FTSE100 cracks 10k as 2026 picks up where 2025 left off

Michael Hewson (00:00)
Hello, welcome to this week’s podcast brought to you by The Good Money Guide and our sponsors Pepperstone who are a multi-regulated CFD broker trading CFDs in multiple destinations, forex stocks and commodities. Happy New Year to you all. Slightly more appropriately addressed this time. No more Christmas jumpers or anything like that. join me once again, Pepperstone Senior Market Strategist.

Michael Brown (00:01)
to this week’s podcast which is by The Good Money Guide and our sponsor Pepperstone.

Michael Hewson (00:28)
Michael Brown. Hello Michael, welcome to 2026.

Michael Brown (00:32)
Yeah, very good morning to you, mate. Happy New Year to you and to all our listeners. Hopefully that Christmas jumper has been consigned to a cupboard or maybe even better, the charity shop down the road from you. yeah, it’s been an interesting start to the year as we were just talking about, I think in many ways the first week of 2026 has been quite similar to the last three or four weeks of 2025. We’ve just kind of picked up

Michael Hewson (00:42)
the next 12 months it has.

Michael Brown (01:00)
where we left off, albeit with a bit more geopolitical noise in the mix than we had to deal with last year.

Michael Hewson (01:06)
Yeah, we’ll certainly talk about that at length, I think. And I think the bigger question is, does it set the scene for a continuation of the trend that we saw that predominated in 2025 outperformance in Europe, outperformance in the UK with the US lagging behind?

Michael Brown (01:23)
Potentially, I mean, I think it depends whether this is, and as you say, we’ll speak about this more momentarily, but whether this is kind of one and done or whether this is, as people are saying, Trump trying to go back to the 1800s and the Monroe Doctrine and looking at spheres of influence and all that sort of thing. Because if you are dealing with an environment where there’s a lot more geopolitical risk stateside, then yeah, perhaps investors are going to be a little bit spooked and seek to put their cash to work elsewhere.

Michael Hewson (01:51)
Or the Donro doctrine as it’s been relabeled.

Michael Brown (01:55)
I hate that, that’s why I didn’t use it.

Michael Hewson (01:57)
I know. Yeah,

no, it’s fair enough. Anyway, let’s get the risk warning out of the way. The information provided here, whether from a third party or not, isn’t to be considered as a recommendation or an offer to buy or sell, or the solicitation of an offer to buy or sell any security, financial product or instrument or to participate in any particular trading strategy. We advise any readers, viewers or listeners of this content to seek their own advice. Spread bets to see if these are complex instruments and come with a high degree of risk of losing money rapidly due to leverage.

71.9 % of retail investor accounts lose money when trading spread bets and CFDs with this provider. So Christmas is out of the way, New Year is upon us and we’re still talking about Trump, only this time we’re talking about Venezuela and the US’s actions there. Now you made a very interesting point there about the Monroe doctrine and spheres of influence and we’ve had the usual suspects losing their collective brains about

Michael Brown (02:40)
Yeah.

Michael Hewson (02:54)
fact that this is all about oil and the US wants Venezuela’s oil. I just I really just don’t buy that argument, never have bought that argument. This is about spheres of influence, it’s not necessarily about the oil.

Michael Brown (03:10)
Yeah, I would fully agree with you on that one. think without wanting to turn this into an oil market podcast, think the basics that people need to understand is one, yes, Venezuela has a lot of crude. It’s got the largest proven reserves of oil in the world. But that oil is of very, very poor quality to be refined into anything of any use, which means that it’s a very labor intensive and a very cost intensive process, which is not a process that’s economical with crude trading at 50 odd dollars a barrel.

Also consider that the oil infrastructure in Venezuela has essentially been left to sort of rack and ruin over the last decade or two, since it was all seized under the Hugo Chavez administration. So I agree, I think it’s more a case of wanting allies within the region. Venezuela is close to the Caribbean, is close to the United States as we all know, and perhaps more importantly than that, wanting to ensure that those countries who

you’re potentially not quite as allied with, i.e. Russia or China, are not benefiting either from geographically or from the resources within that country. So I think it’s a geostrategic play as opposed to we want some crude oil because the US is a net energy exporter these days. The US is self-sufficient from an energy perspective. If you want more crude oil, go and drill in Texas for God’s

Michael Hewson (04:26)
⁓ Doesn’t need it.

Yeah, exactly. They don’t need the oil.

Michael Brown (04:36)
Yeah, absolutely. And we’re already talking about a supply cloud. know, a global oil supply, a supply cloud in the United States. More barrels is not what we need at this moment in time.

Michael Hewson (04:38)
So.

And also that oil needs refining and refining is very energy and resource intensive process. So, you you’re going to have to throw an awful lot of money at it. having been burnt previously companies like Chevron, Shell, BP, they’re not going to throw billions of their dollars at a project if somehow there aren’t any significant security guarantees in place as well. So, you know, for me, this is about hands on the tap.

and at a very, I think, in a situation which is so geopolitically unstable, I think for the US to assert its dominance, if you like, strategically on a foreign policy basis over Venezuela, it’s a sensible move when China is being more belligerent and Russia is being more belligerent. And what’s the best way to keep your foes on edge by making sure that they can’t predict what your next move is going to be?

Michael Brown (05:46)
Yeah, absolutely. And just to go back to your sort of investment point of view, there was a private equity investor who’s quoting the FT yesterday. I’ve got to take a word out of this quote to make it appropriate for the podcast. It says, and I quote, no one wants to go in there, there being Venezuela, when a random tweet can change the entire foreign policy of the country. And that’s exactly the point where, you know, these big oil companies, yeah, fine, Trump’s meeting them in the White House today and talking about $100 billion of investment. But

Are you going to put your cash to work in a country and more importantly, put your people into a country where the situation is as volatile as it is at the moment? I think the answer to that is quite a clear no at this moment in time, which means that actually any sort of energy or energy stock implications from this are going to take months, if not years to come to fruition.

