Global stocks and bonds are struggling, with investors fixated on rising inflation and fiscal risks amid the ongoing closure of the Strait of Hormuz, which shows no signs of resolution.
The FTSE 100 was down to its lowest level since 31 March, but has recovered as the morning has gone on, and is marginally in the green. Housebuilders fell as mortgage rates rose, while reports that Vistry has ordered workers to down tools are also weighing on the sector. Miners fell as metal prices slipped. More on that here
European stock markets opened lower across the board, but the Dax has recovered and is touching the green, although the Cac is still down 0.8 per cent. Ryanair shares fell as Michael O’Leary said he’d continue as CEO for another 6 years…but the drop was probably down to the carrier suspending its full-year guidance due to the increase in fuel costs. More on Ryanair here
US futures were down around half a per cent early Monday after the S&P 500 fell 1.2 per cent on Friday after hitting a record high on Thursday, as tech wobbled. The Nasdaq Composite dropped 1.5 per cent on Friday while the Dow Jones shed 1 per cent.
This is about the energy shock and its transmission to the global economy. Talks on ending the US-Iran war seem to have stalled, underlined by the lack of any progress from the Donald Trump-Xi Jinping meeting, while Trump warned the “clock is ticking” on talks. Crude prices opened higher with Brent trading well above $100 again. The meeting between Trump and Xi has, from the market’s view, been a bit underwhelming. Markets are getting a lot more bearish on the Strait reopening any time soon.
Faced with persistently high energy prices, governments dealing with weary voters who’ve had several years of cost-of-living pain feel they can’t sit this one out. Japan’s bonds sold off as Prime Minister Sanae Takaichi pushed for extra budget to combat rising gasoline and gas prices, underscoring the fiscal risks to government debt markets that we are seeing play out.
The US 30-year Treasury yield has hit 5.16 per cent, its highest since 2023. The market has become spooked by inflationary risks after a series of hot inflation prints last week, notably the US CPI and PPI reports and import prices. The Cleveland Federal Reserve inflation Nowcast shows 6.89 per cent annualised in Q2, and the market is telling the Federal Reserve it needs to shift from cutting rates to raising them.
In the UK, we have trouble brewing, or indeed boiling over, on the political front, which is raising the prospect in investors’ minds at least of yet more borrowing. Manchester mayor and potential Keir Starmer challenger Andy Burnham has said he would stick to the fiscal rules if he became prime minister. But this Labour leadership debate is turning the microscope on a much broader issue: can the UK find the leadership to deliver a credible plan to fix the nation’s finances, much like the Tories never seemed to? Tough medicine is required, but no one seems willing to administer.
The pressure from voters on the government to do something to shield is acute. The UK’s 30-year gilt yield hit 5.877 per cent, scoring a fresh 28-year high, whilst the 10-year gilt yield rose to 5.2 per cent to its highest level in 18 years. Sterling bounced after hitting its weakest since 8 April overnight, but still trades below Friday’s starting point.
Chip names that had been aggressively bid up were among the steepest fallers on Friday, with Intel, AMD and Micron all down around 6 per cent. These stocks had seen an unsustainable rally, so it’s not a great surprise that a rise in bond yields has seen the froth come off the top of the market.
Nvidia can hold up or let down the entire market when it reports on Wednesday. The print will be crucial for market sentiment and AI optimism. Earnings season has so far proved the AI trade remains a powerful driver for returns with soaring demand across the sector. The focus will be on AI infrastructure demand, durability and broadening.
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By Neil Wilson, investor strategist at Saxo UK
