Oil prices climb, China’s real estate problem and William Hill owner cuts guidance
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “Cautious sentiment is dominating as oil prices ramp up while investors digest yet more unappetising news about China’s fragile property sector, fuelling worries about contagion in the economy. The FTSE 100 has opened flat, with betting firms on the backfoot as costs of new gambling safety rules mount up, but energy firms have gained ground as the benchmark Brent Crude has surged in price.
Concerns about tight supplies are fuelling the rise in oil prices, reigniting worries about inflation and the need for interest rates to stay higher for longer. Brent Crude has swept past $97 a barrel as the effect of Saudi Arabia and Russia’s extended production cuts takes hold and data shows a faster than expected drawdown of crude stocks in the United States. Despite slowing economies in Europe and fragility in China, global demand for oil for now continues to ramp up, to meet the seemingly insatiable needs for transportation, power generation and other petrochemical activities. The psychologically important milestone of $100 a barrel is in sight, which is prompting concerns about higher energy costs being passed on by companies in the form of higher prices. This might cause another temporary headache for central bank policymakers, but industry analysis forecasts that oil demand is expected to start slowing next year as weakening economic conditions take hold and more electric vehicles roll out onto the roads. Still, oil prices are unlikely to retreat markedly given it’s in the interest of big producers like Saudi Arabia to keep prices in an elevated, but stable, range.
Fresh turmoil has hit the beleaguered Chinese property sector, with trading again suspended in shares of the huge real estate company Evergrande. Confidence in the company has hit rock bottom as it has tried to grapple for survival, weighed down by its mountain of debt It has been trying to reach a deal with creditors, but attempts to restructure its debts have hit the buffers due to official investigations into other workings of the vast company. Attempts by authorities to breathe new life into the crisis-hit property sector haven’t failed to revive its fortunes. With the chairman now reported to be under police surveillance, and with no viable solutions in sight for its multitude of problems, liquidation looks increasingly likely. Given the size of the company, if all its operations are halted and a fire sale of its assets takes place, stopping contagion spreading into other sectors would prove highly difficult.
The prospect of a US government shutdown is looming, which could hold back growth in the United States. It would mean delayed pay for millions of Federal workers, including military personnel but also hold-ups for services like passport renewals and even applications for clinical trials. Contractors working for governments are also likely to be significantly disrupted, including companies offering tourism services around national parks, which may be closed. Finding an imminent solution to the budget standoff is looking unlikely, and a long dispute could weigh down on demand in the economy, and could possibly limit the need for a further interest rate hike by the Fed.
The pandemic boom has well and truly evaporated for William Hill owner 888 Holdings which has cut its guidance for revenue. The company is feeling the effect of tougher new rules to reduce the number of problem gamblers in the UK, and higher costs to meet compliance in other markets. But like in Entain’s gloomy update earlier in the week, it’s also blaming ‘customer-friendly’ sport results for its forecast 10% fall in third quarter revenue. With favourites scooping titles, and new rules designed to monitor problem gamblers taking effect, 888’s winning streak has waned. The ease of gambling given the shift to online has rightly shone a spotlight on the impact this is having on financially vulnerable customers and betting companies are now paying a much higher price to limit the dangerous effects of being to bet any time any place anywhere.”