Michael Hewson (06:38)
Yeah, and I think Ryan put out a very interesting piece about the Greenland topic, I think a day or so ago, which I think also that’s been blown out of all proportion, because at the end of the day, think, you know, all people saying, you know, Greenland belongs to Denmark. Well, actually, no, Greenland belongs to the Greenlanders, actually. And

Michael Brown (07:02)
Yeah.

Michael Hewson (07:04)
you know,

Denmark’s behaviour towards Greenland hasn’t exactly been what I would call epic.

Michael Brown (07:10)
No, it hasn’t. And I think there’s a lot of hyperbole and there’s a lot of sort of what I would call over-extrapolation going on, which is people going, well, on Saturday morning, Trump flew helicopters into Caracas in Venezuela, which means next week he must be doing the same in Greenland. That’s not the case. But I think, again, it speaks to this idea of spheres of influence. If anyone’s wondering why Trump wants Greenland,

Don’t look at a flat projection of the Earth. Get yourself a globe, a good old-fashioned globe, and look at where Greenland is, and then compare that to where Russia and the United States are. Because if you were a Russian naval commander and the US had Greenland, you’ve got the UK, you’ve got the US, you’ve got Alaska, suddenly you’re feeling quite boxed in in the north of Russia. So again, it comes back to that point of wanting influence over your allies and your foes, effectively.

Michael Hewson (08:04)
Well, the US has already got a base on Greenland anyway, so I really don’t understand what the issue is. Anyway, let’s move on because this is more geopolitical and it’s less about markets.

Michael Brown (08:15)
Yeah, and actually just lastly on that, again, speaking of Ryan, as we’ll get him on the podcast, we’ve mentioned so many times, ⁓ as I said to you on Monday, this is Venezuela and Greenland. It’s a media narrative. It’s not driving financial markets at this moment in time.

Michael Hewson (08:33)
things get a little bit feisty it might but at the moment it’s a lot of it’s hyperbole it’s not it’s you know it’s the old thing about noise to signal ratio

Michael Brown (08:36)
Yeah, it’s a risk.

Absolutely.

Yeah, and that’s gone off the charts.

Michael Hewson (08:47)
Yeah,

it has. Okay. So basically we started 2026 the way we finished 2025 record highs more record highs But for the footsie 100, we’re now above 10k. Whoa. I mean, that’s that’s impressive The dax has also kicked on the s &p made a marginal new high The s &p 500 but we’ve also seen european markets that not the not so much the dax but the spanish ibex the mid 40 italian mid 40

they’ve continued to kick on. So the flows that are continuing to drive European markets in 2025, we’re still continuing to see a spillover into 2026. And that suggests to me that this bull run can continue for quite some time to come. Would you agree with that assessment?

Michael Brown (09:34)
would absolutely agree with that. think we had a relatively subdued couple of weeks over the festive period, as you would expect. participants have come back this week, the first proper trading week of the year. And that bull case from 2025 has just rolled on into the new year. We’re still looking at fundamentally a global economy that’s pretty resilient. We’re looking at earnings growth that is relatively robust. We had a number of retail reports in the UK this week, earnings season.

on Wall Street kicks off next week. And of course, you’re also looking at an environment where fiscal policy is going to get a lot looser, whether that be in the States, whether that be in Germany, whether that be in Japan, and also monetary policy is getting looser as well. all of that added to what is very, very strong upside momentum, as you just mentioned, in terms of those plethora of new highs that we’ve hit. And yeah, I really don’t think that there’s anything stopping this market for the time.

Michael Hewson (10:30)
And yet this week we’ve seen some mixed reactions to some of the company reports out of the UK this week. ⁓ I think, again, you talked about slightly looser fiscal policy. I’m not sure that applies to this particular government because they seem intent on screwing, yeah, I mean, they’re certainly screwing businesses left, right and centre and then basically then some are sorting U-turns.

Michael Brown (10:49)
It certainly doesn’t apply here, that’s true.

Michael Hewson (10:57)
in the process it’s not a particularly good look and it suggests a completely disjointed and incompetent approach to tax and fiscal policy.

Michael Brown (11:09)
Yeah, and of course the the Utah well potential Utah not actually sure it’s been announced yet on business rates is the latest one on pubs isn’t it and the rest of hospitality will follow.

Michael Hewson (11:13)
pubs hmm but is it a u-turn

is it a u-turn or is it just a watering down they’re still going to be paying a lot more just not as much as perhaps they would have been

Michael Brown (11:23)
They will.

Yeah, I guess it’s a sort of softening of the blow, but it’s still gonna be a pretty big blow.

Michael Hewson (11:29)
Yeah,

yeah. Anyway, so we’ve had a good start to the year. Obviously we’ve had Rachel Reeves claiming credit for the FTSE 100. God give me strength that woman.

Michael Brown (11:42)
I don’t even know where to start with that one. mean, you know, the Chancellor.

Michael Hewson (11:48)
The FTSE 100

is not the UK economy. How many times have I got to say it I’m going to continue to say it. Performance of the FTSE 100 is not a reflection of the government’s competence or incompetence. It’s a function of overseas earnings.

Michael Brown (11:51)
Yeah.

