Investor Confidence Surges Into the Lunar New Year

Written by: Susannah Streeter | Hargreaves Lansdown

  • HL  index shows confidence has risen 12% on last month.
  • Confidence in UK economic growth has surged by a fifth since December.
  • FTSE 100 opens slightly higher after gains on Wall Street on Friday.
  • Confidence in UK economic growth jumps by 21%.
  • Brent crude slips a little but still up 12% year to date.
  • Euro gains on the dollar as ECB more appears more hawkish than the Fed.

Investor confidence has surged into the Lunar New Year after China lifted its drastic Covid restrictions and hopes have risen that the end to interest rate hikes may finally be in sight while there have been signs economies may prove more resilient in the downturn.  Stocks on Wall Street rallied on Friday, spilling over into gains for the Nikkei, although many other Asian indices remained closed for the holiday. Investor confidence has jumped 12% according to the Hargreaves Lansdown survey which tracks sentiment every month. The FTSE 100 has opened marginally higher, as quiet optimism continues to swirl.

Relief that inflation is finally past its peak is palpable, and there has been rash of data showing central bank policies aimed at dampening down demand appear to be working. We’re in the era when bad news is good news, with the snapshot of a depressed housing markets in the United States showing home sales activity was at a 12-year low, helping set off a rally in equities on Friday. Comments by Fed Governor Christopher Wallace were another salve for markets given that he indicated that falling prices combined with expected smaller rate increases, should do the trick of taming inflation,  adding to hopes the end to the hiking cycle is close. The comments also helped soften the dollar again, which will relieve further pressure on nations importing commodities priced in the greenback.

Guarded but slightly more upbeat analysis of the UK’s prospects by the governor of the Bank of England Andrew Bailey has also injected a shot of optimism. The HL survey shows confidence in UK economic growth has risen by 21% compared to last month. Although it’s still down 24% compared to last January, it’s jumped by 75% compared to September when the Trussenomics mini-budget sparked market mayhem. With financial stability returning and the forecast recession now expected to be shallower, optimism is returning that the economy will manage to tread water rather than sink in the year ahead.

Falls in energy prices over recent months have also eased some of the pressure on companies and consumers but there is still a note of caution from the European Central Bank that robust rate rises will be needed in the months to come. ECB governing council member Klaas Knot  indicated in a broadcast interview that the Bank would not be able to press pause on rate hikes any time soon given the risks inflation still poses. This pushed the euro up sharply to 1.09 against the dollar, a level not seen since April 2022. Crude oil ticked down a little but is still up around 12% since the start of the year with Brent Crude trading at $87 a barrel. With fresh interest rates to come and energy prices staying elevated as hopes rise that demand in China will snap back, the months ahead may still prove tough for European companies, who may struggle to pass on prices to cash-strapped consumers.

Related: Is the Fed Trying To Wean Markets off the Monetary Policy?