Tech wobble continues, global IT glitch concerns and UK retail sales washout
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The FTSE 100 is set to trade lower, with the index becoming susceptible to the risk-off sentiment spreading across financial markets, sparked by concerns about deepening trade wars between the US and China. A major IT outage, which began in Australia and sent ripples round the world, affecting Windows on PCs across a raft of sectors is also unsettling. It appears to be connected to Crowdstrike security software, but a glitch causing repercussions of this scale is worrying given how much disruption it has sparked.
Amid a fresh tech wobble, the dollar has flexed more muscle as investors piled out of riskier assets and into the greenback, helped by strong manufacturing data indicating a rebound in the sector. The currency’s strength has also hit oil prices, with Brent Crude slipping back to $84.7 a barrel. Demand is expected to dip given its more expensive for countries importing dollar-denominated oil.
Donald Trump’s call for Taiwan to pay for its own defences hit shares in Taiwan’s TSMC, the world’s largest contract chipmaker, which fell 3.4%. This is despite the company raising its revenue forecasts as it sees demand for semi-conductors continuing to rise. But with concerns about China potentially blockading the islands, it’s increased worries about supply-chain issues. The worry is that although there is clearly high demand, fulfilment of orders could run into trouble. Although TSMC is diversifying out and spending billions on factories overseas including in the US, Japan and Germany, it’s ruling out a joint venture in the United States for now. With Trump angling to take an even more protectionist stance towards domestic chipmakers, combined with concerns about vulnerabilities in the semi-conductor supply network, the sector looks ripe for further wobbles.
The latest public borrowing picture in the UK underlines what a tight spot the new government is in when it comes to its room for manoeuvre in terms of spending.
Borrowing was £14.5bn in June, £3.2bn less than June last year, but higher than the £11.6bn forecast by the Office for Budget Responsibility. Given their fiscal commitments there is very little wiggle room ahead and it may prove even tougher to kick-start a significant growth spurt.
However, Chancellor Rachel Reeves has suggested that in the future borrowing rules could distinguish between day-to-day spending and investment to propel long term growth, potentially loosening the purse strings to further support and partnerships with the private sector, above and beyond the current commitments.
A dismal snapshot of the UK retail sector has added a jolt of pessimism at the end of the week. Sales fell 1.2% in June, by more than expected, due to the washout weather and political uncertainty in the lead up to the general election. The department store heyday is in the dim and distant past. Sales at shops, which used to be the anchor of high streets up and down the country, slid again, falling 3.4%, and resulting in the worst performance in the sector. Demand for new clothing and shoes has taken a hit, with the wet weather hardly inspiring purchases of bikinis, shorts and sliders. It also continues to be a torrid time for sellers of household goods, with sales down 2.1%. With high interest rates looking set to stick around through the summer, shelling out on a new sofa or dining room table is hardly top of priority lists right now.