Yeah, 100%. And it’s either an incredibly poor attempt at political spin, which is bad enough, or it worse, the Chancellor genuinely believes that. And if that’s the case, then I think we should all be even more worried than we actually were because, you know, she shouldn’t be in the job.

Michael Hewson (12:15)
she’s not fit.

We know she shouldn’t be in the job anyway. I mean, she’s completely out of her depth. I mean, the whole Labour Party is like a student union cabal. Anyway.

Michael Brown (12:22)
Yeah, there is that.

It’s slightly harsh on student unions, to be fair.

Michael Hewson (12:32)
Well, you know, it depends on the student union,

I guess. Anyway, let’s… Earnings next. Blown the doors off again. Fourth quarter numbers. Really impressive set of numbers. The share price has rebounded quite strongly, but it’s not taken out the highs of last year quite yet. But again, you know, they’ve upgraded their forecast. Now expect full price sales to come in at £5.6 billion.

Michael Brown (12:37)
Anyway, earnings!

Michael Hewson (13:01)
an increase of 10.7%. And for fiscal 27, again, full year price sales growth of 4.5%, which I suppose is pretty modest when you consider what the price sales growth for this year was, or last year was.

Michael Brown (13:19)
Yeah, it is relatively conservative in terms of that

guidance, isn’t it? But again, we say there’s a time next report earnings, they beat and raise and they’ve done it yet again. I guess the one thing that I would pull out of that report is that pretty much all of the upside in terms of sales actually came from international sales as opposed to sales here in the UK. So if you’re looking for a sign of how the UK consumer is doing.

Michael Hewson (13:39)
Yeah.

Michael Brown (13:45)
then it’s perhaps not quite as rosy as the headline would imply. But from the company’s perspective, sales are growing at a hell of a clip on an international basis. And you would again be expecting at some point, well, when they next report for the first half of the year, another guidance upgrade, because that is just what they do.

Michael Hewson (14:06)
Indeed, I was looking at the UK sales and they were up by 5.9%, which was above expectations of 4.1%. But as you rightly say, international sales sort of 38.3 % increase. Obviously, that’s a much smaller proportion of sales in relation to the total sales. But ultimately, showed. Yeah, it’s showing. Obviously, it’s an evolving and it’s a growing market. you know, next continues to be a high street success story.

Michael Brown (14:23)
Yeah, and it’s coming off a lower base, of course. Yeah.

Michael Hewson (14:35)
And interesting that profit before tax guidance of 1.15 billion is a 13.7 % increase year on year. Interesting that the profit before tax guidance for 2027 is only modestly higher than that, at 1.2. So.

Michael Brown (14:52)
Yeah,

I wonder whether they’re trying to be a little bit cunning with that. Set an expectation low. You know, you’re going to clear it, upgrade it, unlock a bit of upside.

Michael Hewson (14:58)
I think so too.

You hope you’re gonna clear it So yeah, I mean we’ve seen it. We’ve seen a fairly decent reaction on the next share price But again, we haven’t taken out the previous peaks which suggests that perhaps Maybe next is fully priced

Michael Brown (15:06)
Excuse me.

Yeah, I we’re up about 3 % when they after the earnings, but it’s that sort of 14 and a half pounds level that they just don’t seem to be able to get through. So keep that on the radar.

Michael Hewson (15:25)
Yeah, that, you know,

is that the end now. Got the big food retailers, Tesco’s, Sainsbury’s, Marks and Spencer’s to a lesser extent. I think the bar was set earlier in the week by Aldi. I was reading a report about Aldi and they were saying it was their best ever Christmas, posting sales of 1.65 billion in the four weeks leading up.

Michael Brown (15:41)
Mm.

Michael Hewson (15:54)
Christmas with 500 million of that spent in the week leading up. in four weeks, 1.65, 500 million, that set the bar really high for Tesco’s and suggested that perhaps, maybe, Tesco’s and Sainsbury’s would lose out. They haven’t and yet to judge by the share price reaction, you know, we’ve seen big dumps in both Tesco and Sainsbury’s share price and I struggle a little bit with that. Is that because the bar was too high?

Michael Brown (16:23)
Yeah, well, I’m with you on this one. It has been a bit of an odd week because, you we can get into the figures in a moment, but you take Tesco, for example, sales were up just over 3 % in the six weeks to the third of Jan over that important Christmas period. And actually Tesco is now at their highest market share in a decade. So you take that on its own and you go, this is pretty damn good. I just wonder whether there is a degree, whether there’s two things at play. One,

almost sort of price to perfection. All the good news was in the stock, take profits on the trading updates. The second thing that I do just wonder whether it’s sort of playing on participants minds a little bit is that really strong Christmas Aldi reported. Are people now asking questions as to is this going to continue and is there going to be an impact in terms of eating away the market share or some of the other names as we move through the rest of the year? I.e. is it a one off or is it the start of a trend? But

On its own, it does all seem overdone in terms of some of this downside that we see in the retail names this week.

Michael Hewson (17:26)
I think it does because I was fully expecting Tesco’s and Sainsbury’s to potentially lose a little bit of market share to Aldi. That’s not happened. Tesco’s grown its market share. Sainsbury’s has also posted some very decent numbers this morning as well. On the back of its Christmas sales numbers. I was just going through them. Grocery sales were a standout performer, 5.4 % during Q3.

Michael Brown (17:43)
Yes.

Michael Hewson (17:51)
and 5.1 % in the six weeks to the third of January. You compare that to Tesco’s, it’s better than Tesco’s. And obviously, yeah, yeah, exactly. know, Sainsbury’s is down 5%, Tesco’s is down 2%. In fact, Tesco’s share price is currently sitting on its 200-day moving average. And the last time it touched that 200-day moving average was May last year. And it’s broken below the lows that we saw back in…

Michael Brown (17:58)
Yeah, they’re down 5 % this month.

