By It’s been an unusual start to the week with push and pull factors delivering a mixed bag of market moves. Europe has kicked off Monday brimming with positivity with shares in London, Frankfurt and Paris all in the green. On the mainland, markets are up around 0.7 per cent with the FTSE lagging a little behind on 0.5 per cent. Some Asian markets finished up but Chinese stocks are down following unexpected rate cuts from the central bank.
Europe took its cue from the small basket of Asian tech shares which rose as fears over a Donald Trump White House putting tariffs on microchip manufacturers in China dissipated, following President Joe Biden’s decision not to run in the November election. As discussed last week, Trump sent tech shares down after he said tariffs were on the way, hurting some Asian shares but mainly US tech stocks. New York should open a little brighter later today after a tough week, with futures showing a 0.4 per cent rise in the tech-heavy Nasdaq index, while the Hang Seng posted a 1.25 per cent rise. However, other ‘Trump trades’ were unwound overnight, sending shares down; with Tokyo falling 1.2 per cent, South Korea 0.7 per cent and Australia’s S&P/ASX index also down. All had risen in recent weeks based on a Trump victory but with Biden out of the way, traders are hedging their bets once again.
This has also all combined with the reversal of share price falls following Microsoft’s Friday outage so a lot is going on. Systems have come back online after more than 8mn were affected worldwide. However, I imagine the inquiry into that will continue for some time.
Biden’s decision has not gone unnoticed by bond and currency markets either, with the dollar falling and bonds rising, sending yields down. The US 10-year yield fell 3 basis points to land at 4.21 per cent. The dollar is the biggest mover though, dipping yet again with the pound a big beneficiary. Cable has moved 1.7 per cent this year, mostly driven by the bull case for sterling following better economic data, rate cut expectations and the change in government. The pound is back to its highest level since the huge fall in June 2016, once the EU referendum result was known. Expectations are for the pound to maintain some of this momentum which will be music to Andrew Bailey’s ears as he and the committee gear up for another decision in a few weeks. Speaking of the Bank of England governor, Bloomberg notes Bailey has not made a public statement in two months, which could hit 10 weeks by the time the committee meets. This has left traders guessing over what happens next month, with bets pretty even on a hold versus cut. It’s the longest period of silence from the governor since he took charge in March 2020.
Back in London, airline stocks have taken a hit this morning as Ryanair, Europe’s largest airline, reported a sharp fall in profit and said it was struggling to raise airfares to boost revenue. Shares fell 12 per cent on the news but it took rivals with it, with International Consolidated Airlines down 4.3 per cent and Jet2 down 6 per cent.
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The Trader is written by Taha Lokhandwala
