Proactive Investors -
- FTSE 100 down 12 points at 8421
- Diploma (LON:DPLM) tops leaderboard after results
- Shein IPO in London reported to be close
FTSE into the red
The FTSE 100 has fallen to its lowest point of the day, down 12 points to 8421 as commodities drag.
Only two of the index's top 10 are in green, with Shell (LON:SHEL) and BP (LON:BP) in the red, joining Rio Tinto (LON:RIO), Glencore (LON:GLEN) and others.
This is despite oil prices turning positive, with Brent crude up 0.4% to $83.09.
China could be a concern, with the US tariffs incoming and a weaker-than-expected Chinese data snapshot over the weekend.
This "indicated that the authorities still have an uphill battle in stimulating demand in the fragile economy", says Susannah Streeter at Hargreaves.
"Although the inflation reading came in largely as forecast, with consumer prices rising 0.3% in April, the contraction in new bank lending was being read as an indication that interest rates offered were still too high for companies in struggling sectors to borrow to help expand activity. There will be hopes that the sales of long-term bonds announced today will help fund stimulus spending to mend leaky parts of China’s economic plumbing, but pressure is mounting for more stimulus. However, the People’s Bank of China isn’t expected to budge much on Wednesday, with the medium-term lending rate expected to be kept on hold."
She adds that concerns that higher borrowing costs in the United States will be hanging around for longer have been weighing on oil prices, as high interest rates are expected to sap demand for energy in the economy, with confusion also hanging around about future supplies from major oil producers.
"Although there continues to be distressing scenes of suffering in Gaza, risks of overspill from the Israel Hamas conflict are also considered to be easing, which is also helping bring down prices," says Streeter.
Bond markets becalmed or dead?
Some thoughts on whether the bond market is dead as the period since December 2019, just before the pandemic, has seen aggregate fixed income losing 11% whereas global equities have gained 55%.
This is 10.6% per annum for equities and -2.6% for bonds.
"Are bonds dead? We don’t think so," says George Lagarias, chief economist at accountants Mazars.
"At a near 5% yield, and with inflation coming closer to being under control, the real yield is positive. And while the Fed has paused rates for now, eventually it will have to lower rates."
Second, he says that high rates are "not helpful in a high-debt world, so they are likely to come down and provide some capital appreciation for those already invested".
The negative returns seen in the five-year period is the result of central bank excesses in the years that preceded 2022, Lagarias says, resulting in the subsequent re-rating.
A full mean-reversion is "at best, a low-probability event", he adds.
"Going forward, we don’t expect a quick fixed income rebound, but possibly a dragged-out one. It will take years for those who were fully exposed to the 2022 crash to recuperate their losses by being in a simple fixed-income portfolio."
Treasury sells down NatWest stake
The state's stake in NatWest Group PLC (LON:NWG) has been further trimmed by the Treasury to below 27%.
An announcement this morning confirmed that the stake now stands at below 34.9 billion shares or 26.95%.
The Treasury is planning to reduce its stake below 10% by the end of this year and fully privatise the bank by 2025 or 2026.
NatWest shares are up 0.2% to 319.9p today, up around 45% from close to 220p at the start of the year.
Markets treading water
European markets are treading water this morning with some caution in the air this week due to US inflation data due on Wednesday, says market analyst Joshua Mahony at Scope Markets.
"With 92% of the S&P 500 having already reported their first quarter earnings, markets will be actively shifting their focus more keenly back towards economic factors in the weeks ahead," he says.
"On a day that is largely devoid of major news, traders will be looking closely at the potential scenarios on Wednesday.
"Given the recent resurgence in US inflation, we could potentially see fresh risk-off sentiment emerge should monthly inflation come in above 0.2% yet again."
New US China tariffs incoming
Anyone concerned over an impending trade war between the US and China in the event of a Trump re-election will be more concerned to note that such a move could come sooner than anticipated, with Joe Biden looking set to announce a major hike in levies on Chinese imports this week.
With US politicians and manufacturers already seeing Chinese EVs as a serious threat, the White House Tuesday is expected to announce a hike to 100% tariffs on electric vehicles imported from China on Tuesday, up from 25%.
One of the reports was on Friday night from the FT, which noted that the sharp rise in the levies comes amid mounting concern that China could flood the US market with cheap EVs, threatening the American car industry.
The Biden administration's move averts a potential election threat from former president Donald Trump, who brought in many measures to slow Chinese imports as part of a trade war launched in 2018.
One of the big drivers of Tesla's slump over the past year has been price competition from the likes of China's BYD, which this year cut its affordable EV, the Seagull hatchback, to an equivalent price of just under US$10,000, more than US$50,000 below the average price of an EV in America.
Europe has also been looking at what it can do too, with Chinese EVs on course to make up a quarter of those sold in Europe this year.
Retirement mortgage
One of the main stories going around this morning is that the last three years has seen a surge in the number of people locked into mortgage terms that run beyond the state pension age.
Data from the Bank of England highlighted today that is particularly rife among those currently aged under 30.
Interest rates currently sit at 16-year highs, leading house buyers to pick a longer repayment period to reduce monthly payments.
"The challenge of getting on the housing ladder is forcing large numbers of young home buyers to gamble with their retirement prospects by taking on ultra-long mortgages," said Steve Webb, the former pensions minister and partner at LCP, the financial services group.