The FTSE 100 was set to finish the week on a high as the index rallied into the close ahead of the Easter break. Higher oil majors again provided a boost to the index in what was a broad rally with cyclical sectors leading the charge.

The FTSE 100 was 0.9% higher at the time of writing while the German Dax added 0.3%. US stocks were flat to slightly down after a softer session overnight.

The concerns about the health of US economy evident in US stocks were shaken off in Europe where the focus was on oil prices and the relative value of cyclical names after the recent sell off.

Many European equity exchanges will be closed tomorrow when March’s Non-Farm Payrolls will be released. The US has recorded strong job creation so far in 2023 – but there are worries this will start to slow and shows signs of a contractionary environment.

“The market will look to the March number and also any revisions to January and February to take the temperature of the US economy. Upward revisions usually indicate strength, downward revisions can be suggestive of a weakening or loss of economic momentum,” said Danni Hewson, head of financial analysis at AJ Bell.

A disappointing set of US manufacturing data yesterday led to a softer session for US stocks overnight. US manufacturing PMI data for the month of March declined demonstrating a slow down in US economic activity.

“Following a weak readout for US manufacturing earlier in the week the US Services PMI index fell from 51.2 in March from 55.1 in February and well below consensus forecasts of 54.5. There’s further signs too of a weakening US labour market  with private sector hiring rising by just 145,000 in March, down from 261,000 in February and below the estimate for 210,000,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

Many economists are now predicting a US recession, the timing of which varies dramatically.

FTSE 100 strength

Notwithstanding concerns about the US economy, UK and European shares were upbeat and showed a rare disregard for happenings across the pond.

This may be down to lower volumes ahead of the holidays. Nonetheless, there were plenty of reasons for cheer across FTSE 100 stocks.

Shell shares gained after providing a positive insight into Q1 activities. Shell shares were 2% higher on strength in their LNG business and hopes of strong cash generation.

Admiral Group, BT and Unite Group were among the top risers as they continued recent rallies.

UK banks Lloyds, Barclays and Natwest built on their recoveries from the recent banking crisis. Barclays was trading above 150p while Lloyds looked set to attack 50p.

Shell doesn’t leave their investors in the dark for long and this morning issued an insight into performance for Q1 ahead of Q1 results set for release 4th May.

The main takeaways from the update were higher LNG volumes and earnings, and the front loading of taxes. LNG production is expected to rise to between 930 – 970 kboe/d in Q1, an increase on Q4’s 917 kboe/d.

Operating expenditure is expected to be lower across their oil and gas business which bodes well for cash generation in the first quarter 2023.

Shell shares were 2% higher at the time of writing.

“In its usual teaser ahead of quarterly results Shell is flagging a big loss – but there is a reason investors are brushing this news off,” said Danni Hewson, head of financial analysis at AJ Bell.

“The anticipated loss is a quirk of accounting – reflecting one-off tax charges which could well be the result of booking the impact of future windfall taxes upfront. Based on the performance of the company’s other business units you would still expect Shell to be generating plenty of cash to fund its dividend.

“Volumes in its liquefied natural gas business are expected to be higher and its oil products division is also performing well.

“A recent spike in oil prices on OPEC production cuts should be giving Shell a boost, although not one which will be reflected in these results.”

The new tax year has ushered in a series of changes to tax including capital gains tax, dividends and early stage investment schemes such as the Seed Enterprise Investment Scheme.

The tax changes will have implications for investors who will have to considered them carefully when managing their portfolios. The below summary is by no means exhaustive.

Capital Gains Tax

Capital gains tax is changing and will continue to continue to change in subsequent tax years.

In the new tax year starting April 2023, the Capital Gains Tax annual allowance will reduce to £6,000 from £12,300.

In 2024, this will fall further to £3,000 from April 2024.

Seed Enterprise Investment Scheme (SEIS)

SEIS is a generous tax incentive to facilitate investment by private individuals into start ups at their earliest stage. Tax benefits for investors include 50% income tax relief on the amount invested, exemption from capital gains on disposal, and loss relief.

The annual amount an investor can invest through the SEIS scheme will double from £100,000 to £200,000.

In addition, companies can now raise £250,000, up from £150,000 previously. Rules on the type of companies able to raise funds through SEIS will also change.

Companies that have been trading for less than three years can now utilise the scheme, an expansion from those trading for less than two years previously. Gross assets allowable to qualify for SEIS will be increased to £350,000.

EIS rules will stay the same.

Income Tax

The Basic rate tax band of 20% will remain at £37,700 in the 2023/24 tax year. The higher tax rate of 40% will be applied to £125,140, this is down from £150,000. The additional tax rate of 45% will apply to all earnings above £125,140.

Dividend tax rates

The dividend allowance will fall to £1,000 in 2023/24, down from £2,000 in 2022/23. This is set to fall further to £500 in the next tax year.

After the dividend allowance, dividends will be taxed as follows:

Defensive stocks provided the FTSE 100’s upside support on Wednesday as investors rotated into equities that tend to do better during economic downturns.

The FTSE 100 was 0.45% higher at 7,670 at the time of writing.

The recent mini banking crisis diverted attention from the underlying health of the global economy – and presented investors with a range of bargains in the aftermath.

Now the FTSE 100 has rebounded from the lows, markets will become increasingly conscious of the economic outlook and ramifications for company earnings. 

OPEC’s move this week to cut production adds to uncertainty. “Clearly, it’s not a positive for global growth,” said Janet Yellen, US Treasury Secretary.

The cut in production risks higher inflation and the possibility of higher interest rates. This could derail the global economy.

“The concern is the Federal Reserve might have to sound the retreat before its war on inflation is truly done. This could leave us with the worst of all worlds – the dreaded stagflation where the economy is shrinking but prices are continuing to surge higher,” said AJ Bell head of financial analysis Danni Hewson.

In preparation for the possibility of choppier times ahead in markets, investors bought into UK-listed utilities, precious metals and pharmaceuticals on Wednesday.

United Utilities was the top gainer at the time of writing, up over 3%. There was also interest in Severn Trent in Centrica, both of which added more than 2%.

AstraZeneca was up around 2% and added a significant number of points to the index due their large market capitalisation.

The rotation away from cyclical stocks was clear. Housebuilding, mining and retail stocks were all in the red.