Must read: FTSE 100 starts week in the green, First Republic Bank, house prices, BP

Our head of investment rounds up the morning's big news.

EUROPEAN MARKETS

Having ended Friday on a positive note ahead of the long weekend, the FTSE 100 has opened higher driven by HSBC Holdings (LSE:HSBA) and the UK housebuilders such as Persimmon (LSE:PSN). BP (LSE:BP.) is among the worst performers today after earnings, as well as miners like Rio Tinto (LSE:RIO) and Anglo American (LSE:AAL). Broader European indices are trading mostly in the green with the DAX currently up ahead of a busy week for central banks and economic data.

• Invest with ii: Top UK Shares | How to Start Trading Stocks | Open a Trading Account

CENTRAL BANKS

The RBA in Australia surprised the markets by raising rates by 25 basis points to 3.85%, lifting the Aussie dollar and putting pressure on the ASX, which bucked the trend for broader strength across markets in Asia. This is despite softer Australian inflation data last week and marks a change from its previous decision in April when it kept rates on hold at 3.6%. The RBA kicks off a mega week for central banks rate decisions with the Fed on Wednesday, the ECB on Thursday and the Bank of Japan on Friday with the yen languishing at a 15-year low against the euro amid growing interest rate differentials as Japan remains the outlier by sticking to ultra-accommodative monetary policy.

Beyond rate decisions, all eyes will be on Friday’s US non-farm payrolls report for clues into the strength of the US labour market and the risk of a recession stateside.

FIRST REPUBLIC BANK

Concerns about the health of the mid-sized US banking sector continue after JPMorgan Chase & Co (NYSE:JPM) rescued First Republic Bank (NYSE:FRC) on Monday, saving the lender from the largest banking collapse since the height of the global financial crisis in 2008. The KBW regional banking index shed 2.6% on Monday as the turmoil triggered broader nervousness across the sector. However, the major Wall Street averages stateside were relatively unscathed with the Dow Jones and the S&P 500 closing just below the flatline. JPMorgan closed higher by more than 2% after the deal allowed the banking giant to scoop up more US market share.

UK BRC SHOP PRICE INDEX 

Food price inflation hit 15.7% in April, rising from 15% month-on-month to hit the highest level since records began in 2005. According to the British Retail Consortium (BRC) overall inflation fell to 8.8% versus 8.9% in March thanks to discounting on clothes and furniture. However, ready meals continue to soar on the back of production and packaging costs. The BRC’s CEO Helen Dickinson said food prices should come down in the months ahead as cost pressures ease.\

While inflation remains elevated, there are incipient signs that price pressures are starting to cool. The hope is that food prices will come down in the months ahead, although it is more likely that price growth will just slow instead in the near-term as consumers continue to feel the squeeze from rising weekly food bills. The unfortunate nature of the type of inflation the UK is facing is that it is affecting essential items such as food, hitting those at the lower end of the income spectrum most acutely, particularly with real wage growth stuck in negative territory. 

Ongoing food price inflation combined with falling wholesale costs has raised questions about whether businesses are profiteering by keeping prices elevated. This is something that companies such as Unilever (LSE:ULVR) and Sainsbury (J) (LSE:SBRY)’s have been quick to deny. The ratchet effect means the prices tend to go up more quickly than they go down, raising the risk that inflation hangs around for longer.

• Lloyds Bank and NatWest among FTSE 100 mega-dividend payouts in May
• Insider: a big boardroom bet and massive sale at FTSE 100 hot stock 

UK NATIONWIDE HOUSE PRICES

The Nationwide UK house price index saw the market rebound by 0.5% in April month-on-month snapping a seven-month streak of falling house prices, outpacing expectations for a drop of 0.4%. While house prices still fell by 2.7% year-on-year, this was better than forecasts for a drop of 3.6%. The average house price rose to £260,441 versus £257,122 in March with Nationwide’s chief economist Robert Gardner pointing to ‘tentative signs of a recovery’ in the market.

Over the past eight months, the housing market has been attempting to regain a sense of normality after the chaos around September’s mini budget which sent mortgage rates soaring and potential homeowners fleeing from the market. With mortgage rates since easing, the Bank of England near the peak of the rate hiking cycle, consumer sentiment improving, and inflation seen cooling this year, mortgage applications have started to pick up again with buyers cautiously coming back. Spring tends to be a seasonally busy period for the housing market as the sunshine brightens demand and draws in more sellers ahead of the summer holiday lull.

Following the improved data, UK housebuilders are trading near the top of the FTSE 100 with Persimmon, Barratt Developments (LSE:BDEV) and Taylor Wimpey (LSE:TW.) among the best performers on the UK large-cap index today.

BP

BP reported underlying replacement cost profit, a closely watched earnings metric in the industry, of almost $5 billion, ahead of expectations for $4.3 billion. This is its second-best result since 2012 thanks to strong oil and gas trading.

The oil giant continues to return cash to shareholders through its share buyback programme albeit at a slower pace, purchasing $1.75 billion of shares over the next three months versus $2.75 billion in the previous three months. It expects to deliver buybacks of around $4 billion per year, at the lower end of its range. While it kept its dividend unchanged, BP said it has the capacity for an annual increase in its dividend per ordinary share of around 4%.

While profits remain sky high, earnings eased year-on-year from $6.25 billion in the first quarter of 2022 when oil prices surged following Russia’s invasion of Ukraine. Since the 2022 highs, Brent crude has been steadily on the decline, shedding around 22% over the past 12 months, currently trading at around $79 per barrel, weighed down by nervousness about demand amid the sluggish macroeconomic backdrop. Gas prices have also been cooling after a milder-than-expected winter in Europe.

There have been concerns about excessive profits by oil giants like BP at a time when many individuals and households are struggling with the cost-of-living crisis. This has prompted questions about whether BP and others should be paying greater windfall taxes to redistribute these earnings towards key government spending such as on the NHS and public sector wages.

BP has also come under criticism about its climate strategy having pared back its emissions pledges in February. While economies are trying to wean themselves off fossil fuels amid the challenge of global warming, capex into the oil and gas industry has slowed as investors shift away from heavily polluting energy towards low-carbon alternatives instead. This could underpin prices as supply remains constrained even as demand weakens, boosting earnings for the likes of BP.

Shares in BP are under pressure today, pricing in the reduction to its share buyback programme.