Market Report: Little pause for breath amid stock sell off as growth worries and Amazon probe hit sentiment

Susannah Streeter, head of money and markets, Hargreaves Lansdown:

“Nerves are frayed about the impact of high interest rates in the United States, while fragility in China is showing up once again. The latest big tech probe into Amazon has come as a double whammy amid a state of heightened tension about global growth prospects. The FTSE 100 is set for a lacklustre session, hit by negative sentiment emanating from the US. Hopes for extra stimulus in China are being offset by worries about another twist in the fortunes of property giant Evergrande. Reports that the chairman of the real estate group has been placed under police surveillance has led to fresh speculation about the future of the company, which is struggling under a mountain of debt. Determination by the People’s Bank of China to respond in a ‘forceful’ manner to support the economy has raised expectations that fresh help will be at hand for struggling sectors. The pledge comes amid another gloomy snapshot showing industrial profits in China, fell by 11.7% on an annual basis in the first eight months of the year. However, the devil will be in the detail and hopes have repeatedly been raised, then dashed by a minimal drip-feeding of support.

There may be a small pause for breath on Wall Street after the steepest sell off since March, but sentiment is unlikely to improve markedly signs of deteriorating confidence, while inflation remains off target. This week’s data points to weakening optimism about economic prospects, with new home sales in August falling 8.7%, a bigger drop than expected. The Conference Board’s Consumer Confidence Index also marked up a bigger fall in sentiment than expected. The unfortunate collision of disappointing data and stubborn inflation is causing a bout of anxiety which doesn’t look easy to calm. 10-year US Treasury yields have been pushed to the highest levels since 2007 as investors assess the prospects that interest rates will be forced to stay higher for longer, with fewer cuts anticipated next year.

The pound is continuing its downward slide against the dollar and is hovering around the lowest point since mid-March, as expectations for future interest rate policy in the UK and the US diverge. Demand appears to be seeping out of the UK economy faster than in the US. While the Bank of England has kept the door open to another hike, its not looking likely, while the Fed has flagged another interest rate rise is likely this year with higher rates set to stay for longer. With the dollar flexing its muscles, and the pound becoming weaker, it could make the UK’s ongoing battle with inflation that bit more difficult, as it will increase the price of many goods imported.

The long-awaited assault on the powers of big tech is now gathering pace. Lawmakers have for years warned that Wall Street giants were in their sights, now the probes are coming thick and fast. Amazon is accused of maintaining its monopoly power by using unfair strategies to push up prices and limit competition. Amazon’s sharp share price fall demonstrates investors’ nervousness about the antitrust lawsuit and the very real potential that it will limit the company’s revenues going forward. This is the risk for the company if any changes lead to better terms for sellers, nudge consumers into purchasing off platform or give potential smaller rivals an opening into the market”