US-Russia meeting & strong UK retail sales

Optimism that a diplomatic solution to the Russia, Ukraine conflict is still on the table is helping risk assets rebound. Strong UK retail sales & NatWest earnings add to the buoyant mood.

• UK retail sales rise 1.9% MoM in January, up from -3.7% in December
• NatWest swings into profit and announces £750 million share buyback
• Oil set for first weekly decline in nine weeks as US – Iran deal nears

Europe and Wall Street closed firmly lower on Thursday, with the latter incurring one of its largest daily losses so far this year.

Risk sentiment took a hit as Russia tensions spiked, amid accusations of firing over a ceasefire line and as the US deputy ambassador was expelled from Russia. Today is a new day and sentiment has improved on news that the US secretary of state, Anthony Blinken, has agreed to meet with Russia’s foreign minister, Lavrov, next week. With this meeting on the cards, the prospect of an imminent invasion has eased, lifting the market mood. Russia, Ukraine developments will continue to be closely monitored 

UK retail sales

Stronger than expected UK retail sales are also helping buoy the FTSE. Retail sales jumped 1.9% MoM in January, an impressive recovery from December’s -3.7% decline and almost double the 1% forecast. The easing of Omicron concerns and restrictions saw consumers hit the shops, shrugging off 5.5% inflation. 

Despite prices rising by the most in 30 years consumers are not being deterred, which could be in part owing to the strong jobs market and rising wages. Although, wages are not rising at the same pace as inflation, this isn’t appearing to hurt consumer habits, at the moment.

Today’s figures come following upbeat jobs numbers and an unexpected tick higher in inflation. The hat-trick of robust data could well prompt the Bank of England to hike rates again in the second quarter. GBP/USD trades mildly higher over 1.36.

NatWest

The banking sector could give the FTSE an added boost following upbeat results from NatWest. The bank reported a surge in annual profits boosted by Britain’s strong economic rebound, rising interest rates and the release of bad loan reserves. NatWest swung into pre-tax profits of £4 billion for 2021, after reporting £351 million loss in 2020. The bank also announced a 7.5p per share dividend and a share buyback programme of £750 million, to help boost the share price, which is up 7% so far this year, outperforming the broader market. The FTSE trades just 2% higher in 2022.

Oil

Oil is edging lower, extending losses from the previous session as fears of additional supply entering the market overshadow concerns surrounding Russia invading Ukraine. Both Brent and US crude rose to a 7-year high on Monday. However, both benchmarks are on track for the first weekly decline in nine weeks, amid reports of progress in reviving the Iran nuclear deal. An agreement could lead to oil sanctions being lifted and around 1 million barrels a day of Iranian oil returning to the market. Although the timing of such a move is still unclear.