- Wall Street sell off as jitters return that the Fed will turn Scrooge-like before Christmas.
- Resilient data from US services sector has added to worries that inflation is not under control.
- Reserve Bank of Australia lifts rates again to a decade high.
- Oil prices dipped back on global growth fears but have begun climbing again.
- Purchasing managers snapshot will throw light on UK construction sector.
- Fresh rail strikes are called in the UK, putting more pressure on hospitality companies.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:
‘’Worries that the Fed could unwrap an unwelcome present of another super-sized rate hike when policymakers meet next week are sprinkling Christmas fear on indices. Wall Street registered its worst day in almost a month after a snapshot from the services industry showed consumer resilience was strong. This has fuelled speculation that the US central bank will have to be more Scrooge-like and make borrowing even more expensive to rein in inflation. Companies still appear to be dealing with pent-up demand with the ISM reading showing the services sector is expanding merrily. With central bank policies so far having meagre impact on the jobs market, the chances of a 0.75% rate hike being announced on the 14th are now considered to be higher. The potential effect of another rapid tightening round has led to jitters about repercussions for the global economy. Expectations of lower demand for crude around the world, pushed oil prices back down with Brent hovering around $83 a barrel, although it’s starting to creep back upwards.
Stocks in Asia and Australia also headed lower, as the Reserve Bank of Australia also ramped up rates by 0.25%. It’s on a path of a gentler incline of hikes compared to the Fed, but with the benchmark rate now at a decade high of 3.1%, it will pile more pressure on homeowners. It’s another sign that many central banks around the world are singing from the same song sheet. They are determined to keep tightening rates until the air is squeezed out of inflation and the price spiral starts to come down rapidly. The FTSE 100 is also expected to start lower and indices in Europe are also set for a lacklustre opening. A raft of data gathered from purchasing managers will be released later this morning and the UK’s construction sector will be in focus with investors keen to find out if October’s resilience, with activity boosted by a backlog of orders, will have continued.
There were already some signs of weakness emerging in last month’s PMI update, given that residential work grew at a softer pace, and with mortgage rates shooting up, there will be concerns that this could feed through to future orders. The overall pessimism across the sector was clear and so these numbers will be picked apart to find out if weakness is spreading.
Rampant inflation which has spilled into long running industrial disputes risk making the pain of recession even more intense for the UK economy. The RMT union, representing rail workers, has called more strikes across Christmas and beyond, as members protest against a 4% pay rise for this year and changes to working conditions. It’s little surprise walkouts have won the support of so many union members across a wide variety of sectors, given that inflation is super-hot, running at 11.1% making the cost-of-living crisis intense. But problems are piling up for companies as a result, with hospitality particularly badly affected. According to the ONS, 93% of businesses in the sector said they had concerns about operations in the run up to Christmas and fresh strikes being called are likely to cause more sleepless nights for bosses.’’
