FTSE Slides to Lowest Since March, Hawkish Fed Weighs

Stocks are weaker again, the FTSE 100 shedding one percent in early trading to hit its weakest in over three months, heading for the March YTD lows after dipping by the same margin on Wednesday; the DAX off by around 0.9% and most Asian indices lower overnight following some hawkish minutes from the Fed. The dollar trimmed gains this morning after hitting a one-week high following a sharp move higher yesterday. Treasury secretary Yellen is in China for the next three days and Facebook (NASDAQ:META) has launched its Twitter rival…the ‘hellscape’ that we predicted Twitter has become has been good for Meta. Later today we have the ISM services PMI for the US, fc at 51.3 from 50.3, weekly unemployment claims seen ticking up a notch to 247k from 239k, and JOLTS job openings expected to come in just under the 10m mark.

Shell (LON:RDSa) and BP (LON:BP) shares fell and weighed down the broad market after Exxon Mobil (NYSE:XOM) signalled a sharp fall in profits on lower natural gas prices and refining margins. XOM operating earnings down roughly $10bn to around $7.8bn is having an impact on the oil majors. Nat gas may have bottomed but trades at a 2yr low and oil can’t seem to catch any real momentum, though it’s up to a 2-week high. Oil has been a factor for the index - YTD the FTSE 100 has had a bit of a shocker – down 1% vs broad gains for peers. True that’s after a resilient 2022 when all the rest were losing their heads, but the lack of tech is exposing the market and a reliance on oil and fags is never going to produce a mega rally. 7,206 it the March 20^th low to keep in mind – currently just above 7,350.

Curry’s shares tumbled as it axed the dividend on a very cautious outlook – people replace white goods and electricals when they move and the housing market is seizing up. Also, huge pull-forward in demand during the pandemic is biting along with the cost-of-living crisis...priority is travel/experience, not ‘stuff’. UK profits up 45% but mainly cost savings - revenues were lower here and across the board by 7%...declining revenues in inflationary environment underlining how tough it is out there for the retailer. 

Wall Street was lower as US factory orders were a bit lighter than expected. The S&P 500 and Nasdaq each lost about 0.2%, whilst the Dow Jones slid by around 0.4 percent as the hawkish message from the Fed was digested – markets need to realise the Fed won’t be cutting as early as expected. Odds that the Fed carries out two more hikes this year are only one in three – markets continue to under-price the Fed’s resolve. 

Fed minutes revealed its desire to continue with rate hikes even as most policymakers backed the June pause. The details of the meeting reinforce the idea that the Fed will raise rates in July – but the question is why suddenly go again after pausing in June if the idea of the pause was to allow time for lag effects to be known? 2yr Treasury yields tapping on 5% this morning with the market seeing the minutes as ‘hawkish’.

JPM thinks the Bank of England will need to raise rates a further 200bps to 7% to tame inflation – as I said at the last hike, it was the moment the BoE realised it had to force a recession to get inflation down. We’ve been over this so many times...2yr gilt yields spiking north of 5.450% this morning.  

CAB Payments – the old Crown Agents Bank – IPO today seems to be going off OK...all DM to EM payments for businesses, banks, large aid organisations, utilising its network of banks...high margin stuff and no consumer risks. Conditional trading as of send time – 335p offer price. 

OPEC conference – Saudi Arabia’s energy minister channelled Mario Draghi, saying the country will do whatever it takes to stabilise the oil market...very happy to keep pumping a lot less...continues to cooperate with Russia....relationship remains solid. Oil prices rallied, with WTI (Aug) hitting $72.15, its highest in over two weeks. API data showed a draw of 4.4m barrels – EIA data due later…rate hikes vs China vs OPEC…it’s an interesting mix that is broadly keep oil prices steady.

Big more for the yen, maybe traders running into intervention area fears and profit-taking...or just exhaustion at the 145 level?

USD/JPY Chart