- FTSE 100 set to open lower as energy relief rally subsides amid darkening global outlook
- Fresh worries about China’s recovery as exports slow, leading to fall in metals and oil prices
- Tech stocks fall again on Wall Street amid expectations of higher rates.
- Barratt Developments posts a record annual profit, but recession fears hover over housing market
Susannah Streeter, senior investment and markets analyst. Hargreaves Lansdown:
‘’As politicians scramble to put sticking plasters on what looks set to be a longer term energy crisis, the outlook for the global economy has darkened again, sending fresh jitters through financial markets.
Indices in Asia fell, after China posted worse than expected trade figures for August, adding to worries about the ailing economy. Export growth slowed way beyond estimates, with fresh Covid curbs taking their toll and punishing heatwaves reducing factory activity. Shipments increased 7.1% year on year, below market expectations of around 12%, the first single digit growth since April. The pain of inflation felt in countries around the world, is also leading to a drop in orders, as consumers ring fence budgets for essentials like food and conserve cash to pay for higher energy bills. With China’s recovery slowing markedly, there is even less power to re-charge growth in the world economy and that’s led to a fresh sell off in metals like iron ore and copper. The oil price has also sprinted lower with a barrel of Brent crude dipping to around $92 amid expectations of lower demand. The mighty dollar has strengthened yet again and that’s partly behind the weakness in commodities, given that a strong greenback means that it’s more expensive for non-dollar buyers to buy them.
The two threats of recession and inflation are still looming large, but for central bankers it’s the still the possibility of a runaway price spiral which is the bigger of the two evils. The expectation is that the Federal Reserve will be emboldened to stay aggressive in hiking rates, given the more resilient picture painted of the services sector, from the ISM purchasing managers index. That led to fresh losses on Wall Street, with stocks not skipping much of a beat in sliding further, particularly in the tech sector.
The relief rally in London amid hopes the balm will be applied to the scorching energy bills is set to dissipate today as reality seeps in that consumers are still going to be seriously stretched for cash this winter. Even if bills are capped at £2,500 as expected by the government, gas and electricity costs will still be sky-high compared to last winter, which will still dent discretionary spending. Pulling millions of consumers out of the more dangerous territory of serious debt spiral however should limit the extent of the oncoming recession, and a significant march higher of the headline inflation rate. Investors will also be cautious given the latest reading on China, which is set to weigh on the mining and energy sectors and the FTSE 100 is expected to open lower amid the bleaker outlook.
The red hot housing market over the past year has helped Barratt Developments post record annual profit, with the bumper year leading the house builder to launch a big buy back scheme worth 200 million pounds. The company has been making hay while the sun shines on the housing market, amid a continued race for space. Demand for new homes has been super-strong and the company met market expectations of a rise in adjusted pre-tax profit of around 15% to £1.05 billion. It’s remained bullish about the year ahead, citing the imbalance between housing supply and demand and its order book is relatively resilient with 55% of private wholly owned homes forward sold. But there are concerns the big bad wolf of recession could blow away expectations of solid growth ahead. While annual price rises are still impressive, there are signs of weakness creeping in. Demand is getting shakier, and the first-time buyers who have been propping the market up are feeling the strain because of hikes in interest rates which are pricing some out of the market.
Those on the first rung of the property ladder are the engines of the housing market, particularly at the moment when they make up just over a third of all sales. There is a risk that if they stop moving, it could seize up the rest of the market, while others further up the ladder may baulk at the size of repayments if interest rates continue, as expected, to climb upwards.’
