Investors are keeping a low profile in UK equities for now. This is not the time to play the hero and aggressively pile into stocks. Although the FTSE 100 has a strong weighting towards commodity companies, the cyclical nature of these businesses remains a clear risk factor.
Many of these companies are currently benefiting from supply-chain disruptions caused by the war in the Middle East, but over the medium term, the effects of a noticeable slowdown in the global economy are also likely to become visible in their operating performance.
The property and construction sectors are receiving support at the start of the week from the announcement of a government housing support programme. Under the name “Your First Home”, purchases of properties from developers are to be subsidised by the government, making home ownership more accessible to private buyers.
Over the medium term, however, developments in the bond market could work against these efforts. Rising yields have already led to a significant increase in mortgage costs. It therefore remains to be seen whether the government’s intended goals of supporting the UK construction sector can be achieved sustainably in the current market environment.
Ultimately, UK consumers must be willing to commit to long-term financing at today’s interest-rate levels.
