Market report: Nationwide to swallow Virgin Money and turn up for global trade

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  • Nationwide to buy Virgin Money in £2.9 billion deal bolstering its position against big UK banks.
  • House prices rise again for the fifth month in a row according to the Halifax.
  • FTSE 100 and FTSE 250 lose ground after the sugar-rush Budget lift.
  • Turn up for global trade as Chinese exports lift more than expected.
  • Fed Chair Jerome Powell keeps the door open to rate hikes while ECB set to hold.

Susannah Streeter, head of money and markets, Hargreaves Lansdown:

 ”Nationwide intends to swallow challenger bank Virgin Money, putting it in a position to challenge the might of the four big high street banks. The £2.9 billion deal came as a surprise but given the building society’s strategic aim it’s makes sense. It wants to bolster and diversify streams of funding, tap into business deposits, and give a rocket boost to the development of its services. A mutual taking over a listed bank is a rare move, but Nationwide clearly does not want to be stuck in the past and wants the know-how and access to scoop up future customers who demand more cutting-edge financial services. The Virgin Money board is minded to accept the deal, which at a 38% premium to yesterday’s closing price, may not be surprising given the difficulties faced by the company over the last year amid swirling cost-of-living pressures increasing credit card arrears. There will be some hand-wringing again over yet another listed company leaving the London Stock Exchange. Valuations are weak, weighed down by the highly sluggish economy, and to some extent the lingering effects of Brexit.

The dust is already settling on a UK Budget which offered a sweet rush of optimism for consumer-focused stocks, and now some of that positivity is ebbing away with the FTSE 250 dipping in early trade before making up ground. Reality appears to be sinking in that although the cuts to National Insurance may fire up some discretionary spending power the fiscal drag of freezing income tax thresholds will counter the effect. The FTSE 100 is on the back foot as oil prices dip back slightly pulling down shares in energy giants, although mining companies have had a bit of a lift thanks to some more positive export data from China indicating a potential improvement for the economy.

Chinese exports jumped 7.1% year on year in January and imports also shifted higher, signs that things may be looking up for global trade The better-than-expected readings indicates increasing demand for products in key markets and among domestic consumers. With interest rate cuts eyed on the horizon in countries hit by high borrowing costs, light is being glimpsed at the end of the tunnel and there’s more confidence to place orders. Weak factory output has been a drag on the economy, already weighed down by a crisis-hit property sector, which has affected wealth perceptions and consumer behaviour. The trade rebound comes from a low base and could partly be due to manufacturers slashing prices to secure deals, which may be why investors appeared underwhelmed, with key indices falling back. There is clearly still a lot of work to do to shore up confidence, and the People’s Bank of China has hinted that more stimulus could be incoming with the governor saying there is ample room for monetary policy and room to cut banks’ reserve requirements further. Hopes have been kept vey much alive for interest rate cuts in the US with Fed Chair Jerome Powell wedged the door open for an easing of monetary policy which lifted stocks on Wall Street, calming a case of the jitters. It’s decision day for the European Central Bank, and given underlying price pressures, policymakers are widely expected to keep their fingers firmly on the pause button. This would keep interest rates at record levels for the fourth time, even though recessionary worries are rising. Investors will have a keen eye trained on the Bank’s projections for the eurozone economy and will be hanging on the words of ECB President Christine Lagarde for any hints about when cuts will come. She’s stressed before that the Bank is driven by the data and needs consistent evidence that inflation and particularly wage increases, are under control before rates will shift downwards.”

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