By It’s a busy morning for data as wage growth figures in the UK further dampened hopes of a rate cut next month and the European Central Bank meets later on. While that’s going on, tech shares have taken a knock following some more protectionist comments from Donald Trump, but European markets have shrugged off the woes and are all in the green this morning. The FTSE 100 is up nearly 0.8 per cent, while shares in Paris are up 0.4 per cent. Frankfurt is marginally in the green.
Let’s start with UK rate cuts: wage growth is slowing but still high with average weekly earnings (exc. bonuses) down to 5.7 per cent from 6 per cent in the three months to April, in line with analyst expectations. This means real wage growth is a solid 2.5 per cent, and while this is great for workers, could it be a little too high for the Monetary Policy Committee? It’s only one data point, but when combined with yesterday’s inflation figures, which came it at 2 per cent, above the 1.9 per cent forecast, and solid GDP figures, traders are really unsure about an August cut. Sterling and yields ramped up yesterday but are a little more muted today. Chances of an August rate cut are the same, around 40 per cent, but most of the pessimism was already factored in yesterday. September leading the way as the most likely rate cut but it’s very finely balanced.
No action expected from the European Central Bank later today, although president Christine Lagarde will host a conference after the highly predictable decision. The ECB cut in June so it will be interesting to hear what they have to say about their next move.
Now onto markets, tech shares took a battering overnight after presidential hopeful Donald Trump said he would implement tougher restrictions of trading microchips with China. Unfortunately, it didn’t hurt the right stocks. Nvidia was down 6.6 per cent and AMD nursing double-digit losses. Overall the S&P 500 lost 1.4 per cent and the tech-heavy Nasdaq 2.8 per cent – its largest daily drop in nearly two years. The non-tech and industrial Dow posted positive numbers, rising 0.6 per cent, really demonstrating how tech-focused the rout was. It wasn’t plain sailing in Asia, with Japan and South Korea both ending the session down. Chip manufacturer TSMC lost 2.9 per cent, although the company has since reported a 36 per cent jump in net profit, beating analyst expectations, so we can expect a reversal when markets open later on today.
Hidden behind the chip losses, another huge recent market trend took a knock last night. Weight loss drugs have driven Novo Nordisk and Eli Lilly shares with the latter up 52 per cent this year alone. But, there’s a new player in town. Swiss giant Roche announced its own version was effective, and unlike its Norwegian and US rivals, it comes in pill form rather than an injection, making it more amenable to consumers. Early days for Roche, but Novo and Eli Lilly shares are down between 3-4 per cent.
The Trader is written by Taha Lokhandwala
