UK market loses steam as global uncertainty rises, UK unemployment figures higher than forecast
Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown: “The UK market has lost further steam, following rising tensions in the Middle East. The ongoing uncertainty has left its mark on stocks across the globe, with the effect of fear being compounded by a mixed start to earnings season. Today’s UK unemployment figures have also shown the economy is cooling, with the jobless rate rising to 4.2% in the three months to February. This suggests inflationary pressures in the labour market are easing, but this alone won’t be enough to drastically alter the Bank of England’s course on interest rates. The effectiveness of the ONS data is clouded by a drop in the number of survey responses, meaning it shouldn’t be taken in isolation.
At the same time, the US has seen better-than-expected retail sales, which is fanning the flames of inflationary concern. The possibility of higher-for-longer interest rates has sent treasury yields higher, and further volatility can’t be ruled out.
The market has also been spooked by news Tesla will cut 10% of its workforce. Tesla had already been peeling away from the Magnificent Seven pack, and this news has intensified that gap. Elon Musk has signalled a need to reduce costs and increase productivity, at a time when so-called ‘price wars’ are underway in the EV market. International rivals are indeed fierce, and keeping pace means margins are the centre of investor focus. Tesla has grand plans to scale up production of new vehicles, but without the sales to back that up, it’s not a sustainable plan. Some challenges aren’t Tesla specific, some regions, including the UK, are seeing demand for EVs fall. This has seen the likes of BP layoff over a tenth of its EV charging business workforce, as the rapid uptake in demand for charging points hasn’t kept pace with plans. The longer-term direction of travel for the car market is undoubtedly electric, and Tesla has an enviable market position. The job losses are one way Musk hopes to keep that the case.
Aluminium, copper and nickel are seeing their prices rise after a US and UK ban on Russian metals. The move comes in response to Russian sanctions, and it seems aluminium is most likely to be affected by this supply disruption, due to the prevalence of Russian material. There are significant efforts by metal consumers to source alternative supply, many of which have been successful – especially for copper. The UK market houses industry leading miners, and higher prices are broadly a positive for these names. That said, if disruption is entrenched, it can equate to problems down the line. Mining giant Rio Tinto’s shares have already been dampened in recent days following the chairman’s comments that low rates of investment in the sector have put the energy transition at risk.
Oil traders are awaiting the response from Israel after Iran’s airstrikes. The price of Brent crude is back at around $90.5 a barrel, with few catalysts for a de-escalation of the price expected anytime soon. On the demand side, China’s better-than-expected first quarter GDP will be adding further heat to the price.”
