Introduction: Pound on track for worst run in a year
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
After a week of volatile trading, the pound is on track for its longest run of losses in a almost a year.
Sterling is heading for its fourth weekly loss in a row, which would be its worst run since last September.
The pound has dropped by two and a half cents against the US dollar over the last month, amid a scramble for safe-haven assets. In mid-July, sterling was worth $1.30 – today, it’s trading around $1.275.
Last week’s Bank of England interest rate cut, and the prospect of one or two further rate cuts this year, pushed the pound down.
Sterling has also dropped for the last four weeks against the euro.
Alex Kuptsikevich, senior market analyst at FxPro, says market balance has shifted back in favour of sellers.
The British Pound has been under increased pressure over the past few weeks, facing serious resistance as it tries to break important long-term levels against the Dollar and Euro.
The most important reason for the pressure on the pound is monetary policy, as the Bank of England swiftly eased policy in response to falling inflation.
However, the impressive buying of the Euro against the Pound over the past fortnight cannot be overlooked. The fall in EURGBP to near two-year lows has made buying euros against the pound attractive, especially when it appeared that the ECB and the Bank of England were moving at roughly the same pace in easing policy.
The agenda
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7am BST: Germany’s inflation rate for July
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9am BST: Italian inflation rate for July
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1.30pm BST: Canadian jobs report for July
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5pm BST: Russia’s Q2 GDP report and inflation data for July
Key events
FTSE 100 claws back this week’s losses
A turbulent week in the City is over!
The blue-chip FTSE 100 share index has closed for the night, finishing 23 points higher at 8168 points, up 0.28% today.
That means it only lost 6 points during the week, and what a week it was!
The FTSE plunged by 2% or 166 points on Monday. during the global stock rout, before stabilising on Tuesday, rallying on Wednesday (up 140 points), and slipping back slightly on Thursday.
The pound is trading slightly higher today, up 0.15% today. But it’s still on track for its fourth daily fall in a row, matching a run last seen in September 2023.
On what was a largely uneventful day, the pan-European Stoxx 600 index gained around 0.5%, with stocks also a little higher in Frankfurt, Paris, Madris and Milan.
And that’s all for the week. Phew! We’ll be back on Monday. GW
Eurozone bond prices have risen today, which may show investors remain nervous and are seeking out safer assets.
That’s pushed down bond yields (the rate of return on the bond, which falls when prices rise).
Yields are up over the week, though, as Reuters reports:
Germany’s two-year bond yield was last down 2 bps at 2.385% and was set to end the week 5 bps higher.
Italy’s 10-year yield was down 7 bps at 3.639% and was on track to end the week up 1 bp. The gap between German and Italian borrowing costs stood 4 bps lower than on Monday at 141 bps.
Financial stocks are higher on Wall Street today, with American Express (+1.2%), JP Morgan Chase (+0.9%) and Visa (+0.8%) leading the risers on the Dow Jones industrial average.
The top faller on the Dow is Intel (-3.6%), which has announced the postponement of its “Innovation” event, in San Jose, California, where it would have shown off new hardware.
Office staff at car giant Ford to take industrial action in pay dispute
In the UK car sector, around 1,200 ‘white collar’ staff at Ford are to take industrial action in a dispute over pay.
The Unite union has announced that its members within Ford’s office staff will take action short of strikes from August 22.
Hundreds of Ford managers in the union are already taking industrial action over pay, in a dispute over “unacceptable” wage offers and contract changes.
Unite said co-ordinated strike action will be held if the dispute is not resolved.
Unite general secretary Sharon Graham said:
“Ford’s relationship with its white-collar staff has never been worse. Instead of engaging with Unite, the company has resorted to threats and bullying to try and prevent staff from taking industrial action.
“The intimidation tactics have failed – our members know the company is simply trying to boost its huge profits at the expense of their wages. They have Unite’s full support in taking industrial action for a fair pay rise.”
🚨 1,500 @forduk white collar staff taking nationwide industrial action.
Ford’s relationship with its white-collar staff has never been worse. Instead of engaging with @unitetheunion, the company has resorted to threats and bullying to try and prevent staff from taking action.
— Sharon Graham (@UniteSharon) August 9, 2024
A Ford spokesperson said:
“We will continue to engage with Unite and our employees on the fair and balanced offer that reflects an already highly competitive pay and benefits package.”
Wall Street opens a little lower
Over in New York, trading has begun…. and it’s rather subdued so far.
