Home » Central bank waiting game, hope for Chinese manufacturing while UK house prices fall
Investors cautious ahead of Fed meeting with interest rates in focus
FTSE 100 rises on the open as traders cling onto optimism about softening monetary policy
Housebuilders rise despite snapshot of falling prices.
Made.com files for administration just 16 months after its IPO.
China’s manufacturing snapshot not as bleak as forecast
BP shares muted despite posting an £ 8.2 billion profit
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:
‘’The waiting game for the Fed is still on, with investors largely in the dark, until the US central bank illuminates the path ahead for interest rate rises tomorrow. In the interim they have been feeling their way to a more optimistic attitude, hopeful that economic indicators hinting that inflationary pressures are beginning to subside, could lead to a softening in monetary policy. Despite the falls on Monday, the Dow Jones pulled off the best October performance since 1976, while the S&P 500 also gained more than 5% on the month, pulling it out of the bear market low. The FTSE 100 has opened up by more than 1%, while the CAC 40 in Paris, and the DAX in Frankfurt, are also higher.
Traders are eying up another super-size rate rise in the US, yet yearn to see chair Jerome Powell indicate that this will no longer be the norm, and already markets are pricing in a lower 0.5% hike at the meeting in December. But if the Fed’s language stays tougher than expected, the markets could take fright again. The Reserve Bank of Australia has brought in a seventh consecutive rate rise, with a hike of 0.25%, taking borrowing costs up to levels not seen in almost a decade. And it clearly believes the work in fighting inflation is not yet done, with signals that more increases are on the way.
The UK property market is in sharp focus again, hit with yet another picture of sharply weakening demand. Although prices still rose 7.2% year on year in October, it was the smallest increase since April 2021, and a rapid slowdown from the 9.5% rise in September. The picture on a monthly basis is even more stark with prices falling 0.9% in October, the largest drop since the depths of the pandemic in June 2020. The disaster of the Trussenomics mini-budget, which saw bond markets take fright and lenders dramatically pull cheaper deals almost overnight, has clearly taken its toll on confidence among buyers. Housing affordability has been stretched so thinly any elastic in the market looks like it’s about to snap, particularly with the Bank of England intent on more rate rises. A slowdown has largely been priced in by the market, so this latest snapshot hasn’t buffeted housebuilders, given that stocks have already been sideswiped by falling investor sentiment over the past year. Instead Berkeley Group, Persimmon and Taylor Wimpey rose on the open, perhaps encouraged by talk of a slowdown and not a correction, and also by signs that the easing off of jitters in the bond markets since Kwasi Kwarteng and then Liz Truss resigned, have started to feed through to the mortgage market. But many homeowners are scrambling around to work out how to eke out savings to meet higher borrowing costs, and that is having a knock on effect on discretionary spending. The extent to which big ticket items like furniture have fallen out of favour in this round of rapid belt tightening is evident from the fortunes of Made.com. It’s filed for administration just 16 months after listing in London. It’s a dramatic fall from grace for a company known for its stylish ranges, which although aren’t even at the higher end of the furniture market, are clearly unaffordable for so many as the cost-of-living crisis still rages.
China’s latest snapshot on manufacturing was downbeat but not as bad as it could have been, with the Caixin Purchasing Manager’s Index reading not coming in quite as low as expected. It’s the third straight monthly fall and indicates how China’s covid policy is still causing a major headache for production and also consumption, with lockdowns disrupting factory activity and consumer appetites but there are glimmers of hope on the horizon. Although higher prices have also been feeding into a decline in overseas demand, selling prices have been slashed for the six month running to stimulate sales. That should help feed through to inflation fights around the world – and light is appearing at the end of the dark tunnel for the sector, with sentiment edging up from an almost 3-year low in September as producers show more willingness to develop new products. The slightly better reading than expected has helped provide support for mining companies, with Anglo American jumping 3.4% on the open, and Rio Tinto also climbing sharply higher. BP shares have been pretty flat despite unveiling a bumper $8.2 billion in profits for the third quarter. Speculation is still swirling about fresh windfall taxes on the sector, particularly as oil prices are staying elevated, with Brent Crude rising above $94 a barrel as supply looks tight. The results come just weeks after outgoing CEO Ben van Beurden said taxes on oil and gas companies are “inevitable” to help the poorest people in societies.’’