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British ISA unveiled

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 8 March 2024.

| 9 min read

Wall Street charged ahead once more, with the S&P 500 hitting another record closing high boosted by increasing investor optimism about prospects for Federal Reserve rate cuts this year. In the UK, Chancellor Jeremy Hunt unveiled his Spring Budget, in which he unveiled a new “British Isa” in addition to current allowances. The news gave a slight boost to the FTSE 250.

Over the week, the blue-chip FTSE 100 index was -0.1% by mid-session on Friday, with the more UK-focused FTSE 250 trading +1.0%.

Budget

Jeremy Hunt has announced cuts to tax paid by workers from April, in a bid to revive Tory fortunes. The Chancellor of the Exchequer cut National Insurance by 2p in the last spring Budget before the next general election. The 2p cut on National Insurance is the second by the chancellor this year. Mr Hunt argued that it would make the tax system fairer and help revive the economy.

He also unveiled a “British Isa”. The Isa will give people an additional £5,000 tax-free allowance to invest in UK assets, on top of the existing £20,000 limit – and the news gave a small boost to the FTSE 250.

The windfall tax on oil and gas companies introduced after Russia’s invasion of Ukraine was extended by 12 months. The 35% surcharge on profits due to high energy prices had been scheduled to end in March 2028.

What does the Budget mean for you?

Economics

UK property prices rose on an annual basis for the first time in a year, according to Nationwide, but remain below their peak. The UK's largest building society said house prices were up 1.2% in February year on year. Signs of activity have been seen in the UK housing market this year after borrowing costs eased. Bank of England figures showed a rise in mortgage approvalsin the UK which reached the highest level in more than a year, as the housing market picked up. There were 55,227 mortgages given the green light in January, up from 51,506 in December, according to the Bank of England. This took it to its highest level since October 2022, just before the spike in mortgage rates following the mini budget by Liz Truss’s government.

The Federal Reserve is getting close to having the confidence it needs to start lowering interest rates, Chair Jerome Powell said in testimony on Capitol Hill. His remarks gave a boost to market expectations that the first reduction might come within the next few months, dragging shorter-dated Treasury yields lower and boosting US equities to new highs ahead of Friday’s closely watched report on US payrolls.

The euro is gaining popularity among central bank reserve managers thanks to a return to positive rates. Roughly one in five of the 75 central banks surveyed by the London-based OMFIF think-tank anticipate increasing euro holdings over the next two years. While 7% looked to decrease euro holdings, net demand was higher than for any other currency during the period and a jump from the 2021 and 2022 surveys of reserve managers controlling nearly $5 trillion.

Despite widespread economic weakness, China has set an ambitious growth target of 5% for 2024, as Beijing unveiled a series of measures aimed at boosting its moribund economy. Premier Li Qiang made the announcement at the opening of the annual National People's Congress. Measures to boost the economy include the development of new initiatives to tackle problems in the country's crisis-hit property sector and increased regulation of financial markets. The country also plans to boost new technologies, in areas including artificial intelligence (AI) and life sciences. Defence spending will also be increased by 7.2% this year.

Speculation is mounting that the Bank of Japan will raise interest rates this month for the first time since 2007, amid reports that some policymakers favour an early move.

Geopolitics

In the 16 "Super Tuesday" Republican primary races, Donald Trump came close to sweeping the board putting him on the verge of clinching the party's nomination. Mr Trump is now set to seal the nomination in upcoming votes over the next two weeks. As expected, both Biden and Trump prevailed in nearly every Super Tuesday nominating contest. Nikki Haley clinched her second victory over Donald Trump in Vermont, but she decided to exit the Republican presidential race, leaving Donald Trump on course to become the Republican nominee. Joe Biden also prevailed in the Democrat race, making a Trump v Biden contest almost certain.

US budget battles matter. What a Donald Trump or Joe Biden presidency could mean for investors, bonds and budgets.

Sales in China of Apple's iPhone fell by 24% in the first six weeks of 2024.

Moldova and France signed a defence cooperation accord as part of the West's efforts to strengthen the former Soviet state's capabilities amid what they fear are increasing efforts by Russia to destabilise the country. Moldova, a western neighbour of Ukraine, has a tiny defence budget and has long had tense relations with Moscow, which have worsened as Prime Minister Dorin Recean backs Ukraine in the war against Russia.

Hamas said it was pressing on with efforts to secure a ceasefire in Gaza with Israel despite the absence of Israeli negotiators from talks in Egypt. Negotiators from the Palestinian militant group, Qatar and Egypt are in Cairo trying to secure a 40-day ceasefire in the war between Israel and the Islamist group in time for the Muslim fasting month of Ramadan, which begins early next week.

Does Beijing want a recovery in equities?

The green and digital revolutions continue.

Company news

Sales in China of Apple's iPhone fell by 24% in the first six weeks of 2024 year on year, according to research group Counterpoint. During the same period China's Huawei saw its sales jump by 64% in its home market, the report says. This comes after Beijing expanded a ban on foreign devices by government agencies and state-owned companies in December. The ban aims to decrease reliance on US technology and promote the use of domestic brands.

Insurance group Legal & General posted lower-than-expected operating profits in 2024 amid tough market conditions. Assets under management fell 3% to £1.16 trillion with net client outflows of £38.4bn as investors chased better returns amid surging inflation and interest rates.

Informa upped 2024 guidance on Friday after strong growth in overseas markets boosted full-year revenues and profits. The specialist business-to-business events organiser and publisher saw revenues jump 41% in the year to December. Management attributed much of the growth to strong demand in overseas markets, including India, the Middle East and Africa.

Shares in Spirax Group (formerly Spirax-Sarco) surged after the engineering group lifted its dividend despite a dip in profits in 2023. Profits were held back by lower volumes in higher-margin work and restructuring and impairment costs. Management said although it was "cautious" about the outlook for global industrial production in 2024, it expected mid-to-high-single-digit organic growth in group revenues and low double-digit organic growth in group adjusted operating profit this year.

Beazley announced plans to return cash to shareholders, after annual profits at the Lloyds of London insurer topped $1bn. The company unveiled a share buyback programme of up to $325m. The results reflected the buoyant insurance market, where rates are rising. As well as cyber insurance, it was property insurance risk that drove the year’s performance. The company also benefited from an exceptional investment return figure of $480mn, more than double the previous year’s result as higher interest rates returned.

ITV reported a significant drop in annual profits as the sharp advertising downturn outweighed record revenues in its studios business, which made the recent hit drama Mr Bates v the Post Office. The UK’s largest free-to-air commercial broadcaster said pre-tax profits had fallen by 61% to £193m in 2023 after it was hit by a drop in advertising revenue as well as the planned investment costs in its ITVX streaming service.

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British ISA unveiled

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