Global stocks were in the red on Tuesday as investors returned to trading after a public holiday in the UK for the coronation of King Charles and turned their attention to US inflation data and a decision from the Bank of England (BoE) on interest rates, both due this week.
“Expect for Tuesday to be dominated by attention directed on Washington with the Whitehouse set to meet with Congress after more warnings from former Fed Chair and current United States treasury secretary Janet Yellen that the debt ceiling needs to be raised to avoid economic calamity,”Jameel Ahmad, chief analyst at CompareBroker.io, said.
FTSE 100 and European markets
JD Sports (JD.L) was the top gainer on the FTSE 100 on a potential deal to buy France-based Courir.
JD Sports proposed the acquisition for an enterprise value of €520m ($570.9m, £452.4m). This includes paying €325m through existing cash resources and taking on €195m of debt.
However, the British sportswear company said the deal is not expected to complete before the second half of the year.
“In February JD Sports outlined ambitious expansion plans including spending £500-600m a year with over half of this on new stories. It is also targeting double-digit revenue growth and operating margins. The acquisition of Courir is its first deal since outlining the new strategy this year, and will help JD Sports to expand its footprint in France,” Victoria Scholar, head of investment at Interactive Investor, said.
JD Sports was up by more than 3% in early London trade.
Royal Mail’s chief executive Simon Thompson could step down from the role as soon as this week. Its parent company, International Distribution Services, is likely to make the announcement ahead of its annual results on 18 May, according to Sky News.
“European markets have opened around the flatline except for the CAC 40 in France which is under pressure,” Scholar said.
“Focus is on the Bank of England’s monetary policy decision on Thursday with expectations for a further quarter point increase to 4.5%, marking the twelfth consecutive rate rise. Goldman Sachs has warned that the UK bank rate may need to increase further to 5% by August ‘amid ongoing inflationary pressures.”
In Asia, the major markets were mixed overnight after China’s trade surplus beat expectations with exports rising 8.5%.
Tokyo’s Nikkei 225 (^N225) gained 1.01% to 29,242.82 points, while the Hang Seng (^HSI) in Hong Kong declined 1.77% to 19,937.12. In mainland China, the Shanghai Composite (000001.SS) was also in the red, down 0.78% to 3,368.46 points.
The pound (GBPUSD=X) gained against the US dollar by 0.12% to 1.26 ahead of an expected interest rate hike from the Bank of England (BoE) on Thursday. Against the euro, sterling (GBPEUR=X) also rose by 0.23% to 1.14.
Crude prices were lower on Tuesday with traders cautious ahead of US consumer price inflation figures for April, due on Wednesday.
“Expect for oil to attempt a consolidation and gradual recovery of last week’s losses through upcoming trading sessions, though market sensitivities over issues such as what is taking place within the banking sector and macro data releases will likely prevent a stay towards $75,” Jameel Ahmad, chief analyst at CompareBroker.io, said.
Traders were looking towards Wednesday’s inflation report from the US, which is expected to show that consumer prices remained elevated last month, consistent with the levels seen in March.
April's Consumer Price Index (CPI) is forecast to rise 5% over the prior year, matching March's annual gain, according to estimates from Bloomberg.
The increase would still be significantly above the Federal Reserve's 2% target.
“Even if the US inflation reading on Wednesday shows that price pressures are cooling and that the Fed is doing its job through high interest rates, financial markets could still turn lower,” Ahmad said.
“This is because the Fed might actually look at the reading as validation that higher US interest rates are helping certain aspects of risks to United States economic momentum (long-term inflation) and that keeping rates higher for longer might need to become somewhat of a new normal in order to truly beat inflation away,”
Traders want a timeframe on when to look for potential interest rate cuts, according to Ahmad.
Also high on the agenda this week will be a decision on interest rates by the BoE on Thursday.
“The Bank of England is expected to raise UK interest rates to the highest level since 2008 later this week, with another 25 basis point increase. Some will argue that the persistence of inflationary pressures running higher than any other G7 nation requires more to be done and a larger rate increase by the Monetary Policy Committee would be applauded to some degree,” Ahmad added.
BoE policymakers are likely to be heavily quizzed on why the UK central bank has taken such a cautious approach towards tackling inflation.
Meanwhile, the backdrop of rising rates from the BoE and the cost of living crisis is squeezing households and weighing on the UK property market.
UK house prices climbed 0.1% year-on-year in April, sharply below expectations for a reading of +1.6%, according to the latest figures from Halifax.
Annual house price growth hit more than a decade low, the smallest increase since December 2012 and a sharp decline from a reading of 12.5% in June 2022.
Month-on-month, house prices fell by 0.3%, missing expectations for growth of 0.8%. The typical UK property cost £286,896 in April compared to £287,891 in March.
“While the overall market remains sluggish, there are pockets of outperformance with new-build prices and first-time buyers remaining resilient, partly because of soaring rental costs. Geographically, the West Midlands enjoyed the strongest annual growth of 3.1% while the South-East has seen property prices suffer,” Scholar said.