projections for the UK.

Stronger-than-projected industry reports from the Eurozone also helped boost overall market sentiment.

Why it matters: Rishi Sunak, the British Chancellor of the Exchequer, presented the all-important budget plan on Wednesday, which included the government's tax and spending plans, along with recent estimates by the independent OBR (Office for Budget Responsibility).

Sunak announced fresh crisis support of £65 billion for the economy, which includes the extension of unemployment benefit top-ups and discounts for sectors hit the hardest by the pandemic. The country’s finance minister also announced a fresh 'restart' grant to aid the reopening of businesses that were forced to close due to the pandemic.

“The budget was more stimulative than expected in the near term,” said Samuel Tombs, Chief UK Economist of Pantheon Macroeconomics.

The OBR also issued strong projections for the British economy, with an estimated 4% growth this year and 7.3% in 2022. The country’s economy is now expected to return to pre-pandemic levels by mid-2022, which is six months sooner than the earlier estimates. Unemployment is expected to peak at 6.5%, versus last year’s forecast of 11.9%, according to OBR data.

Amid this good news, markets brushed off UK’s services PMI data, which came in at 49.5 for February, slightly weaker than the preliminary estimate of 49.7. The country’s composite PMI was also revised lower for February, from 49.8 to 49.6. The UK’s government budget deficit, meanwhile, widened to £355 billion, or 16.9% of GDP, during the 2020-21 fiscal year.

Investors focused instead on data from the Eurozone, which showed producer prices rising 1.4% in January, following a revised 0.9% rise in December. Eurozone’s services PMI was also revised higher to 45.7 for February, from a preliminary reading of 44.7.

London’s FTSE 100 has witnessed a rebound of over 35% from a pandemic-led plunge last year, driven by various stimulus measures and the quick rollout of covid-19 vaccines. However, markets remain concerned about an increase in inflation with the easing of lockdown restrictions.

The FTSE 100 settled higher by 0.9% on Wednesday, while the FTSE 250 added 1.2%, with sectors that were the hardest hit by the pandemic reporting the biggest gains. The wider housebuilder index rose 2.8%, while banking shares also recorded sharp gains.

Shares of Whitbread and British Airways owner IAG were among the strongest gainers on the London Stock Exchange.

What to watch: Investors await data on new car registrations, which had shrunk by 39.5% year-over-year to 90,249 units in January. The construction PMI is also scheduled for release today. The IHS Markit/CIPS construction PMI is expected to improve to 51 in February, from 49.2 in January.

Markets will continue to monitor the four-step lockdown easing plan announced by Boris Johnson last week. The plan is to lift all restrictions by June 21.

The Markets Today

     

Crude oil will be in focus today, ahead of the OPEC+ (Organization of the Petroleum Exporting Countries and its allies) meeting.

Context: Oil prices traded higher on Wednesday, after the EIA (Energy Information Administration) reported a massive decline in US petroleum product inventories.

Details: Data released by the EIA provided some optimism to the market, with US gasoline inventories recording the biggest single week decline in history. Inventories contracted by 13.62 million barrels to 243.47 million barrels in the week ended February 26. Distillate inventories also staged their biggest decline since January 2003, falling 9.72 million barrels to 143 million barrels in the week.

However, US crude oil inventories climbed by 21.563 million barrels last week, notching the strongest rise on record and coming in much higher than the market expectations of a decline of 0.928 million barrels.

Oil prices have appreciated by more than 25% year to date, backed by the OPEC+ group’s continued output cuts and hopes of a rebound in energy demand sparked by the rollout of covid-19 vaccines by various countries across the globe.

The OPEC+ will hold its all-important meeting today to decide the crude output levels of member countries for April. The OPEC+ Joint Ministerial Monitoring Committee meeting on March 3 ended without any recommendation on output levels. The OPEC+ will be discussing whether to proceed with a 500,000-barrel-per-day rise in April.

“Elevated price levels will incentivize the cartel to taper their output cuts, but given the uncertainty, the market is likely to be on edge heading into tomorrow’s meeting,” commodity strategists at TD Securities said in a note.

WTI (West Texas Intermediate) crude for April delivery gained $1.53 to settle at $61.28 per barrel on the NYMEX (New York Mercantile Exchange) on Wednesday, ending a three-session streak of losses. May Brent crude rose $1.37 to $64.07 a barrel on the ICE Futures Europe.

What to watch: Apart from the OPEC+ meeting, investors will look out for the EIA’s data on natural gas inventories, after working gas held in storage facilities in the US fell by 338 billion cubic feet in the week ending February 19.

Rising covid-19 cases remain a top concern for markets, with total global infections exceeding 115.1 million.

Other Markets: US indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.39%, 1.31% and 2.88%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Eurozone’s construction PMI, retail trade and unemployment rate, France’s construction PMI and retail sales, Germany’s construction PMI, Italy’s construction PMI, Turkey’s foreign exchange reserves, Argentina’s industrial production, Canada’s labour productivity as well as the US Challenger Job cuts, unit labour costs, nonfarm labour productivity, initial jobless claims, factory orders and Fed Chair Powell speech.

 

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