Mm.

Michael Hewson (18:20)
towards the end of September at 428p. So on a technical basis, the Tesco share price looks pretty vulnerable despite the fact that the financials and the sales figures look really solid. they upgraded the guidance as well. They expect adjusted operating profit at the upper end of 2.9 billion and 3.1 billion pounds Tescos.

So they upgraded their profit guidance to the upper end, cashflow 1.4 to 1.8. Sainsbury’s have upgraded their free cashflow and kept their guidance unchanged. And the only, I think, downside in the Sainsbury’s guidance was obviously the performance of the Argos business, which, well, is anyone surprised by that? In a cost of living crisis, people are not gonna go out and start buying electrical items, clothes, and what have you. Yeah, they’ll go to Next for that. They won’t go to Sainsbury’s.

Michael Brown (19:12)
Yeah, exactly.

Hmm.

Yeah, no. And we all know that the Argos line, the merchandise line is much more cyclical in nature. we’ve discussed at length on this podcast, everyone involved in the UK economy knows that there is not exactly much rosiness out there at the moment. We haven’t had any economic growth since last August, for goodness sake. So again, as you say, why would that be a surprise? I would be looking very, very closely at where we end up at the end of the day.

⁓ you know do dip by a step in before the weekend does tesco hold on to that 200 day moving average because if it does and we do see a little bit more of a consolidation ⁓ then you’d actually start to look at you know potentially some some scope for a recovery in these names because the figures themselves are pretty solid everything’s moving in the right direction the guidance is moving in the right direction there is to my mind no real reason why we should be

5 % lower in sage bries and 3 4 % lower in tesco based on the updates that they’ve issued.

Michael Hewson (20:14)
I think people are focusing on the wrong things here. They’re focusing on the negative. They’re taking a bit of profit. You look at Sainsbury’s share price. It’s again, it’s just above the 200 day moving average. The lows in November were 300p. We’re still above that. We’re at 314p. But I think if we break below that and at 300p level is also where the 200 day moving average is. So we’re at some very key levels on Sainsbury’s and Tesco’s. ⁓

I think the big concern is obviously if Aldi and Lidl continue to take on these big supermarkets, are they going to have to cut their margins further? I think the thing with that is what these supermarkets are really good at doing is protecting those margins. And sometimes, or most of the time, it’ll be ⁓ operating costs that they will use to protect them with. that’s euphemistically staff.

Michael Brown (21:13)
Yeah, absolutely. And also, just lastly on this before we move on, that’s not a new concern either, particularly. We’ve been talking for donkey’s years now about the potential for these sort of discount value supermarkets to take market share. And as you say, they’re still protecting their margins. They’re still delivering very, very good levels of profitability. Again, it just feels like a bit of a stretch to be suddenly concerned about that right now.

Michael Hewson (21:42)
And Marks and Spencer’s on the other hand, not a great set of numbers, particularly in the general merchandising and their share price is up around about 10 % in the last two days. Because the bar was lower because of the cyber attack and they’re still suffering from that, but their food business like Sainsbury’s, like Tesco’s did very well. But because an awful lot of bad news, yeah, yeah. But because a lot of bad news was priced into that and the fact that

Michael Brown (21:56)
Yeah.

Yeah, really strong sales of food.

Michael Hewson (22:11)
we weren’t really able to take out that 310 level, which has basically been the lows of last year. We’ve seen an impulsive reaction higher on the back of the fact that potentially I think the market thinks, well, things can only improve from here.

Michael Brown (22:25)
Yeah, and I think that’s probably a reasonable bet, to be honest with you. As you say, the bar was so low, it’s basically on the floor, given the cyber attack and all the other issues that they had. But yeah, absolutely. You would say on balance, things can only go up from here. They are continuing to recover from that cyber attack and hopefully will be towards the end of that process. They’ve had very, very strong food sales up by 5.5 % over the festive period.

You know, you would be kind of going actually as we move into the new year, food sales are growing at a solid pace. The clothing and other merchandise sales should pick up along with that as they sort out the last issues from that cyber attack. And expectations are still probably far too low for where the stock might actually end up performing this year.

Michael Hewson (23:15)
think there’s one also thing we need to consider here. Obviously, Next was a key beneficiary of obviously the cyber attack because instead of going to &S, people went to Next instead. Now that Marks and Spencer’s is slowly getting back on its feet on the general merchandising, that stimulus from customers going from &S going to Next will start to see those customers drift back, hopefully. And as a consequence of that, you’ll probably see a rebound. But I was just looking.

Michael Brown (23:23)
Yeah.

Michael Hewson (23:45)
at Primark and Associated British Foods, and they’ve had an absolute shocker this week. Their shares are on the floor back at the lows of 2025, around about £18. So it’ll be interesting to see again, what we’ve seen this week is that if you’ve perceived to have missed expectations, you get absolutely punished severely. And if you do beat expectations, yeah, you’re rewarded, but the reaction is probably not as severe.

Michael Brown (24:15)
Yeah, and I think actually that is probably going to be a theme that we see roll over across the Atlantic into earnings season in the US next week. The market, probably more so in the States than in the UK, is essentially priced to perfection. So any downside surprise, any sort of negativity within the figures that companies report, no matter what sector, is going to be punished.

very, very severely indeed. if you want to have an example of what that might look like, then bring up a chart of associated British foods this week, because they’re down 13 % over the last week. It’s getting a bit ugly.

