Market report: Quiet relief as US shutdown avoided, China’s weak factory activity and…
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “With a US government shutdown averted for now, it has brought a measure of relief, helping the FTSE 100 step into October with a nudge of positivity in early trade. Manufacturing in China was eking out growth in September but the latest factory data doesn’t set fire to enthusiasm given the closely watched Caixin PMI data shows activity is still being held back by falling exports. Nevertheless, commodity giants, sensitive to growth prospects in China, have started on the front foot.
Wall Street is expected to cling onto more positive vibes with agreement reached in Washington. But the little dose of optimism after Friday’s inflation data showed that the price spiral is inching in the right direction is set to fade away. The personal consumption expenditure (PCE) price index which strips out volatile food and fuel costs, increased by 3.9% in the year to August, down from 4.3% in July, marking the first time it had dropped below 4% in more than a year. However, realisation has dawned about how hard the fight is going to be to bring inflation down to target. The era of cheap money is well and truly over, which is set to cause more pain for companies and consumers faced with stubbornly high borrowing costs. This is reflected in the bond markets with the interest demanded to hold US debt still hovering near the highest level since 2007. 10 Ten-year Treasury yields have ticked upwards again to 4.61% with the 2-year yield above 5%.
In the UK, a speech by the Chancellor of the Exchequer, Jeremy Hunt is in focus at the Conservative party conference today. He’ll be using a combination of carrot and stick to coax more people into work and ease pressure on Britain’s super-tight labour market, which risks keeping wage growth in the inflationary danger zone. His plan for the minimum wage to be lifted has been widely trailed, as is a plan to toughen up benefits rules, and make it harder claimants. Around the fringes of the conference though the drum will be banged hard for tax cuts, but with key infrastructure projects like HS2 rumoured to be scaled back due to soaring costs, ministers won’t be dancing to this particular tax cut tune. While the government is constrained by its self-imposed fiscal rules, it’s also set to be boxed into a corner when it comes to finding the investment needed to kick-start growth.
Brent crude has nudged back up above $92, ahead of a key OPEC meeting this week but is still considerably lower than the spike it reached last week of $97 a barrel. OPEC member countries are not expected to adjust production levels, but the focus is still on tighter supply in the market, with the effects of the Saudi Arabia and Russia cuts being felt. However, concerns about the outlook and expectations of fluctuating demand are also holding sway.
With oil prices remaining elevated it is giving some support to BP at a time when it continues to be wracked with leadership problems. Investors have turned a page on Bernard Looney’s time at the top, but the latest reports that he promoted women he had relationships with are unhelpful for a company now trying to find a new CEO to take on the ship at a difficult time in the green transition journey. It won’t help that the most senior executive in the US, Dave Lawler is also leaving the company. Coming less than three weeks after Mr Looney was pushed, it widens the vacuum at the top which will inevitably be unsettling for investors. The focus now will be on finding leaders to steady the business.’’