The Dow Jones industrial average fell by 95 poinst at the open, down 0.24%, to 39,351.24.
The broader S&P 500 slipped by 0.07%, while the tech-focused Nasdaq lost 0.11%.
After strong gains on Thursday, investors may be more cautious today – having had what ING calls “a reality check” in recent sessions.
ING told clients today:
The reality check for everything related to technology and AI had already started somewhat earlier. Some earnings disappointed and illustrated that there are limits to fantasies regarding future returns and that not everything that has ‘AI’ on it immediately brings big bucks.
Another came from US weaker-than-expected labour market data last Friday, which brought back the R-word to financial markets: recession. The announcement that Warren Buffet sold some big positions also triggered some concerns among market participants; what does he know that we don’t?
Finally, as the interest rate differential between Japan and the US and also the eurozone is gradually narrowing, some closed carry-trade positions and fueled a sell-off in Japanese stocks.
Canada’s economy unexpectedly shed a net 2,800 jobs in July, pulling the country’s employment rate down by 0.2 percentage points to 60.9%.
The latest Canadian jobs report also shows that the unemployment rate remained at 30-month high of 6.4%, while annual pay growth slowed to 5.2% from 5.6% in June.
🚨CANADA LOSES JOBS FOR SECOND STRAIGHT MONTH
CANADA LOST -2,800 POSITIONS VS +25,00 EXPECTED
UNEMPLOYMENT RATE 6.4% (HIGHEST IN 2 YEARS)
BIG RATE CUT INCOMING (IMO)
PROBABLY NOTHING.
— Genevieve Roch-Decter, CFA (@GRDecter) August 9, 2024
The gold price has crept up to its highest level since Monday, when it was knocked lower by the global market rout.
Spot gold has gained 0.2% today to $2,431 per ounce.
Li Xing Gan, financial markets strategist at Exness, says gold has stabilised after being volatily in the last few sessions:
This stability is due to reduced recession fears following the release of US initial jobless claims data, which were lower than expected. However, gold could remain supported by the anticipation of a Fed interest rate cut in September.
The forthcoming US Consumer Price Index (CPI) data for July will be critical in shaping expectations regarding the Fed’s rate cuts trajectory for the year. This data, expected next Wednesday, could introduce some volatility in the market.
At the same time, escalating geopolitical tensions could reinforce gold’s appeal as a safe-haven asset. Markets are on edge over potential retaliatory strikes in the Middle East and the implications of Ukrainian actions in Russia.
French president Emmanuel Macron had some good news this morning – France’s unemployment rate has fallen.
The jobless rate in the euro area’s second-biggest economy fell to 7.3%, statistics agency Insee reported, down from 7.5% in Q1.
The number of people out of work and looking for a job decreased by 40,000 over the quarter, to 2.3 million people.
After a rollicking rally yesterday, Wall Street is likely to take a breather today.
The main indices are being called slightly higher this morning (trading begins in three hours).
The futures contract for the S&P 500 share index is up 0.17%, while the Nasdaq is tipped to rise by 0.25%. The Dow Jones industrial average is expected to be flat.
5 Hours ahead of the NY Open, our cross-asset model indicates a +0.12% gain for the S&P (while futures are up +0.29% since prior close). The signal from Global Equities is most bullish (+0.15%), while the signal from Rates is least bullish (-0.02%). pic.twitter.com/ubfRsua23g
— Exante Data (@ExanteData) August 9, 2024
Back in the City, the FTSE 100 has now recovered all its losses from earlier this week.
The blue-chip share index is now up 44 points, or 0.55%, at 8190. That’s around 15 points above its close on Friday afternoon, before it slumped on Monday after Japan’s Nikkei tumbled by over 12%.
Cheaper mortgages are boosting demand in the UK housing markets, housebuilder Bellway reported this morning.
Bellway reports that reservation have risen in the last year, to 0.51% per outlet per week – 10.9% more than a year ago.
Its forward order book has grown too, to 5,144 homes, up from 4,411 homes in 2023.
Jason Honeyman, Bellway’s chief executive, says:
“While a lower starting forward order book drove a reduction in volume output, customer demand during the year has benefitted from a moderation in mortgage interest rates which has helped to ease affordability constraints and supported an increase in reservations.
The improving trading backdrop, combined with the strength of our outlet opening programme, has generated healthy growth in the year-end order book. As a result, we are in a strong position to return to growth in financial year 2025, as previously guided.“
