Market Overview

Dear Investor,

It’s the end of our first full week of 2025, and already some key narratives are starting to emerge both domestically and globally.

The market is growing increasingly wary of the government’s fiscal prospects, particularly after Chancellor Rachel Reeves announced a tight budgetary headroom in her recent fiscal plan. Rising yields are threatening to erode this already narrow buffer, raising questions about the sustainability of current fiscal policies.

Globally, attention has turned to China, where the renminbi has hit a 16-month low against the dollar. The currency’s weakness reflects not only domestic economic pressures but also the broader implications of a resurgent dollar and fears over incoming US trade policies.

Donald Trump’s proposed tariffs on Chinese goods are stoking concerns about export competitiveness, prompting speculation that the People’s Bank of China may have to allow further currency depreciation to offset potential losses. The central bank, however, remains steadfast in its commitment to maintaining stability, even as investor impatience grows.

We expect Trump tariffs and UK stagflation to be key narratives in Q1 and the fun has started already!

Wishing you a fantastic weekend,

Tom

Market Movers

On the rise: International Consolidated Airlines (LSE:IAG) +5.4% on the week

IAG is among the FTSE 100’s top risers this week, buoyed by a bullish outlook from Citi on European airlines…

Citi’s report emphasised IAG’s strategic advantages compared to its peers. While Lufthansa was upgraded to “buy” due to anticipated productivity gains and potential geopolitical benefits, such as a possible ceasefire in Ukraine, and Ryanair remained a top pick for its pricing power and cash returns, Air France-KLM was downgraded to “neutral” because of cost pressures and regulatory uncertainties in France.

IAG’s dominance in transatlantic travel, supported by its British Airways brand, aligned it well to benefit from the capacity constraints and pricing strength that Citi expected to continue. This optimism, combined with the airline’s market positioning, bolstered investor confidence and its share price performance this week.

REGENCY VIEW:

IAG was one of the FTSE 100’s top performers in 2024, with its share price surging nearly 91% over the year. Despite its high leverage and weaker liquidity ratios, the stock’s forward P/E of 6.2 and recovery-driven profitability suggest there’s room for further growth, underpinned by strong travel demand.

On the slide: Greggs (LSE:GRG) -22.3% on the week

Shares of Greggs tumbled to their lowest level since November 2023, as the company reported a notable slowdown in fourth-quarter growth. Like-for-like sales rose 2.5% in the Christmas quarter, falling short of the 5% growth achieved in Q3, as weak consumer confidence weighed on demand for its festive menu and core offerings.

Looking ahead, Greggs is leveraging menu innovation and customer incentives to counter weak consumer sentiment. Initiatives such as a January loyalty bonus for lunchtime sandwiches and the introduction of spicy vegetable curry bakes aim to attract footfall and drive sales. While the company faces rising costs, including higher employer taxes and minimum wage increases, it remains committed to delivering “another year of progress” by balancing cost pressures with its ongoing commitment to delivering affordable, freshly prepared food.

REGENCY VIEW:

Greggs has struggled recently as slower growth and a challenging market have dampened investor sentiment. Despite this, the company’s long-term growth potential remains intact, with steady revenue increases and plans to open up to 150 new locations in 2025.

Sector Snapshot

We’ve seen a clear split in our seven-day UK Sector Snapshot as we start the New Year. Energy, Healthcare and Materials are showing strength, while Utilities, Telecoms, Real Estate, and Consumer Discretionary are showing clear weakness.

Energy has been buoyed by OPEC’s decision to extend production cuts through 2026. While Consumer Discretionary has struggled following a lacklustre festive period. It remains to be seen if this New Year sector rotation is the start of a longer-term theme.

UK Price Action

The FTSE has rallied from the bottom of the range and started the New Year with strength. The index is now within touching distance of key resistance – an area if tested next week may see the market reverse.