It’s been a weak and subdued session for markets in Europe, with today’s losses predominantly on the back of the late Friday sell-off in the US which saw markets there close off their highs of the week.
Europe
Pharmaceutical giant AstraZeneca is acting as the biggest drag on the FTSE100 on reports it is mulling a separate listing in Hong Kong as it looks to spin off its China business.
Mining stocks are weaker on the back of disappointment that Chinese authorities haven’t weighed in on any new stimulus measures yet, with the likes of Rio Tinto and Glencore slightly lower.
Higher rates are also weighing on commercial real estate and house builders, as UK 2-year gilt yields rise above 5% for the first time since 2008, pushing up borrowing costs across the board, and prompting concern over possible defaults on the back of declines in asset and property values. Taylor Wimpey, Segro, Land Securities and Persimmon are all lower.
On the plus side UK clothing retailer Next announced that it expects to see full year pre-tax profit come in at £835m, up from its previous estimate of £795m. This upgrade has also helped to give a lift to the likes of Primark owner Associated British Foods, Frasers Group and JD Sports
US
US markets are closed.
FX
It’s been a quiet day for currency markets with little in the way of direction.
Having come off the back of its strongest week against the US dollar this year, the pound has found further progress difficult, despite short term gilt yields hitting their highest levels since 2008, above 5%.
There may be some caution starting to set in ahead of key inflation numbers on Wednesday and the Bank of England on Thursday, where rates are expected to rise by another 25bps. On many occasions in the past the Bank of England has undermined its main message when hiking rates by talking the pound down. This misguided policy has not served them well over the last 15 months, with the pound still well below its 2021 and 2022 peaks against the greenback.
It is to be hoped that they won’t repeat this messaging on Thursday given the higher stakes at play. They need to signal a determination to drive inflation lower, and if that means being hawkish and driving the pound through 1.3000 then that’s what they should do. A stronger pound could do a lot of the heavy lifting for them on the inflation front, while potentially saving them the possibility that base rates could go even higher, through 5% and on towards 6%.
Commodities
Crude oil prices are treading water just below one-week highs as uncertainties over a rebound in Chinese demand and the prospect of a renewed stimulus keeps prices slightly softer on the day. Despite concerns over supply, inventories in the US have hit their highest levels in 2 years at Cushing.
Gold prices have spent most of the last few days trading in a tight range, with support down near the $1,920 and $1,930 level, while rebounds have struggled to overcome resistance near the $1,980 area.
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