Week in Review: Oil giants act as drag on FTSE 100

FTSE NEWS

London-listed oil giants acted as a drag on the FTSE 100 on Thursday (28 October) after a sharp fall in the price of Brent oil. London’s blue-chip nudged 0.05% lower to 7,249.47 by the closing bell.

• CIPS/Markit give a health check to the UK’s manufacturing sector when they release their latest batch of PMI data on Monday (1 November).
• On Tuesday (2 November), Chancellor Rishi Sunak gives evidence to the House of Lords’ Economic Affairs Committee following the Budget.
• CIPS/Markit are back on Wednesday (3 November) with a snapshot of conditions in the UK’s dominant services sector.
• The Bank of England’s (BoE) Monetary Policy Committee decides on the path for interest rates (see Economic Update) at midday on Thursday (4 November).
• Halifax updates on the health of the property market with the latest iteration of its closely-watched house price index on Friday (5 November).

SECTOR IN FOCUS

Banks aren’t sexy, but they are gaining traction once again with investors.

Since the start of the year, Barclays plc (BARC), Lloyds Banking Group plc (LLOY) and Natwest Group plc (NWG) are up more than 38%, 41% and 45%, respectively, while HSBC Holdings plc (HSBA) is up more than 16%.

Why? There are many reasons, but the rising probability of a rate rise is one of the main factors.

The BoE has been dropping hints that it will soon raise rates in a bid to head off runaway inflation (see below). 

Inflation is expected to hit as much as 5% by the end of the year, putting pressure on the BoE to increase interest rates to keep a lid on price rises.

One of the reasons investors have shunned banks for the past decade is because of the low-interest rate environment, which has squeezed margins.

In theory, an increase in interest rates should be good for banks as it gives them an opportunity to increase the rates they charge on loans and mortgages.

Whether a rate rise has already been priced into bank shares or whether they still have some mileage in them remains to be seen, though.

ECONOMIC UPDATE

All eyes will be on the BoE on Thursday (4 November) as markets and investors wait to find out whether interest rates will rise or not.

Just last month, investment bank Goldman Sachs predicted that the BoE could hike rates from a record-low of 0.1% as early as Thursday.

Other market watchers have predicted the first rate rise in four years would come in December or February next year.

The speculation of an early rise was fuelled by the governor of the BoE, Andrew Bailey, who last month said the bank “will have to act” to rein in inflation.

However, this week BoE policymaker Silvana Tenreyro claimed a rate rise before Christmas would be unlikely.

FUND WATCH

With the United Nation’s 26th Climate Change Conference (COP26) about to kick off in Glasgow on Sunday (31 October), now may be the time to consider a fund that invests in firms trying to do good for the world. Royal London Sustainable Leaders C Acc (GB00B7V23Z99) invests in firms listed on the London Stock Exchange that are deemed to make a positive contribution to society. It has an ongoing charge of 0.76% and has returned more than 78% in five years.

ETF WATCH

If you are looking for a cheaper sustainable fund or one with a more global approach, you might want to consider VanEck Sustainable World Equal Weight ETF GBP (TSGB). This fund invests in around 250 firms in developed countries across the world that are deemed sustainable and has an ongoing charge of 0.2%. It only has one full-year track record, having returned nearly 30% in the past 12 months.

COMPANY ANNOUNCEMENTS

1 November – Despite a difficult 18 months for airlines, Ryanair Holdings plc (RYA) shares have recovered well, rising by nearly 40% over the past year. There is a feeling that airlines are in recovery mode at the moment, with Willie Walsh, director general of the International Air Transport Association, saying this month that airlines are “past the deepest point” of the pandemic. However, he did say that investors should expect further losses across the industry in 2022. RYA reports its interim results on Monday (1 November).

4 November – Supermarket chain J Sainsbury plc (SBRY) wrote to customers this week promising there would be “plenty of food” on the shelves, despite supply problems dogging UK firms at present. Investors will want to know how the global supply bottleneck is affecting sales when it reports its interim results on Thursday (4 November).