Market report: Lacklustre start for the FTSE 100 and Rightmove bid in focus
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “It’s been a lacklustre start to the week for the internationally focused FTSE 100, despite extra stimulus for China’s economy. The blue-chip index opened flat following Friday’s falls, as a combination of pessimistic consumers and fears that interest rates may have to stay elevated for longer propelled stocks lower.
The lack of trading momentum in London comes despite a more positive session for exchanges in China after the central bank lowered a key lending rate, the 14-day reverse Repo rate, by 10bps, in an unexpected move. The 10bps cut is aimed at encouraging banks to lend more freely. While it’s not a major move, it came alongside the news that a press conference will be held by the governor of the People’s Bank of China, focusing on financial support for economic development. Expectations are rising that another cut to interest rates could be on the way, to try to help China achieve its growth targets.
Australia’s REA has shown its determination to gain a big foothold into the UK property search market by significantly upping its takeover bid for Rightmove. The group is frustrated by a lack of engagement from Rightmove which has clearly been holding out for a much higher offer after the first highly opportunistic bid. It’s now been increased by 9.2% which represents almost a 40% premium to its share price at the end of August. While this will certainly be very encouraging for some investors, who had seen the value of their holdings plummet from highs reached in January 2022, there is likely to be a push among others to hold out for an even better deal. Rightmove shares had been affected by the property market downturn amid a ratcheting up in interest rates. But now, with more cuts eyed on the horizon and a recovery in prices underway, there are now many more eyes on screen. REA Group is clearly highly tempted by the sturdy fundamentals of the model, which offers an envious operating margin position of around 70%. DIY alternatives may be growing, but they are only a small slice of the market, and many estate agents can’t afford not to advertise on Rightmove. That’s demonstrated by their willingness to pay bigger sums to attract potential buyers. Although total membership has reduced by 1% in the last full year, average revenue per advertiser was up 9% to £1,431.
UK chancellor Rachel Reeves’ speech will be in focus later at the Labour Party Conference. There is some relief swirling, given early briefings indicate she’ll stress that the UK won’t return to austerity and instead she’ll home in on ways to increase investment in the UK. The government has come under criticism for its dire warnings about the state of the nation’s finances, which appear to have prompted a fresh fall in consumer confidence. The Treasury clearly has its eye firmly on the bond markets, anxious to court investors and not see government borrowing costs pushed up, as punishment for overspending. It’s an understandable caution, given that the UK chancellor will be speaking on the second anniversary of the disastrous Trussenomics mini-Budget which saw such a bond market strop out, and the Bank of England was eventually forced to intervene. UK 10-year gilt yields are hovering around the highest levels in two weeks, at 3.9% but this has been prompted by the decision by UK policymakers to hold interest rates, even as the Fed voted for a big cut. So far, reaction to Labour’s plans has been super-sanguine, which leaves more room for the government to tinker with borrowing rules to increase spending on investment. If Rachel Reeves wants to support UK assets and encourage the funding of UK based companies, it’s also crucial that retail investors remain confident. So, maintaining tax free allowances to incentivise investment in the stock market is crucial.
Luxury goods companies are set to remain under pressure as questions whirl around about the potential for fresh tariffs to be placed on the sector by China. The move by Brussels to proposed extra duties on Chinese EVs, has led to concerns about tit-for-tat moves on big name brands. These might be sought after by Chinese fashionistas, but the latest handbags, belts or raincoats are hardly vital components for Chinese heavy industry and could be first in line to be targeted. Burberry shares slipped more than 2% in early trade as hopes for a faster recovery in fortunes dip back.
Brent Crude had edged up to $75 a barrel, extending last week’s gains but has lost some ground. There are still heightened worries about an escalation of conflict in the Middle East, following Israel’s increased attacks on Hezbollah in Lebanon. The expectation of two more rate cuts this year from the US Fed, potentially making the dollar-denominated commodity cheaper for overseas buyers, is also adding to higher demand expectations, pushing up prices. But concerns about lower demand from China still persist.’’
