Market report: Optimism as China US trade truce continues
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “There’s more optimism in the air as a tariff truce between the US and China holds, with hopes the global economy will withstand the trade blow a little better. Oil prices have crept higher in expectation of higher demand for energy around the world. The FTSE 100 has opened higher, even though the UK labour market shows more signs of deterioration. Nevertheless, the picture is broadly stable, and investors appear to be taking a glass half full approach to the snapshot.
A longer-lasting trade deal with between China and the US looks to be on the cards, after Trump granted another extension to talks amid a warming up of relations between the two nations. The delay on imposing crippling US tariffs on Chinese goods will be welcome news, especially for American retailers in the run-up to the crucial Christmas season. It will enable companies to import clothing electronics and toys at a lower tariff rate of 30%, and will provide much needed certainty, at least for the short term, on costs.
The latest US inflation reading will be closely watched later and is already set to indicate the creeping effect of tariffs, with CPI expected to rise 0.2% in July, while core CPI, which strips out volatile food and fuel prices expected to edge up by around 0.3%. While triple-digit tariffs on China goods look set to be avoided, the current levies are still onerous and alongside sharply higher duties on goods from other nations, it’s still going to be a heavy financial burden to shoulder for American importers. There’s wary sentiment around ahead of the inflation reading with futures markets showing flat trading.
Job opportunities are dwindling in the UK labour market as businesses stay highly cautious and are battening down the hatches amid an uncertain economic environment. Although the headline unemployment rate remains at 4.7%, it’s higher than the level pre-pandemic, and the number of payrolled employees and vacancies have fallen. However, the picture hasn’t changed markedly to warrant a faster cut in interest rates. Demand is being squeezed out of parts of the economy, but not everywhere. Services inflation has looks set to stay sticky and although pay growth has slowed, it’s now static and is still outstripping inflation, so there’s a risk that firms will pass on heavier costs as higher prices. Bank of England policymakers struck a more cautious tone than expected at the last meeting, when it comes to future policy and this jobs snapshot doesn’t change the overall picture too much. With this latest snapshot another interest rate cut next month looks even less certain. It is touch and go as to whether there will be a cut in November, but December is looking a bit more likely.
Music and beauty fans helped give a lift to UK retail sales in July. Barclaycard data shows consumer card spending grew 1.4% year-on-year in July, up from -0.1% in June. Habits have formed in an era of higher and stickier inflation of ring-fencing spending around experiences and also splashing out on little treats. The numbers show there were uplifts to purchases around the Oasis tour, with bucket hats and 90s gear likely to have proved popular in shops. Spending on luxury skincare and makeup helped lift sales in pharmacy, health and beauty by 9.8%. This is evidence of the ‘lipstick effect’, with shoppers pampering themselves with small purchases amid economic uncertainty.
Online betting has become increasingly popular, with Ladbrokes owner Entain ringing up higher revenues, helping lift shares in early trade. Punters piled in on the FIFA World Cup final and Wimbledon, sending online sales jumping by 21%. It’s more evidence of a shift in spending patterns towards experiences, with sports betting fans drawn to big global events with huge audiences. The surge in sales means Entain is now expecting annual revenues to be slightly higher than forecasts, lifting shares in early trade. Entain’s bet on the its joint venture with MGM Resorts in the United States is paying off handsomely. BetMGM boasted revenue growth of 35% pushing this part of the business into profitability, compared to a loss last year.
Over the past few months Entain is showing it’s on the road to recovery. CEO Stella David confirmed as permanent CEO stabilizing the C-suite after a period of uncertainty. It looks well placed to benefit from the surge in popularity in online sports betting and with the acceleration of its US business, as well as opportunities being pursued in Brazil, there are potentially more growth levers to pull.”