Michael Hewson (24:52)
Yeah, I think that’s 13 % down on the year already. But it’s interesting that they haven’t taken out the lows of last year. So look at the chart of associated British foods. We’re approaching a key chart point there. In fact, we’re approaching key chart points on Sainsbury’s, Tesco’s and associated British foods. So there is potential for a reaction there. Whether those supports hold, it’s going to be very interesting.

Michael Brown (24:58)
Hahaha

Not yet.

Michael Hewson (25:22)
next few weeks to see whether or not that happens. ⁓ But yeah, it’s been an interesting week for retailers. The patterns are quite clear. Food retailers are probably going to continue to do well in a very competitive market. Clothing retailers, you could start to see next customers moving back to &S and maybe people start going more to Primark because of the cost of living squeeze that continues to go on as the year progresses. So.

Michael Brown (25:49)
Yeah, think that,

yeah, I think there’s two things there. One is staples versus discretionary around, you know, the cost of living crisis. What I mean by that in plain English is everyone’s got to eat. You’re going to buy those staples. You’re going to buy food. Whereas those discretionary purchases, you know, do I want a new pullover or whatever it may be? If you’re, you know, if you’re tightening your belt, then the answer to that question is probably no. And then of course, as you said, of, or in UCLA, Pepperstone, if you’re listening, sponsored one.

Michael Hewson (26:13)
or a new GLA.

Ha

Michael Brown (26:18)
please. Times are tough. And the other one is increased competition because you know, not in both spaces, Marks and Spencer getting back on their feet. And then of course, Aldi and Lidl coming in in terms of the discount retailers.

Michael Hewson (26:35)
Let’s move on to &A. Slightly off topic, but obviously the topic this morning was Glencore and Rio Tinto. Now this is not, yeah, it’s not a new one, is it? It’s back on. ⁓ What are your thoughts on that?

Michael Brown (26:43)
Yeah, that’s back on, isn’t it?

Well, I think the first thing to say is it’s not a new one, but it does seem considerably more serious than when this was reported last year. So the FT reported late last night that Glencore and Rio Tinto were in talks on a merger once again. And they’re now actually going down the formal sort of takeover path. So Glencore have announced that to the market. I think Rio Tinto have got until the fifth of Feb to make a formal offer for the firm. Obviously, if it went through, would

create the biggest mining company in the world. will be an absolutely huge deal if and when it were to get done. Not entirely sure how straightforward it’s going to be. There will probably be a few ⁓ competition concerns around it to say the least. But perhaps the biggest sort of thing I’m starting to ponder around all of this is firstly, the whole industrial materials, basic resources story.

is one that we’re going to be talking about a hell of a lot as we move through not only this year, but the next few years, I think. Everyone is suddenly aware of rare earths. Everyone suddenly needs rare earths. And there aren’t enough of them in the world to go round, which would suggest that, well, one, price is going one way. And two, the price of those selling the picks and shovels to get them out to the ground is probably only going one way as well. The second is sort of close to the home.

Michael Hewson (27:59)
Mm.

Michael Brown (28:16)
Glencore is the 15th biggest stock in the FTSE 100. And if Rio Tinto buy them, do you really think they’re going to maintain a dual listing structure? Because I can’t see it myself and that’s going to be another hammer blow to the London market, I think.

Michael Hewson (28:20)
Thank

Yeah, assuming it goes through. I Glencore’s probably got a bigger commodities trading operation than Rio Tinto. So do you think that’s where the synergies are?

Michael Brown (28:39)
Go see it.

I think that is exactly where they’re looking. I think that’s exactly where they’re looking down. Rio Tinto will be wanting the commodity trading operation and Glencore will be saying, actually, the mining side of things we can get involved with on that front. So there are obvious synergies that could take place between those companies.

Michael Hewson (29:05)
an interesting one. As you said, the regulation angle will be a very interesting one because I would imagine that the Australian regulator will have something to say about it.

Michael Brown (29:16)
Yeah, I’m sure they will. again, just to broaden the conversation out a little bit, towards the middle of last year, we had the Anglo-American story. First, was BHP. Then they ended up merging with tech resources out of Canada. ⁓ And also, look at natural metal prices. Copper’s been hitting pretty much record highs every day this week.

there’s a bit of a tariff angle in there as well. this is not a story that’s going away anytime soon, I don’t think.

Michael Hewson (29:48)
So watch this space. I think is probably the takeaway from that. ⁓ Okay, so that’s this week. BP is selling its Castrol business. ⁓ That was over Christmas, yeah. ⁓ Any thoughts on that? looking at the share price, it’s done diddly squat.

Michael Brown (29:50)
Absolutely.

yeah, that was over Christmas, wasn’t it?

Yeah, well, my first thought is I’d actually forgotten that that happened because they rushed that deal out on Christmas Eve, which makes me slightly suspicious. I think they started for 10 billion. I think BP are going to use six of that to pay down some of their debt, which is something we’ve been talking about for a hell of a long time now. The other thing is it’s another sign of BP sticking to their knitting ultimately of being an oil and gas business.

getting those out of the ground and refining them. So, you know, I think it’s just more of the same. But again, I would rather they stop buybacks and use those funds as opposed to just selling off random parts of their business and random assets for arguably knocked down prices because everyone knows they want to get rid of them.

Michael Hewson (30:56)
Yeah, I mean that could still happen. think that could be something that Mr. Manifold might leave to the new CEO. So we might see another buyback in the next quarter, but when Meg O’Neill takes over in April this year, ⁓ she could turn around and say, basically take the brick bats for it if you like. We’re going to start focusing on getting the debt down.

Michael Brown (31:21)
Yeah, and I-

Michael Hewson (31:23)
and you shareholders will have to basically suck it up for six months or so.

