- China disappoints with exports shrinking in May by more than expected.
- The World Bank warns that 2024 could be tougher than expected after 2023 resilience.
- FTSE 100 dips in early trade amid concerns about global growth.
- The rapid hikes in rates flash red in the UK’s housing market, with house prices falling 1% compared to a year ago,
- Brent crude dips back below $76 a barrel amid concerns over weakening global demand.
- Wall Street eked out gains, but futures point to a flat open.
- Shell’s ads are banned by the ASA over misleading claims.
Susannah Streeter, head of money and markets, Hargreaves Lansdown.
‘’There is a struggle to find a sense of direction on financial markets as investors mull what’s ahead for interest rate policy, while fresh clouds hover over the global economic outlook. China’s exports dropped by more than expected in May, falling 7.5% year on year, a marked difference from the 8.5% growth registered in April. This is being taken as fresh evidence of China’s bumpy recovery from the pandemic and another sign that the snap back in activity is waning sharply. Higher inflation in key markets, is likely to be part of the picture, given that the tightening of monetary policy is designed to curtail consumer spending power and with people buying fewer goods that they want but don’t necessarily need, Chinese exports are becoming casualties. Concerns about the global growth slowdown are weighing on oil, with Brent crude dipping back below $76 a barrel. The lollipop move from Saudi Arabia is, for now, losing its sweet effect on prices, but with Riyadh anxious to push crude back up to breakeven prices, further production cuts in the Kingdom can’t be ruled out.
Even so, economies have been proving way more resilient than expected, in the face of painful inflation in many countries. This has been highlighted by the World Bank which has revised its growth forecasts for the year to 2.1% from 1.7% which it predicted back in January. However, its warned that 2024 could be tougher as more of the impact of higher rates is felt and tightening credit conditions show up in lower investment. It is now forecasting global growth to come in at 2.4% next year, rather than 2.7% which it originally forecast.
The rapid hikes in rates are flashing red in the UK’s housing market, with house prices falling 1% compared to a year ago, the first such fall in more than a decade. In May, typical house prices dropped £7,500 since their peak last August demonstrating that as interest rates have leapt higher, confidence in making an expensive move have fallen back. This fall won’t reflect the impact of the pulling of the cheapest deals from the market in recent weeks, and as monthly mortgage payments become increasingly unaffordable, prices are likely to have to fall further to lure would-be movers back into the market.
A more robust consumer and corporate attitude than expected has helped buoy sentiment helping the S&P make big strides of recovery this year, powered on by the might of the tech giants. But a recession in the US is still expected to be on the horizon and Wall Street futures point to a flat open for the S&P later as investors assess contraction risks and increase bets that the Fed will press pause on rate hikes next week. This narrative is unlikely to change much in the absence of many fresh data points to hang a new chapter of speculation on.
The perils of ‘greenwashing’ have been laid bare by a high-profile slap on the wrists for Shell from Britain’s Advertising Standards Authority. It has censured the giant for misleading claims on two ads about how clean its overall energy production is. The ASA said Shell left out all information on its more polluting work with fossil fuels and has told the company the ads can’t be shown again in their present form. Complaints from eagle-eyed members of the public usually prompt such probes, and this could be notched up as a David versus Goliath win for individuals angry that Shell is not taking environmental commitments seriously enough. Shell has been tiptoeing away from its climate friendly pledges, which has called into question whether the company’s green energy strategies were really a priority. While Shell has made strides to flesh out an energy transition plan, it has taken more of a wait and see approach than its peers and its targets focus only on its own operations and don’t account for the carbon generated by the energy it sells. This censure is far from likely to change Shell’s climate strategy, particularly as the company has said it strongly disagrees with the ruling. But longer-term official criticism could help inch it in the right direction, given that reputations matter and ESG is moving higher up in investors’ minds.’’
