- FTSE 100 opens down
- Oil prices spike as Middle East crisis enters 100th day
- US treasury yields at 2-week high on signs of US labour market breakout
- Profit taking continues in Asian tech
- US stock futures NASDAQ and S&P 500 flat, Dow down 0.4%
- FTSE 100 futures down a touch
- Oil prices spike as Middle East crisis enters 100th day
- US stock futures: S&P 500 flat and NASDAQ flat, Dow down 0.5%
Derren Nathan, head of equity research, Hargreaves Lansdown:
“The FTSE 100 has opened down 0.3% to 10,333 points, mirroring weakness in overseas equity markets, which have been weighed down by fears of higher interest rates and an escalation of tensions in the Middle East.
Brent crude oil prices have reversed most of last week’s falls, rising nearly 5% to over $97 per barrel. The Iran crisis has entered its 100th day, and despite President Trump’s continued insistence that a deal to end the conflict and reopen oil transit routes is close, the weekend saw heavy exchanges of fire between Israel, Iran and Iranian proxy Hezbollah in Lebanon, as well as Iranian strikes against Kurdish targets in Iraq.
US 10-year treasuries are nudging 4.6% today following a blowout jobs report on Friday. Nonfarm payroll increases of 172,000 came in 100% above analyst expectations, raising fears that the US economy is overheating. That’s certainly the view debt markets have taken, with yields adding around 0.2 percentage points since the report broke and odds moving in favour of a quarter-point rate hike from the Fed by October. However, there are some signs that the current strength in hiring is more structural than cyclical. The beat wasn’t accompanied by an acceleration in wage growth.
Furthermore, both labour market participation and unemployment were flat at 61.8% and 4.3% respectively, suggesting that at least some of Friday’s beat came from supply constraints rather than excess demand. Much of the strength came from local government and health care, both sectors which have been considered under-staffed for some time, with the latter also seeking to fill a skills shortage. Neither sector is typically driven by credit-fuelled consumer enthusiasm. The same can’t be said for leisure and hospitality, which saw the biggest hiring spree last month. In this case however, the imminent kick-off of the FIFA World Cup on Thursday is likely to be a key driver. Longer term, the bull hypothesis is that productivity gains from AI can support job growth. While bots may step into some roles, increased productivity, faster workflows, and new products and services could drive underlying improvements in the labour market.
Growth stock valuations tend to suffer as interest rate expectations rise. Given the stellar performance of technology stocks so far this year, some profit-taking is to be expected. That’s what we’ve seen in Asian stocks on Monday, with the likes of Samsung and SKY Hynix slipping over 8% and 4% respectively. For context however, Samsung’s still up over 130% year-to-date, with SK Hynix up 189%. Overall, the fundamentals of an AI super cycle still look to be in place.
Despite the overnight sell-off in Asia, US investors look to be taking a more measured view with futures in the tech-led NASDAQ holding firm compared to a 0.4% decline in the more broadly focussed Dow Jones Industrial Average. With SpaceX, potentially the largest IPO in history, now teed up on the launch pad for Friday, and UK retail investors being offered unprecedented access, the market mood in this week’s countdown will be closely monitored.”
*Hargreaves Lansdowne is acting as an intermediary in the SpaceX IPO
