- FTSE 100 opens higher.
- S&P 500 equal weight outperforms headline index. June CPI down 0.1% vs May.
- US treasury yields fall and dollar weakens as odds shorten on September rate cut.
- Gold back over $2,400/oz. Dollar at four-month low vs sterling.
- Brent Crude closes in on $86 per barrel.
- US PPI (Producer Price Index) in focus later today.
- Softbank snaps up Bristol-based semiconductor designer Graphcore.
Derren Nathan, head of equity research, Hargreaves Lansdown:
“The tech-light FTSE 100 has opened higher, taking a cue from yesterday’s session in overseas markets. In a rare occurrence of late, the S&P 500 equal weight index, which is less focussed on the technology-dominated mega-caps, outperformed the headline S&P 500, climbing 1.1% while the latter fell 0.9%. Tesla fell 7.4%, giving up much of the gains seen so far this month, and Wall Street darling NVIDIA’s shares were down 5.6%. Given its staggering performance on all but the shortest time horizons, some profit-taking and indeed diversification is not unhealthy.
Real estate was the best-performing sector, with others in positive territory including materials, industrials, utilities and financials. Small caps also had a good day, and overall yesterday’s moves can be seen as a vote of confidence in the health of the broader US economy.
The trigger for these unfamiliar trading patterns was the US CPI readout for June, which at 3% came in slightly lower than forecast. But perhaps more important psychologically, was the 0.1% decline from May, the first downward shift in four years. This saw both two and ten year treasury yields reach their lowest levels since mid-March, and markets are now all but certain of rate cuts in September. The US Dollar also took a further lurch downwards, with the pound in your pocket now worth $1.29. The highest level in four months.
Gold broke out, back above $2,400,and Iron ore prices ticked up higher amongst hopes that Beijing will unveil more stimulus measures next week to prop up the faltering economy. The positive momentum in commodities also extended to oil, with Brent Crude settling above $85 per barrel and threatening to test the $86 level today.
The focus in the US today moves from consumer to producer prices, a more forward indicator of the trajectory of inflation. Any softness here could see the beginnings of a rotation start to become a more defined trend.
Bristol-based chip designer Graphcore has been snapped up by Japan’s SoftBank for a rumoured consideration of $600mn. That’s a price tag that will disappoint many of the Venture Capitalists who will be nursing losses, as well as employees whose shares are reported to have been rendered worthless. Graphcore’s commercial traction has been underwhelming but its Intelligent Processing Units are claimed to have some significant advantages over NVIDIA when it comes to training Artificial Intelligence models. That remains to be seen, but this is a hot space and it’s somewhat disappointing to see British innovation move to overseas ownership. In days of yore this would have been a prime candidate for the floatation on London’s Alternative Investment Market, but the risk appetite in the London Market has all but dried up. There’s some hope that the new listing rules will encourage a resurgence in IPOs of innovative companies but there’s still much work to be done.”
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