- Recession fears take hold with investors nervous about the effect of inflation and higher interest rates.
- China relaxes its zero-Covid policies further but measures underwhelm the market amid bleak trade data.
- China’s imports and exports plummet as cross winds of Covid and inflation hit.
- Oil prices lift slightly but remain at lows not seen for a year, with Brent Crude at $79 a barrel.
- Wall Street stocks fall again amid a prediction from J P Morgan’s CEO about a bumpy road ahead.
- Mitchells and Butlers results reveal the chronic pain of inflation being inflicted on the pub sector
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:
‘’Fears are growing that economies are in for a rough time ahead as feverish inflation and the bitter interest rate medicine being used to bring it down take effect. Worries deepened amid warnings from US banking and media sectors that navigating through the storm would not be easy, while the latest data has shown China’s trade has been sideswiped by a drop in global demand and zero-Covid policies. Despite today’s easing of restrictions it’s clear China’s Covid nightmare is not at an end.
The world’s second largest economy is being hit by a toxic combination of its strict pandemic policies which have crushed domestic sentiment and the severe inflationary headwinds overseas affecting its shipments to countries. Imports slid by 10.6% year on year in November, compared with market estimates of a 6% fall, while exports plummeted by 8.7% last month, much worse than the forecast 3.5% drop. This dismal performance is the worst in two and a half years, since the onset of the pandemic. The easing of restrictions can’t come too soon in terms of trade but authorities are taking a softly-softly approach fearful of a wave of hospitalisations and high hopes of more significant relaxation of the rules have been dashed. Travelers heading to other regions in China will now no longer need to show a negative test result and more of those who test positive with Covid can choose to isolate at home instead of in quarantine hotels, but the easing of restrictions appeared to underwhelm investors amid such bleak trade data, with the Shanghai Composite and Hang Seng dropping back sharply in a volatile session. Although areas not designated as high risk for Covid will not now halt work or production if infections are detected, worries are rising that the Omicron strain will travel fast leading to severe outbreaks, and so we won’t have seen the end of shutdowns. Given the risks lying ahead, European indices are set for a lacklustre open, although the FTSE 100 is set for a positive start to trading, with sentiment buoyed a little by some progress in China.
The shivers of apprehension about the prospects for the world economy pushed oil prices to their lowest point in a year, with the benchmark Brent Crude dropping to $79 a barrel. Prices have edged up very slightly on the latest zero-Covid easing moves from Beijing, but worries about weakening global demand as recessions are predicted, are still set to limit gains.
Fresh jitters shook Wall Street after JPMorgan Chase CEO Jamie Dimon warned of a bumpy road ahead leading to recession next year. Morgan Stanley’s decision to lay off 2% of its worforce is thought to be due to a fall in deal making, with the pandemic boom in the rear view mirror. Advertising, a barometer of business confidence, has been sideswiped with Paramount the latest to wave a red flag about slowing ad revenue, which in turn dragged down the likes of Meta, given it’s so hugely reliant on marketing spend.
Mitchells and Butlers results demonstrate the highly volatile time pubs have been experiencing as the urge to socialise post pandemic has snapped back, just as inflation has been eating away at margins. Annual profits surged by 57% reflecting recovery from the ravages of Covid, but rampant input prices are increasingly onerous. The company has done a valiant job pushing up sales by 6.5% in the ten weeks since the end of September, indicating that pub goers are still ringfencing budgets for going out at its All Bar One, Harvester and Toby Carvery venues. However, margins are taking a hit with inflationary cost headwinds currently running at 10 to 12%. This is an extremely tough time to be a publican and the pain will not be short term. Instead the company is preparing for the chronic effects of the cost-of-living crisis to last throughout the year ahead. The cost of energy in particular is an ongoing migraine which is set to intensify given that prices are expected to rise further and uncertainty reigns about the level of government support going forward.’’
