The Treasury has unveiled “robust” regulation in a bid to curb the riskier activities within the cryptocurrency sector and ensure better protection for investors. These assets, which remain largely unregulated in many global jurisdictions, will be overseen by the Financial Conduct Authority, which until now has only examined potential money laundering breaches by cryptocurrency firms. The new regulations aim to strengthen custodian rules – widely seen as one of the major problems surrounding the collapse of FTX, formerly the world’s largest cryptocurrency exchange. The government insists that this does not mean it has dialled down its ambitions to be a global hub for this growing industry, but it is obviously hoping a better-regulated environment might attract more serious businesses and investors, while keeping out the cowboys.
Pension schemes may have lost billions in the market turmoil that followed followed Kwasi Kwarteng’s disastrous mini-budget. As prices plunged, the Bank of England was forced to step in with emergency funding to buy up £19.3 billion of gilts, and so prevent a number of major pension schemes going to the wall. However, in an update on its recent operations this week, the Bank revealed it has since sold these “temporary holdings” for £23.1 billion, netting around £4 billion in profit. This perhaps makes the UK central bank perhaps one of the only winners from the short-lived Liz Truss premiership.
… But Bank Chiefs are About to get a Telling Off
The cost of mortgages, loans, credit cards and other debt, such as PCP car finance deals, have all increased sharply since the Bank of England started raising interest rates last year. But the returns paid on savings products and current accounts have edged up far more slowly, and now, MPs want to know why. The Treasury select committee has called in the bosses of the UK’s biggest banks to explain, but NatWest’s chief executive Alison Rose – who was made a dame in the most recent New Year’s honours list – has declined the invite. Apparently, she is busy preparing the bank’s annual results, due on February 17. The CEO of Lloyds has accepted, as have the heads of Barclays’ and HSBC’s retail arms. It remains to be seen who NatWest sends in her place next week, or whether the select committee will simply leave an empty chair.
Growth is Roaring Back in Style
Despite wider economic woes outlined above, the stock market has enjoyed an excellent start to the year, with growth stocks roaring back. This was seen this week, with shares in Meta (META) rising on the back of more buoyant sales forecasts. The owner of Facebook and Instagram personified many of the problems that have beset the technology sector through much of last year – and caused many previously high-flying funds to bump back down to earth. But this isn’t the only sector that has enjoyed a turnaround at the start of this year. Morningstar data for January shows growth sectors, including US funds, global large cap growth funds, Chinese equites and the technology sector enjoyed a standout month, with many of the worst-performing funds at the end of 2022 now in the top decile of performers.
… Just Not for The UK’s Economy
The International Monetary Fund (IMF) has downgraded its outlook for the UK economy for a second time, predicting it will be the only country next year which will see GDP decline. This somewhat bleak analysis puts the UK behind Russia — which is currently coping with extensive global sanctions due to its invasion of Ukraine. But as politicians are fond of pointing out, forecasts aren’t always accurate. If you want a slightly more upbeat outlook, the Bank of England, after its 10th consecutive interest rate hike, said it is now expecting a UK recession to be “milder and shorter-lived” than previously predicted. Well, perhaps not exactly upbeat but a little less doom-laden.
Groundhog Day on Bumper Payout for Oil Companies
The second day of February is Groundhog Day, with these trusty North American critters apparently able to predict whether spring is on its way or not. And there was a Groundhog Day feel to the news on that day that Shell (SHEL) was, once more, reporting record profits. You could be forgiven for thinking you were looped in the film, where every morning the radio alarm ticks round to 7am, but rather Sonny and Cher blasting out, it’s the news that an oil and gas giant has made bumper profits while consumers face ever-escalating bills. Yes, there’s always talk of windfall taxes, investment in renewables and structural reform of the energy sector, but change remains elusive. To put this latest announcement into some context: Shell’s profits of $39.9 billion (£32.2bn) for 2022 are double what it made the year before, which was itself seen as a stand-out year, and they are the highest in its 115-year history. Back to Punxsutawney in Western Pennsylvania, and the groundhog apparently did see its shadow, which according to weather-lore forebodes another six weeks of winter. Looks like we’re still stuck in the loop, and it will be another year of soaring profits for Shell.
UBS Profits from Credit Suisse Misfortunes
Switzerland’s largest bank UBS is profiting from its main rival’s misfortunes. Profits at UBS were up 23% year-on-year as its wealth management business was buoyed by clients transferring from Credit Suisse, which has been hit by a series of problems in recent years. The bank, once a byword for corporate respectability, has found itself mired in scandals which have covered corruption, money-laundering, covert surveillance, breach of Covid rules, and a number of investments imploding. Last October, nervousness around the bank’s financial health mounted, leading to withdrawals by some of its more cautious wealth management clients. Meanwhile, UBS could be seen throwing shade in its recent results, as chief executive Ralph Hamers pointed out that clients were turning to them “for advice and stability”.
Women in Control at Severn Trent
Severn Trent will become the first FTSE 100 company in history to be led by an all-women top team, when Helen Miles becomes its finance chief in July. She will join the CEO Liv Garfield and Christie Hodgson, the company’s chairwoman. Despite renewed focus on gender equality in the boardroom, the leadership teams at most FTSE 100 companies remain heavily weighted towards men. However, the FTSE Women Leaders Group pointed out that the water industry appears to be leading the way, with a number of other large companies, including Thames Water and Pennon/South West Water headed by women, and a female CEO about to take over at United Utilities/North West Water.
Tobacco Remains the FTSE’s Biggest Dividend Payers
The stock market has had a good start to the year, but for investors looking for dividends there has been a few shocks. That includes Direct Line’s (DLG) dividend payment cancellation and subsequent CEO exit. Our updated list of FTSE dividend stocks however shows that British American Tobacco (BATS) – a stalwart dividend payer – remains in the top slot with an expected yield of 7.17% for the year. It’s followed by fellow tobacco manufacturer Imperial Brands, and then BT (BT.A), GSK (GSK) and Schroders (SDR), expected to yield 5.93%, 5.41% and 4.25% respectively. The full table is available and shows, although it is early in the year, a number of top payers have delivered double digit share price growth in the year to date. With earnings season truly reaching its peak in February, we also provide a list on when to expect the biggest moaty payers to reveal their results.
Mystic Meg of Wall Street Predicts Another Crash
Not everyone is encouraged by the January’s buoyant stock market. Jeremy Grantham, co-founder of GMO – known in some circles as the prophet of Wall Street – highlighted a statistical trend this week, which he says often results in share prices rising during this stage of the US presidential cycle, before falling back again. He says the period after the mid-terms often results in additional short-term economic stimulus, with an incumbent administration looking to create jobs and wealth for would-be voters. In an analysis, cheerfully called “after a timeout, back to the meatgrinder!”, Grantham predicts the “froth” is not likely to last, with his “most pessimistic” scenario analysis indicating stock markets could halve in value. His predictions might seem a far-fetched, but it is maybe worth remembering that Grantham called the peak of the Japanese property bubble in 1989 and the technology crash in 2000.