Michael Brown (31:28)
Yeah, and I think actually, you know, on that new CEO coming in around Easter, I think that is if you’re going to frame, we want to stop our buybacks, the new CEO doing that as one of their first actions is actually framing that you would imagine the market could be okay with. Whereas if the current CEO was do that right now, you’d be saying, well, hang on a second, what’s going on? So yeah, I certainly wouldn’t be ruling that out.

Michael Hewson (31:53)
Well, he’s a lame duck CEO, isn’t he? So, you know, he’s going. Let’s talk about the US economy and look towards next week, but also talk about some of the numbers that we’ve seen this week. Obviously, we’ve seen ADP. We’ve recycled the argument about ADP and BLS and I chipped in. ⁓ I’m of the opinion that the ADP matters more.

Michael Brown (31:56)
Yeah, exactly.

Yeah.

Hahaha

Well, the ADP number showed. Yeah, I was going to say so ADP was up by 41,000 in December. We get the non-farm payrolls numbers in about two and a half hours time, so they may be out by the time that you guys listen to this. But I think fundamentally what we’re still looking at, I think consensus is at 70 for the payrolls number and unemployment coming down to four and a half. But fundamentally what we’re looking at is a labor market that is still in this mindset of.

Michael Hewson (32:21)
We’ve got non farms today.

What are we expecting for that?

Okay.

Michael Brown (32:50)
very slow or relatively slow hiring, but relatively slow firing as well. There is still quite a significant degree of slack. We had the November job openings data out this week as well, and that actually pointed to what we call the vacancies to unemployed ratio. That actually fell below one for the first time since 2021, four years ago. So that implies that basically there are more

⁓ workers looking for a job when there are vacancies, which is a sign that the labour market is continuing to loosen. And I think this just reinforces that the path or the direction of travel for the Fed’s fund rate through the year is going to be lower. We are going to get more rate cuts from the Fed as we move through 2026.

Michael Hewson (33:37)
this month.

Michael Brown (33:40)
think this month is probably going to be tough. Markets price at about 15 % chance, 1.5. If you get an utterly, yeah, we can come on to that in a second, actually, because I want to talk about CPI. If you get a sort of cataclysmically bad jobs report today, then the Fed are going to have to cut in January. But I wouldn’t be surprised if they do sort of skip that meeting. As you say, we do get

Michael Hewson (33:47)
We’ve got CPI next week.

Michael Brown (34:07)
CPI next week for December. The problem with that is the CPI numbers are now incredibly noisy as you’ve written in your note for the week ahead. Headline CPI came down to two spots seven percent in September. In November, the core number was down at two spots six. There were a couple of issues with this. One was that because the BLS couldn’t collect any data for October, they basically assumed that prices didn’t change at all in the month, certainly in key areas like shelter.

which would have skewed the number lower. And the second is the November numbers. They did all the surveying over the Black Friday period, where you’ve got a whole load of discounts coming in. So I don’t think the Fed are going to place much weight on those inflation numbers whatsoever, to be honest.

Michael Hewson (34:50)
mean, thing is, if you’re working off non-existent comparatives, then use the comparatives for September.

Michael Brown (34:57)
You’d think, you’d think. Now, then there may be a very good statistical reason not to do that, but I don’t know what it is. And I’m fully with you. You would take the comparatives from Setsama. I don’t know why they didn’t do it, but it means that the data is going to be messy for quite a while, which makes not only the FEDGE job harder, but it makes market participants’ jobs harder as well, because none of us have a particularly true read on

Michael Hewson (34:59)
mean that just makes sense to me. Why would you not do that?

Michael Brown (35:26)
on what the US economy is actually up to.

Michael Hewson (35:29)
Yeah, indeed. I mean, I’ve been looking at the ADP report over the non-farms report and there’s a clear trend in that, in that the jobs market has been slowly weakening in the second half of the year compared to the first half of the year. The first half of the year in 2025, we had strong growth in jobs and then since July, it’s been pretty weak. It’s either been negative or below 40-ish.

Michael Brown (35:54)
Yeah,

and I think the way I would sort of frame the labor, and you’re absolutely right, there is that big divergence between H1 and H2. And actually the divergence is really pre-April and post-April. And if anyone doesn’t know what happened in April last year, it was liberation day. A whole lot of tariffs suddenly arrived and everyone became a little bit shakier about the outlook. I think the way I’d look at the labor market at the moment is it’s kind of bending, it’s not broken yet. The question is, does it bend and then start to snap?

Michael Hewson (36:20)
Hmm.

Michael Brown (36:24)
and we see a re-acceleration and we see ⁓ the pace of hiring pick up and actually things start to improve as we move into the new year. And if you look at some of the surveys that we’ve had, some of the other data, the ⁓ NFIB hiring intention survey, that’s risen for four or five months in a row now. And we had the challenger layoffs data yesterday, which I think pointed to, if I can get it up on my screen here somewhere.

Michael Hewson (36:50)
You’ll

have to explain the NFIB. I know that’s business optimism, maybe our listeners won’t know what that is.

Michael Brown (36:58)
Yeah, sorry, you’re actually right. Here’s another business optimism survey, primarily of smaller businesses in the United States. And they’re indicating that they’re more more optimistic about hiring moving forwards. And then we had a good challenger layoffs number yesterday. That’s a survey that looks at the number of layoffs businesses are conducting on a monthly basis. And I think it was the lowest December layoffs in three or four years. there are some sort of

glimmers of green shoots starting to emerge. I think the way to look at things in the early part of the year is do we see those promising sentiment indicators actually follow through into the hard data into actual hiring taking place? Or do we see things continuing to roll over? And if it’s the latter, then that obviously raises the prospect of sooner fed action in terms of rate cuts and also more fed action in terms of

delivering more rate cuts than the roughly two that markets currently priced by the end of the year.

