- China’s stimulus largely underwhelms but the policy move lifts some spirits as European markets open.
- The People’s Bank of China cut the key one-year prime loan rate by 10bps to 3.45%.
- Brent crude gains ground, mainly on evidence that supply in the market is becoming tighter, helping energy stocks.
- Housebuilders are on the backfoot again as Rightmove data shows August was a washout.
- Tensions simmering in the UK between the holiday firms and airlines erupts into calls for the CAA to be given new powers to fine.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’The small injection of stimulus by China’s central bank in the ailing economy has proved largely underwhelming given the scale of the challenges erupting across sectors, but it has given investors hope there could be more to come. The FTSE 100 has opened higher in early trade, but it looks like there will be a struggle to gain significant ground. Another bout of caution is expected on Wall Street, without a raft of US data to pin much hope on, while sentiment is remains clouded about China’s economic fortunes. There is still some expectation that Chinese authorities will step in with a more generous boost, but it appears the weakness of the yen appears to be stemming more immediate action. China is far from the stabilizing force hoped for, as Western economies grapple with stubborn inflation, high interest rates and slowing economies. Instead, it’s feared problems will keep piling up, as weakness intensifies in the property sector, foreign investment falls and unemployment rises.
Nevertheless, the policy move on the key loan rate has helped shore up oil prices slightly, helped by a tightening of supply on the markets. Brent Crude, the benchmark has headed back above $85 a barrel. Supply cuts by OPEC+ member countries are feeding through, while US energy companies have reduced the number of oil and gas rigs in operation for the 6th week in a row. The uplift in oil prices has put more of a spring in the step for energy giants BP and Shell, which gained ground in early trade.
Housebuilders are on the slide after fresh data showed that August was a washout for the housing market and Crest Nicholson posted a profit warning. Its shares have tanked after it revised its profit forecast for the year by a whopping 47%. Sales are deteriorating at a rapid click, which is not surprising given that potential home buyers will be running scared from sky-high mortgages. The update has sent a shiver through the rest of the market amid expectations that more people will be opting to stay put in current homes or rented accommodation rather than taking on a huge debt burden at such an uncertain time.
Analysis by Rightmove showed asking prices fell by 1.9% the biggest fall for the month for five years, pushing the average cost of a home down by just over £7,000 to £364,000. Sellers might be reducing their prices but it’s still not enough of a lure, given how unaffordable houses have become. The number of deals shaken on in August have been 15% lower than the same month in 2019. The low level of properties on the market isn’t helping with homeowners clearly more reluctant to sell in a falling market. Even though the headache of cost-inflation is easing somewhat for housebuilders, there is very dim light at the end of the tunnel in terms of demand, given that interest rates are expected to be pushed up again in September. Nevertheless, the housing shortages in populous parts of the UK don’t look like being solved any time soon, which should give housebuilders more resilience for the longer term..
Tension simmering between tour companies operating in the UK and airlines supplying flights for packages has erupted onto the political landscape. The joint call between holiday firms and the consumer organisation Which? for the Prime Minister to intervene and give the Civil Aviation Authority more powers to fine airlines shows the strength of feeling in the industry. Airlines are meant to offer passengers a different route, accommodation or sometimes refunds if a flight is cancelled but the ‘consumer coalition’ says they are routinely flouting these legal requirements. 2023 has been a snap back year of success for UK listed airlines, which have been flying high on robust passenger bookings as post-pandemic pent up demand has continued. They have also benefited from a surge in revenues from add-on services like more legroom and on-board purchases. Although they have largely brushed off the cost-of-living crisis, they are unlikely to be immune the economic backdrop worsens and if the CAA is given new powers to fine if companies don’t fulfil legal obligations, they could be hit with another bout of turbulence.”