Michael Hewson (37:59)
Yeah, I would argue that the US labour market is flexing and it could break either way.

Michael Brown (38:06)
Yeah, and it’s just a question of which way it goes.

Michael Hewson (38:09)
We’ve also got retail sales out of the US for December. I don’t expect to see a particularly weak number there. I think you could get a bit of a rebound effect in the wake of the government reopening, the US government reopening as all those stimmy checks or benefit checks start to restart and people start to top up their income that they missed out on during the government shutdown. I think a little bit like what we’re probably going to see here in the UK.

in December for UK retail sales. They’re not out until much later in the month. But we might see a bit of a rebound based on those numbers that we’ve seen from the UK retailers this week.

Michael Brown (38:53)
Yeah, and again, it’s different reasons, but greater clarity, where as you say, in the United States, government shutdown came to an end. People have a little bit more certainty about their own personal economic situation. And here in the UK, the budget was obviously delivered at the back end of November. I’m not going to sing the praise of the budget. I think it was a pretty terrible budget. But there was certainty as to how are things going to pan out.

Michael Hewson (39:18)
and it’s already unraveling.

Michael Brown (39:21)
Well, exactly. This is the problem. It’s interesting actually on that, that the Chancellor has commissioned the OBR to do their first fiscal forecast of the year on, I think, the 3rd of March. So really trying to keep the gap between the budget and the first forecast basically as small as she possibly can, basically to try and keep the risk of something going wrong as minimal as possible, which is again trying to sort game the figures effectively.

Michael Hewson (39:51)
putting his finger in the dike anyway. Okay let’s move on to a continuum next week obviously it’s bank earnings season before we move on to that it’s UK retail again Premier Inn Whitbread PLC Whitbread. It’s not been a great quarter or certainly wasn’t a great end of year for Premier Inn their share price dropped from $3300 down to $2300 so you know

Michael Brown (40:01)
Mm.

Yes, Whitbread.

Michael Hewson (40:20)
lost quite a bit of ground. Started to rebound a bit. I stayed in a Premier Inn over the Christmas period. I’ve always liked Premier Inns. You get what you pay for and it’s fairly good value. It’s consistent.

Michael Brown (40:33)
is consistent as well across all of their ⁓

locations.

Michael Hewson (40:39)
It does appear to have rebounded, but it’s now running into a little bit of resistance at the 50-day and 200-day moving average. So I think their Q3 numbers on the 13th, they’ve really got to deliver, think, and they’ve got to see further improvement in the German business. I mean, it is still very much a small part of their overall revenue, but we saw a 2 % decline in first half revenue, which I think precipitated.

the slide that we’ve seen since October. So I think for me, we’ve got to see evidence of a pick up in its revenue, not only its revenue, but its profitability.

Michael Brown (41:22)
Mm-hmm.

Yeah, I make you absolutely right on that one. And I think the profitability point is key because as with basically every other UK business, it’s increased costs that are the big issue they’re facing. So yeah, the German business and the cost line are going to be the two things to watch over that report, I think.

Michael Hewson (41:32)
It’s costs. It’s costs.

So that’s on the 13th and we’ve also got second quarter numbers from Hayes, the employment agency, that’s still languishing, not surprising given the weak labour market backdrop. And we’ve also got fourth quarter numbers for house builder Persimmon on the same day, I think the 13th. Now Hayes is on the 14th, Whitbread and Persimmon on the 13th. Now we’ve heard an awful lot of chatter about the housing market here in the UK.

Michael Brown (42:04)
Yeah, they’re on the search engine.

Michael Hewson (42:14)
no one appears to have sold Persimmon’s share price because their shares have been on a decent run since August, up about 40%.

Michael Brown (42:23)
which is very peculiar indeed when you consider all of the trials and tribulations are going on the housing market here in the UK and also the fact that house price growth is as near as makes no difference just stagnating at this point. So yeah, again, you would imagine that given how detached you could say from the sort of broader fundamental backdrop they seem to be, they’re gonna have to kind of knock it out the park as well.

Michael Hewson (42:48)
They are in the right close to their June highs from last year. So £14, that’s a big, big level. That’s the level to watch and we’re just below it. So for me, the bar is incredibly high for Persimmon next week. And I think any indication of weakness, those share prices could be due for a little bit of a dump.

Michael Brown (42:56)
is the level of watch.

Yes, indeed, as we discussed earlier.

Michael Hewson (43:12)
without

wanting to jinx them in any way, shape or form.

Michael Brown (43:17)
Yeah, no, not at all. But as we discussed earlier, know, the market does seem to be in the mood where any misses are punished pretty damn severely.

Michael Hewson (43:25)
Yeah.

And it’s their fourth quarter numbers. So it’d be interesting to see what they have to say about their full year expectations. Are they still in line to meet them? Big question. Big question. 1417 is, know, 1417 was the highest in June 2025. So we’re close to that now, just below 14 pounds. Right. US banks. Brilliant quarter last quarter. Share price wise, they’ve continued to push higher.

Michael Brown (43:38)
Yes.

Michael Hewson (43:55)
knocked it out of the park on the Q3 numbers and now we’ve got the Q4 numbers for JP Morgan, Citigroup, Wells Fargo, Bank of America and Goldman’s. JP Morgan is first out of the box on the 13th. Continue to push on to new record highs. Trading side of the business continue to do well. Revenues increased 9 % in Q3. Can JP Morgan continue to kick on? And what does it tell us about the US economy?

Michael Brown (44:22)
We’d set.

Well, you certainly wouldn’t want to bet against them doing that, would you? mean, firstly, I would just say, well, actually, before I do that, whoever scheduled the bank earnings this year, thank you very much for spreading them out a lot more than they usually are, because that makes every analyst’s life just that little bit easier. We had a really, really strong year. Sorry, go on.

Michael Hewson (44:42)
I

No, I’m going to post a note on my sub stack about the earnings for the US bank. So if you want to read more about it, you know, go to my sub stack.

Michael Brown (44:54)
There we go.

We’re in a really strong year for the major Wall Street banks last year. I mean, think that the laggard was Bank of America and they gained 30 % in 2025, which gives you an idea of how strong the performance of some of these names was. And Citi was up by about 66 % on the year, which is quite frankly remarkable. I’m from a low base.

Michael Hewson (45:15)
Yeah, but Citigroup to be fair is well

below its record highs of 2007-2008. It’s well below them. So it’s got a hell of a lot… No, I don’t think they will either, but they’ve got some way to go to catch up JP Morgan and the others who are trading at record

Michael Brown (45:25)
Yeah, I’m not sure they’ll actually get back there to be honest, but yeah.

That is very true. Although on the city, their price to book is now north of one again for the first time in seven years. the market at least thinks they’re worth what the sum of their parts now. Anyway, as for bank earnings season more broadly, I really don’t think you’d want to be betting against the banks. Trading revenue should be solid. Once again, it has remained relatively volatile from a market perspective. Investment banking revenue should be pretty good because we are finally starting to see, as we’ve already discussed in this podcast,

a real pickup in &A activity and also in terms of IPOs and new listings, which is obviously going to be a boon for the investment banking side of the operations. I think from a sort retail and a consumer perspective, again, you’d be looking at credit provisions and what message that may send about the US economy. You know, as we said, the labor market kind of bending, kind of flexing a little bit.

are there any signs that the banks might be getting a little bit nervous about potentially some bad debts? I don’t think that’s anything worth worrying about too significantly. Again, there’s all this talk about private credit. That’s the other big concern that people appear to have at the moment. Diamond of JPM was previously talking about these cockroaches and all the rest of it. Again, I don’t think that’s a huge concern for the industry at the moment. So I think you’re looking at

probably a pretty strong bank earning season, which at the very least will underpin those gains we saw last year and at the most help to extend them.

Michael Hewson (47:08)
Yeah, we’ve gone radio silent about subprime auto lenders, haven’t we? I that was the topic du jour in sort of Q3. JP Morgan increased its provision for credit losses by 9 % in Q3 due to its exposure to tricolor holdings. Said it had no exposure to first brands and we’ve heard nothing more since. You know, is that a story that’s gone away now?

Michael Brown (47:34)
Well, I don’t think it’s gone away. mean, so Jeffery’s reported this week of this slightly smaller US bank. They took a 30 million dollar loss on first brands or stuff tied to first brands. So the story hasn’t gone away. I think it’s still sort of bubbling away in the background, but it’s not, you know, classic. Everyone saw the headlines and went, oh, my word, this is the end of the world. I don’t think it is. It does seem, excuse me, relatively.

isolated to those two lenders and a handful of banks that seem to have managed those risks relatively well.

Michael Hewson (48:10)
Yeah, I mean, because on the other hand, Bank of America reduced their provision for credit losses in Q3. it does suggest to me that the US consumer, while it’s finding life a little bit tough at the moment, they’re just about managing.

Michael Brown (48:24)
Yeah, and I think that’s probably the way that I would keep looking at things.

Michael Hewson (48:29)
Okay, well, that’s it for, I think, the first podcast of 2026, unless there’s something else you want to add, Michael, anything that we’ve missed.

Michael Brown (48:39)
No, think

that’s absolutely covered everything. mean, you know, it’s been an interesting start to the year. The next week should be pretty key with the pace of earnings starting to pick up. And then before we know it, it’ll be the back end of the month. We’ll be talking about the Fed and the BOE and the ECB as well.

Michael Hewson (48:55)
Yeah, mean political noise aside and obviously cost of living constraints aside, it’s been a decent start to the year for stock markets. Long may that continue.

Michael Brown (49:07)
Yeah, absolutely.

Michael Hewson (49:09)
and borrowing costs are also lower pretty much across the board. I was looking at the UK five-year earlier this week and it’s down to the bottom end of its recent range. And before anyone says anything, no, that’s not an endorsement of the government’s fiscal stewardship. It’s just a fact that bond yields pretty much across the globe are all slightly lower as people start to price in more rate cuts.

Michael Brown (49:32)
Yeah, that is absolutely right. It’s a reflection of certainly the moving guilt is a reflection of a more dour UK economic outlook than it is, you know, a sudden finding of faith in the government’s fiscal stewardship. Let’s make that very clear.

Michael Hewson (49:47)
but also lower oil prices is helping as well. Certainly I’ve noticed it at the pump. They’re coming down probably not as much as perhaps I would like them to. I think they should be lower, but you take what you can get, right? And the UK five-year is now at 3.87%, just above the lows that we saw back in October.

Michael Brown (50:13)
Yeah, certainly moving in the right direction. So let’s hope that continues.

Michael Hewson (50:17)
Okay, all right, well, we’ll come back this time next week or similar time next week and we’ll talk about US bank earnings and hopefully we’ll be talking about ⁓ more record highs in the FTSE.

Michael Brown (50:25)
day we will.

Fingers crossed. See you then.

Michael Hewson (50:31)
All

right, see you then. Cheers.